81 FR 81837 - Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Extend the MSRB's Customer Complaint and Related Recordkeeping Rules to Municipal Advisors and To Modernize Those Rules
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 223 (November 18, 2016)
Federal Register Volume 81, Issue 223 (November 18, 2016)
| Page Range | 81837-81842 | |
| FR Document | 2016-27738 |
[Federal Register Volume 81, Number 223 (Friday, November 18, 2016)] [Notices] [Pages 81837-81842] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-27738] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79295; File No. SR-MSRB-2016-15] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Extend the MSRB's Customer Complaint and Related Recordkeeping Rules to Municipal Advisors and To Modernize Those Rules November 14, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on November 1, 2016, 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 (i) proposed amendments to Rule G-10, on delivery of investor brochure, Rule G-8, on books and records to be made by brokers, dealers, and municipal securities dealers and municipal advisors, and Rule G-9, on preservation of records, and (ii) a proposed Board notice regarding electronic delivery and receipt of information by municipal advisors under Rule G-32, on disclosures in connection with primary offerings (collectively, the ``proposed rule change''). The MSRB requests that the proposed rule change be approved with an implementation date of 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/2016-Filings.aspx, at the MSRB's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the MSRB included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The MSRB has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background 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\ --------------------------------------------------------------------------- \3\ Public 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. --------------------------------------------------------------------------- Further, and concurrent with its efforts to develop a comprehensive regulatory framework for municipal advisors and their associated persons, the MSRB initiated a review of its rules and related interpretive guidance for brokers, dealers and municipal securities dealers (collectively, ``dealers'') and municipal advisors (municipal advisors, together with dealers, ``regulated entities''). The MSRB initiated that review in the context of the Board's obligation to protect investors, municipal entities, obligated persons, and the public interest. As part of that review, the MSRB solicited comments from market participants.\5\ In response, market participants recommended that the Board update Rule G-10.\6\ The proposed rule change, consisting of amendments to Rule G-10 and its related recordkeeping rules, Rules G-8 and G-9, and guidance under Rule G-32, is an important element of both MSRB regulatory initiatives. --------------------------------------------------------------------------- \5\ MSRB Notice 2012-63, Request for Comment on MSRB Rules and Interpretive Guidance (Dec. 18, 2012). \6\ See, e.g., Letter from David L. Cohen, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, dated February 19, 2013, to Ronald W. Smith, Corporate Secretary, Municipal Securities Rulemaking Board (commenting that (i) the requirement to deliver an investor brochure under Rule G-10 should be eliminated, (ii) the investor brochure is of limited value, if any, to institutional investors as well as investors in municipal fund securities, and (iii) alternatively, the MSRB could accomplish the objective of Rule G-10 by posting the investor brochure on its Web site); Letter from Gerald K. Mayfield, Senior Counsel, Wells Fargo & Company Law Department, dated February 19, 2013, to Ronald W. Smith, Corporate Secretary, Municipal Securities Rulemaking Board (commenting that (i) the requirement to deliver an investor brochure under Rule G-10 should be eliminated, (ii) the investor brochure is of limited value, if any, to institutional investors as well as investors in municipal fund securities, and (iii) alternatively, the MSRB could accomplish the objective of Rule G-10 by posting the investor brochure on its Web site). --------------------------------------------------------------------------- Proposed Rule Change To extend its customer complaint and recordkeeping rules to municipal advisors and to modernize those rules, the Board is filing this proposed rule change with the Commission. Specifically, the proposed rule change would (i) extend the Board's customer complaint recordkeeping requirements to all municipal advisors (i.e., non- solicitor and solicitor municipal advisors) as well as align those recordkeeping requirements more closely with the customer complaint recordkeeping requirements of other financial regulators, (ii) require that all regulated entities retain their customer or municipal advisory client \7\ complaint records for six years, (iii) overhaul Rule G-10 so that the rule would more closely focus on customer and municipal advisory client education and protection as well as align that rule with customer education and protection rules of other financial regulators, and (iv) [[Page 81838]] extend the Board's guidance under Rule G-32, Notice Regarding Electronic Delivery and Receipt of Information by Brokers, Dealers and Municipal Securities Dealers (Nov. 20, 1998) (the ``1998 Notice''), to municipal advisors. --------------------------------------------------------------------------- \7\ The proposed rule change, in Rule G-8(e)(ii), would define a municipal advisory client as a municipal entity or an obligated person for whom the municipal advisor engages in activities that would cause the municipal advisor to be a municipal advisor, as defined in Section 15B(e)(4) of the Exchange Act, 15 U.S.C. 78o- 4(e)(4). --------------------------------------------------------------------------- In summary, by regulated entity, the proposed rule change would: Municipal AdvisorsAmend Rule G-8 to exclude municipal advisors from the definition of ``customers;'' amend Rule G-8 to include the definition of ``municipal advisory client;'' amend Rule G-8 to extend the requirements that are similar to the rule's customer complaint recordkeeping requirements to municipal advisory client complaint recordkeeping; amend Rule G-8 to provide guidance in supplementary material that would define electronic recordkeeping; amend Rule G-8 to provide guidance in supplementary material that would remind a municipal advisor that it may be required to promptly report certain municipal advisory client complaints to other regulatory authorities; amend Rule G-9 to require that the records of municipal advisory client complaints be kept for at least six years; amend Rule G-10 to extend requirements that are similar to the rule's dealer customer protection and education requirements to municipal advisory client protection and education; and extend to municipal advisors, under Rule G-32, the guidance provided by the 1998 Notice, as relevant. Dealers Amend Rule G-8 to require that dealers keep a standardized complaint log electronically, using product and problem codes tailored for municipal securities, to document the written complaints of customers; amend Rule G-8 to define written customer complaints to include complaints received electronically by the dealer; amend Rule G-8 to provide guidance in supplementary material that would define electronic recordkeeping; amend Rule G-8 to provide guidance in supplementary material that would remind a dealer that it may be required to promptly report certain written customer complaints to other regulatory authorities; and amend Rule G-10 in its entirety so that the rule would more clearly focus on customer protection and education. A detailed rule discussion of the proposed rule change's recordkeeping requirements, customer and municipal advisory client education and protection requirements, and electronic delivery guidance to municipal advisors follows. A. Recordkeeping Requirements Rule G-8 currently requires that a dealer keep a record of all written complaints from customers and what action, if any, has been taken by the dealer in connection with those complaints. Under the proposed rule change, the Board would amend Rule G-8 to enhance its current recordkeeping requirements and then would extend those enhanced recordkeeping requirements to municipal advisors. More specifically, the proposed rule change would require regulated entities to retain additional detailed information about complaints electronically using a standard set of complaint product and problem codes. Supplementary Material would define electronic recordkeeping, and would remind regulated entities of their complaint reporting obligations to other regulatory authorities. The three major components of the proposed rule change relating to complaint recordkeeping enhancements--namely, the application of those requirements to municipal advisors, the electronic complaint log, and supplementary material--are discussed below. (i) Application of Customer Complaint Recordkeeping Requirements to Municipal Advisors Under the proposed rule change, the Board would amend Rule G-8 to extend its complaint recordkeeping requirements to all municipal advisors. To accomplish this, the Board would (i) define municipal advisory client and (ii) require that a municipal advisor keep a record of written municipal advisory client complaints similar to the record that would be required for dealers to keep of customer complaints (see discussion under ``Electronic Complaint Log'' below).\8\ The Board also would extend the record retention period applicable to customer complaints under Rule G-9(a)(v) to municipal advisory client complaints under the proposed amendment to Rule G-9(h)(iii). --------------------------------------------------------------------------- \8\ ``Written'' would include electronic correspondence. ``Complaint'' would mean any written statement alleging a grievance involving the activities of the dealer or municipal advisor or any of their associated persons with respect to any matter involving a customer's or the municipal entity client's account. See the proposed amendments to Rule G-8(a)(x)(ii) and (h). --------------------------------------------------------------------------- A municipal advisory client, as previously noted, would include a municipal entity or obligated person for whom the municipal advisor engages in activities that cause the municipal advisor to be within the definition of a municipal advisor set forth in Section 15B(e)(4) of the Exchange Act.\9\ Consistent with the Board's mandate under the Dodd- Frank Act to protect investors, municipal entities, and obligated persons,\10\ the proposed rule change's definition of municipal advisory client would include clients of non-solicitor and solicitor municipal advisors. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78o(e)(4). \10\ See supra note 3. --------------------------------------------------------------------------- The definition of a municipal advisor set forth in Section 15B(e)(4)(A) \11\ is broad and includes non-solicitor and solicitor municipal advisors. Section 15B(e)(4)(A)(ii),\12\ in turn, references the definition of ``solicitation of a municipal entity or obligated person'' set forth in Section 15B(e)(9) of the Exchange Act.\13\ Section 15B(e)(9),\14\ in part, defines a solicitation of a municipal entity or obligated person to mean ``a direct or indirect communication with a municipal entity or obligated person made by a person, for direct or indirect compensation, on behalf of a broker, dealer, municipal securities dealer, municipal advisor, or investment adviser . . . that does not control . . . the person undertaking such solicitation . . . .'' As such, the potential pool of written complaints could, for example, include a written complaint made by a municipal advisory client relating to an advertisement of the solicitor municipal advisor. Nonetheless, to protect municipal entity clients and obligated persons, the Board believes that it is important to capture the written complaints made by the full spectrum of municipal advisory clients of a solicitor municipal advisor. --------------------------------------------------------------------------- \11\ Section 15B(e)(4), 15 U.S.C. 78o-4(e), provides, in part, that the term municipal advisor: (A) Means a person (who is not a municipal entity or an employee of a municipal entity) that-- (i) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or (ii) undertakes a solicitation of a municipal entity . . . \12\ 15 U.S.C. 78o(e)(4)(A)(ii). \13\ 15 U.S.C. 78o(e)(9). \14\ Id. --------------------------------------------------------------------------- Further, under the proposed rule change, the Board would amend Rule G-9 to extend the record retention period for municipal advisory client complaints to six years. Without such an extension, records of customer complaints would be kept for six years, while records of municipal advisory [[Page 81839]] client complaints would be kept for five years. Because of the potential importance of municipal advisory client complaints to informing other regulators on inspections of regulated entities and on the potential enforcement of MSRB rules (see discussion under ``Electronic Complaint Log'' below), the MSRB believes that the retention period for such municipal advisory client complaint records should correspond to that of customer complaint records.\15\ --------------------------------------------------------------------------- \15\ The Board notes, however, that there are instances where the record retention requirements between dealers and municipal advisors differ. For example, dealers are required to retain records of gifts and gratuities under Rule G-20 for six years, while municipal advisors only are required to retain such records for five years. --------------------------------------------------------------------------- (ii) Electronic Complaint Log Under the proposed rule change, the Board would amend Rule G-8 to require that all regulated entities keep an electronic complaint log of all written complaints of customers or municipal advisory clients and persons acting on behalf of such customers or municipal advisory clients. There would be no option to keep the complaint log in a paper format. The electronic complaint log would include identifying information about the customer or municipal advisory client (i.e., his, her or its name, address, and account number), the date the complaint was received, the date of the activity that gave rise to the complaint, and the person whom the customer or municipal advisory client names in his or her complaint. The record also would include a description of the nature of complaint, and the action, if any, the dealer or municipal advisor has taken concerning the complaint. The log would require that the regulated entity code the complaint using a standard set of product and problem codes. By enhancing the information about customer and municipal advisory client complaints that a regulated entity would be required to keep, as well as by requiring that the regulated entity keep those records electronically using standard codes, the Board would align Rule G-8 with the recordkeeping requirements of other financial regulators. For example, Rule 17a-3(18) under the Exchange Act \16\ and FINRA Rule 4513 \17\ each require information about customer complaints similar to what would be required under the proposed rule change. Those rules require identifying information about the customer, the date the complaint was received, the name of any associated person named in the complaint, a description of the nature of the complaint and the disposition of the complaint.\18\ Further, FINRA Rule 4530 requires that dealers use product and problem codes to code their electronic logs of customer complaints.\19\ --------------------------------------------------------------------------- \16\ Rule 17a-3(a)(18), 17 CFR 240.17a-3(a)(18), provides, in part, that every member of a national securities exchange who transacts a business in securities directly with others than members of a national securities exchange, and every broker or dealer who transacts a business in securities through the medium of any such member, and every broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934, as amended, shall make and keep current the following books and records relating to its business: A record: (i) As to each associated person of each written customer complaint received by the member, broker or dealer concerning that associated person. The record shall include the complainant's name, address, and account number; the date the complaint was received; the name of any other associated person identified in the complaint; a description of the nature of the complaint; and the disposition of the complaint . . . (ii) Indicating that each customer of the member, broker or dealer has been provided with a notice containing the address and telephone number of the department of the member, broker or dealer to which any complaints as to the account may be directed. \17\ FINRA Rule 4513(a) provides, in part, that: [e]ach member shall keep and preserve in each office of supervisory jurisdiction either a separate file of all written customer complaints that relate to that office (including complaints that relate to activities supervised from that office) and action taken by the member, if any, or a separate record of such complaints and a clear reference to the files in that office containing the correspondence connected with such complaints. \18\ See supra notes 16 and 17. \19\ See FINRA Rule 4530(d). The product and problem codes used under Rule 4530 as of August 29, 2016 are available at http://www.finra.org/sites/default/files/Web%20-%20Complaints%20%20Problem%20and%20Product%20Codes_0.pdf. --------------------------------------------------------------------------- In addition, by requiring that customer and municipal advisory client complaint records be kept electronically using standard codes, the Board believes that the proposed rule change would enhance the ability of other financial regulators to conduct more cost-effective and efficient inspections and surveillance of regulated entities. The Board understands that other financial regulators conduct certain portions of their inspections and monitoring of dealers electronically. Under the proposed rule change, the Board would ensure that inspections of certain dealers and municipal advisors that are not members of FINRA also could be accomplished in a more cost-effective and efficient manner. As noted above, under the proposed rule change, the Board would develop codes for the electronic complaint log that would be based on the product and problem codes required by FINRA Rule 4530, but would be tailored to address municipal securities and municipal advisory activities.\20\ The Board would make such codes available in a manual that would be posted on its Web site. A regulated entity, similar to FINRA Rule 4530, would be required to select the most prominent product and the most egregious problem discussed in the complaint. In the future, however, the Board may require that all products and problems be coded in the electronic customer or municipal advisory client complaint log. --------------------------------------------------------------------------- \20\ Id. --------------------------------------------------------------------------- While the electronic complaint log requirement would impose a burden on dealers and municipal advisors, the Board anticipates that the electronic complaint log requirement would impose little additional burden on dealers that are FINRA members. The proposed rule change's complaint log recordkeeping requirements are similar to the requirements relating to customer complaints set forth in Rule 17a-3 under the Exchange Act.\21\ Under Rule G-8(f), dealers in compliance with Rule 17a-3 will be deemed to be in compliance with Rule G-8 as long as certain information is maintained, including information relating to customer complaints.\22\ In addition, dealers that are FINRA members currently must comply with FINRA Rule 4530, the rule, in part, with which the Board is seeking to align the proposed rule change. Further, as discussed under ``Self-Regulatory Organization's Statement on Burden on Competition'' below, the recordkeeping burden imposed on dealers and municipal advisors would be necessary to help protect customers and municipal advisory clients. --------------------------------------------------------------------------- \21\ See supra note 16. \22\ Specifically, Rule G-8(f) provides that: Brokers, dealers and municipal securities dealers other than bank dealers which are in compliance with rule 17a-3 of the Commission will be deemed to be in compliance with the requirements of this rule, provided that the information required by subparagraph (a)(iv)(D) of this rule as it relates to uncompleted transactions involving customers; paragraph (a)(viii); and paragraphs (a)(xi) through (a)(xxvi) shall in any event be maintained. --------------------------------------------------------------------------- (iii) Supplementary Material The proposed rule change would include supplementary material under Rule G-8 that would (i) provide guidance as to the term ``electronic format'' used in the proposed amendments to Rules G-8(a) and (h) and (ii) remind regulated entities of their reporting obligations to other regulatory authorities. The supplementary material, in .01, would make clear that a regulated entity could use any electronic format, i.e., computer software that allows for the storing, organization and manipulation of data, as long as the software would allow for the electronic complaint log to be [[Page 81840]] provided promptly upon request to a financial regulatory authority. The supplementary material, in .02, also would remind a regulated entity that it may have the duty to report certain complaints, such as complaints involving theft, to other regulatory authorities, such as to FINRA or to the SEC. B. Customer and Municipal Advisory Client Education and Protection Under the proposed rule change, the Board would amend and overhaul Rule G-10 to replace the current Rule G-10 with a more modern customer and municipal advisory client education and protection rule. The proposed rule change's amendments to Rule G-10 would apply to dealers and municipal advisors. At its core, the Board designed Rule G-10 to protect investors by providing investors with the information necessary through the investor brochure to file a complaint about their dealers with the appropriate regulatory authority. That information also includes an overview of the investor protections provided by MSRB rules. However, investors currently do not receive this information until after they have made a complaint to or about the dealer; at that point, the information in the investor brochure may arrive at a point in time that would impede the investor from making the best use of the information provided in the investor brochure. The proposed rule change solves that problem through modernization of the rule. Under the proposed rule change, Rule G-10 would remain a rule that is focused on investor education and protection. However, instead of an investor receiving the educational material and information about filing a complaint only after he or she has made a complaint, the customer or municipal advisory client would receive more regular notifications from its regulated entity about the availability of such materials. Specifically, a dealer would be required to notify a customer about its registration status and the availability of the educational material annually, and a municipal advisor would be required to notify a municipal advisory client \23\ about its registration and the availability of educational material promptly but no less than once each calendar year during the course of a municipal advisory relationship. The notifications would require that the regulated entity disclose (i) that the regulated entity is registered with the MSRB and the SEC, (ii) the MSRB's Web site address, and (iii) that there is a brochure available on the MSRB Web site that describes the protections available under MSRB rules and how to file a complaint with financial regulatory authorities. --------------------------------------------------------------------------- \23\ The term ``municipal advisory client'' under the proposed amendments to Rule G-10 would be more narrow than how the term would be defined under the proposed amendments to Rule G-8. Under the proposed rule change, the Board would define solicitation of a municipal entity or obligated person under Rule G-10 by reference to Rule 15Ba1-1(n), 17 CFR 240.15Ba1-1(n), under the Exchange Act. For purposes of that rule, solicitation does not include: (1) Advertising by a broker, dealer, municipal securities dealer, municipal advisor, or investment adviser; or (2) Solicitation of an obligated person, if such person is not acting in the capacity of an obligated person or the solicitation of the obligated person is not in connection with the issuance of municipal securities or with respect to municipal financial products. By using the narrower definition of solicitation of a municipal entity or obligated person, the Board would be able to better ensure that the notifications are sent to actual solicitor municipal advisory clients and not just to an entity that reviewed an advertisement. For purposes of the proposed amendments to Rule G-10, the set of non-solicitor municipal advisory clients would remain the same as it is for the proposed amendments to Rule G-8. --------------------------------------------------------------------------- By requiring these notifications, the Board believes that a customer or municipal advisory client would be able to receive detailed and relevant information about its regulated entity, the protections provided by MSRB rules, and how to make a complaint in a more timely and consistent fashion.\24\ Further, by reminding the customer or municipal advisory client about the regulated entity's registration with the SEC, the Board believes that a customer or municipal advisory client might be more likely to access the information and educational materials that are available from the SEC, the regulatory authority that may examine the regulated entity and/or enforce the MSRB's rules. The notifications would address concerns raised by market participants that the investor brochure may be of limited, if any, use to certain investors, such as institutional investors and investors in municipal fund securities, by directing investors to the most complete range of relevant information about the regulated entity, including the regulation of that regulated entity.\25\ --------------------------------------------------------------------------- \24\ The Board would increase the visibility of the brochure, and other relevant information, on the MSRB's Web site. \25\ See supra note 6. --------------------------------------------------------------------------- Under the proposed rule change, the Board would not specify, other than in writing, how the customer or municipal advisory client would receive the notifications. The proposed rule change assumes that the regulated entity could include the notifications with other materials. Further, as suggested by commenters to Regulatory Notice 2012-63, unlike with the current Rule G-10, a regulated entity would not be required to deliver an investor brochure to the customer. The notifications would replace that requirement.\26\ --------------------------------------------------------------------------- \26\ The Board believes that by no longer requiring that the investor brochure be sent after the investor has made a complaint, the investor may have an improved ``complaint'' experience. The Board understands that investors may have been frustrated by the timing of their receipt of the investor brochure. Some investors may have believed that the brochure was not germane and helpful to the complaint, particularly when they would have preferred information about resolving the issue and/or the actual resolution of the issue. Those investors, in turn, may have complained to their dealers about the investor brochure, and their dealers, in response, may have sent yet another investor brochure to be in compliance with Rule G-10. See id. --------------------------------------------------------------------------- The proposed amendments to Rule G-10 would align Rule G-10 with FINRA Rule 2267, Investor Education and Protection. That rule contains similar notification requirements, but the notifications under FINRA Rule 2267 refer the investor to the BrokerCheck Hotline Number and to FINRA's Web site address.\27\ Because dealers that are FINRA members are required to provide annual notifications to investors, the Board anticipates that it would not be a significant burden for most dealers to provide the annual notifications that would be required under the proposed amendments to Rule G-10. In addition, the Board believes that it would be a reasonable requirement for a municipal advisor to provide such notifications promptly but no less than once each calendar year during the course of a municipal advisory relationship. --------------------------------------------------------------------------- \27\ FINRA Rule 2267(a) provides, in part, that: Except as otherwise provided in this Rule, each member shall once every calendar year provide in writing (which may be electronic) to each customer the following items of information: (1) FINRA BrokerCheck Hotline Number; (2) FINRA Web site address; and (3) A statement as to the availability to the customer of an investor brochure that includes information describing FINRA BrokerCheck. --------------------------------------------------------------------------- C. Electronic Delivery Guidance for Municipal Advisors In 1998, the Board published guidance under Rule G-32 regarding the electronic delivery and receipt of information by dealers. The Board, in part, based that guidance on guidance that the SEC had provided about electronic delivery of information. However, since that time, the Dodd-Frank Act has granted the Board with rulemaking authority over municipal advisors.\28\ To ensure that municipal advisors could take full advantage of the [[Page 81841]] Board's electronic delivery guidance, as well as to ensure that the proposed amendments to Rule G-10 would work as intended, the proposed rule change would extend the Board's guidance provided by the 1998 Notice to municipal advisors. --------------------------------------------------------------------------- \28\ See supra note 3. --------------------------------------------------------------------------- 2. Statutory Basis Section 15B(b)(2) of the Exchange Act \29\ provides that: --------------------------------------------------------------------------- \29\ 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 \30\ provides that the MSRB's rules shall: --------------------------------------------------------------------------- \30\ 15 U.S.C. 78o-4(b)(2)(C). be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities and municipal financial products, to remove impediments to and perfect the mechanism of a free and open market in municipal securities and municipal financial products, and, in general, to protect investors, --------------------------------------------------------------------------- municipal entities, obligated persons, and the public interest. The MSRB believes that the proposed rule change is consistent with Sections 15B(b)(2) \31\ and 15B(b)(2)(C) \32\ of the Exchange Act. The proposed rule change would help prevent fraudulent and manipulative practices, promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in regulating transactions in municipal securities and municipal financial products, and protect investors, municipal entities, obligated persons and the public interest by developing more comprehensive and modern customer and municipal advisory client complaint and recordkeeping rules. The proposed rule change would overhaul Rule G-10 so that the rule would more clearly focus on customer and municipal advisory client education and protection. Further, the proposed rule change would enhance the Board's related recordkeeping requirements under Rule G-8 about written customer and municipal advisory client complaints to require that regulated entities keep more detailed information about written customer or municipal advisory client complaints in an electronic format. --------------------------------------------------------------------------- \31\ 15 U.S.C. 78o-4(b)(2). \32\ 15 U.S.C. 78o-4(b)(2)(C). --------------------------------------------------------------------------- The proposed rule change would align the Board's customer and municipal advisory client complaint rules and related recordkeeping requirements with those of other financial regulators. By so doing, the proposed rule change will likely promote compliance with Board rules by providing regulated entities with the opportunity to streamline their compliance procedures, and thus promote compliance with MSRB rules and reduce their compliance costs. In addition, the proposed amendments to Rules G-8 and G-9 would enhance the ability of other financial regulators to conduct more cost- effective and efficient inspections and surveillance of regulated entities by requiring that all regulated entities keep and maintain their electronic records of written customer or municipal advisory client complaints for six years. The Board believes that the ability to more cost-effectively and efficiently monitor written customer and municipal advisory client complaints will promote compliance with Board rules. Increased compliance with Board rules will likely reduce the frequency and magnitude of compliance issues 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 \33\ requires that rules adopted by the Board: --------------------------------------------------------------------------- \33\ 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 proposed rule change's extension of Rule G-10's customer education and protection requirements and the related Rules G-8 and G-9 recordkeeping requirements to municipal advisors does represent an additional burden on municipal advisors, including small municipal advisors. However, the Board believes that the regulatory burden will be relatively limited and is necessary to protect municipal entity and obligated person clients, and the integrity of the municipal securities and municipal advisory marketplaces. The MSRB also believes that the proposed rule change is consistent with Section 15B(b)(2)(G) of the Exchange Act,\34\ which provides that the MSRB's rules shall --------------------------------------------------------------------------- \34\ 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 enhance the current customer complaint recordkeeping requirements under Rule G-8 by requiring that dealers keep more detailed information about written customer complaints in an electronic format and then would extend those recordkeeping requirements to municipal advisors. Further, the proposed rule change would extend the six-year record retention period applicable to customer complaints to municipal advisory client complaints. As noted above, the MSRB believes that the proposed amendments to Rule G-8 related to books and records, and Rule G-9 related to the retention of those records, will promote compliance with and facilitate enforcement of MSRB rules, including Rule G-10 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 \35\ 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 \36\ 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. --------------------------------------------------------------------------- \35\ 15 U.S.C. 78o-4(b)(2)(C). \36\ 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.\37\ 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 [[Page 81842]] 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. --------------------------------------------------------------------------- \37\ Policy on the Use of Economic Analysis in MSRB Rulemaking, available at, http://msrb.org/Rules-and-Interpretations/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. While the MSRB believes that the proposed rule changes represent a reduction in burden compared to the existing Rule G-10, the MSRB recognizes that the recordkeeping requirements associated with the proposed rule change may impose some initial costs on dealers that currently comply with FINRA Rule 4530 but need to adopt a new set of complaint codes. The MSRB also recognizes that dealers that are not currently FINRA members may experience a greater burden as the proposed recordkeeping requirements may constitute a new activity that they have not previously performed. The MSRB does not believe, however, that the potentially greater burden on dealers that are not FINRA members is significant enough to constitute a burden on competition. The MSRB recognizes that the proposal represents a new requirement on municipal advisors and that the recordkeeping requirements in particular may disproportionately impact small municipal advisors. However, the MSRB does not believe that the overall burden of the proposed rule change is significant or that the impact on small municipal advisors will materially alter the competitive landscape. To the extent the proposed rule changes do lead some firms to exit the market or consolidate, based on the SEC's analysis in its order adopting the municipal advisor rules, the MSRB believes that the market for municipal advisory activities is likely to remain competitive.\38\ --------------------------------------------------------------------------- \38\ Securities 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 Written comments were neither solicited nor received on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period of up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-MSRB-2016-15 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-2016-15. 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-2016-15 and should be submitted on or before December 9, 2016. --------------------------------------------------------------------------- \39\ 17 CFR 200.30-3(a)(12). For the Commission, pursuant to delegated authority.\39\ Brent J. Fields, Secretary. [FR Doc. 2016-27738 Filed 11-17-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 223 / Friday, November 18, 2016 / Notices 81837
For the Commission, by the Division of Interpretations/SEC-Filings/2016- protect investors, municipal entities,
Trading and Markets, pursuant to delegated Filings.aspx, at the MSRB’s principal obligated persons, and the public
authority.12 office, and at the Commission’s Public interest. As part of that review, the
Brent J. Fields, Reference Room. MSRB solicited comments from market
Secretary. participants.5 In response, market
II. Self-Regulatory Organization’s
[FR Doc. 2016–27747 Filed 11–17–16; 8:45 am]
Statement of the Purpose of, and participants recommended that the
BILLING CODE 8011–01–P
Statutory Basis for, the Proposed Rule Board update Rule G–10.6 The proposed
Change rule change, consisting of amendments
to Rule G–10 and its related
SECURITIES AND EXCHANGE In its filing with the Commission, the recordkeeping rules, Rules G–8 and
COMMISSION MSRB included statements concerning G–9, and guidance under Rule G–32, is
the purpose of and basis for the an important element of both MSRB
[Release No. 34–79295; File No. SR–MSRB– proposed rule change and discussed any
2016–15] regulatory initiatives.
comments it received on the proposed
rule change. The text of these statements Proposed Rule Change
Self-Regulatory Organizations;
Municipal Securities Rulemaking may be examined at the places specified To extend its customer complaint and
Board; Notice of Filing of a Proposed in Item IV below. The MSRB has recordkeeping rules to municipal
Rule Change To Extend the MSRB’s prepared summaries, set forth in advisors and to modernize those rules,
Customer Complaint and Related Sections A, B, and C below, of the most the Board is filing this proposed rule
Recordkeeping Rules to Municipal significant aspects of such statements. change with the Commission.
Advisors and To Modernize Those A. Self-Regulatory Organization’s Specifically, the proposed rule change
Rules Statement of the Purpose of, and would (i) extend the Board’s customer
Statutory Basis for, the Proposed Rule complaint recordkeeping requirements
November 14, 2016. to all municipal advisors (i.e., non-
Change
Pursuant to Section 19(b)(1) of the solicitor and solicitor municipal
Securities Exchange Act of 1934 (the 1. Purpose advisors) as well as align those
‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule Background recordkeeping requirements more
19b–4 thereunder,2 notice is hereby closely with the customer complaint
given that on November 1, 2016, the Following the financial crisis of 2008,
Congress enacted the Dodd-Frank Wall recordkeeping requirements of other
Municipal Securities Rulemaking Board financial regulators, (ii) require that all
(the ‘‘MSRB’’ or ‘‘Board’’) filed with the Street Reform and Consumer Protection
Act (the ‘‘Dodd-Frank Act’’).3 The Dodd- regulated entities retain their customer
Securities and Exchange Commission or municipal advisory client 7 complaint
(the ‘‘SEC’’ or ‘‘Commission’’) the Frank Act amended Section 15B of the
Exchange Act to establish a new federal records for six years, (iii) overhaul Rule
proposed rule change as described in G–10 so that the rule would more
Items I, II, and III below, which Items regulatory regime requiring municipal
advisors to register with the closely focus on customer and
have been prepared by the MSRB. The municipal advisory client education and
Commission is publishing this notice to Commission, deeming them to owe a
fiduciary duty to their municipal entity protection as well as align that rule with
solicit comments on the proposed rule customer education and protection rules
change from interested persons. clients and granting the MSRB
rulemaking authority over them. The of other financial regulators, and (iv)
I. Self-Regulatory Organization’s MSRB, in the exercise of that 5 MSRB Notice 2012–63, Request for Comment on
Statement of the Terms of Substance of rulemaking authority, has been MSRB Rules and Interpretive Guidance (Dec. 18,
the Proposed Rule Change developing a comprehensive regulatory 2012).
The MSRB filed with the Commission framework for municipal advisors and 6 See, e.g., Letter from David L. Cohen, Managing
their associated persons.4 Director and Associate General Counsel, Securities
a proposed rule change consisting of (i) Industry and Financial Markets Association, dated
proposed amendments to Rule G–10, on Further, and concurrent with its February 19, 2013, to Ronald W. Smith, Corporate
delivery of investor brochure, Rule G–8, efforts to develop a comprehensive Secretary, Municipal Securities Rulemaking Board
on books and records to be made by regulatory framework for municipal (commenting that (i) the requirement to deliver an
advisors and their associated persons, investor brochure under Rule G–10 should be
brokers, dealers, and municipal eliminated, (ii) the investor brochure is of limited
securities dealers and municipal the MSRB initiated a review of its rules value, if any, to institutional investors as well as
advisors, and Rule G–9, on preservation and related interpretive guidance for investors in municipal fund securities, and (iii)
of records, and (ii) a proposed Board brokers, dealers and municipal alternatively, the MSRB could accomplish the
securities dealers (collectively, objective of Rule G–10 by posting the investor
notice regarding electronic delivery and brochure on its Web site); Letter from Gerald K.
receipt of information by municipal ‘‘dealers’’) and municipal advisors Mayfield, Senior Counsel, Wells Fargo & Company
advisors under Rule G–32, on (municipal advisors, together with Law Department, dated February 19, 2013, to
disclosures in connection with primary dealers, ‘‘regulated entities’’). The Ronald W. Smith, Corporate Secretary, Municipal
MSRB initiated that review in the Securities Rulemaking Board (commenting that (i)
offerings (collectively, the ‘‘proposed the requirement to deliver an investor brochure
rule change’’). The MSRB requests that context of the Board’s obligation to under Rule G–10 should be eliminated, (ii) the
the proposed rule change be approved investor brochure is of limited value, if any, to
3 Public Law 111–203, 124 Stat. 1376 (2010).
with an implementation date of six institutional investors as well as investors in
4 MSRB Rule D–11 defines ‘‘associated persons’’ municipal fund securities, and (iii) alternatively,
months after the Commission approval as follows: the MSRB could accomplish the objective of Rule
mstockstill on DSK3G9T082PROD with NOTICES
date for all changes. Unless the context otherwise requires or a rule of G–10 by posting the investor brochure on its Web
The text of the proposed rule change the Board otherwise specifically provides, the terms site).
is available on the MSRB’s Web site at ‘‘broker,’’ ‘‘dealer,’’ ‘‘municipal securities broker,’’ 7 The proposed rule change, in Rule G–8(e)(ii),
www.msrb.org/Rules-and- ‘‘municipal securities dealer,’’ ‘‘bank dealer,’’ and would define a municipal advisory client as a
‘‘municipal advisor’’ shall refer to and include their municipal entity or an obligated person for whom
respective associated persons. Unless otherwise the municipal advisor engages in activities that
12 17 CFR 200.30–3(a)(12). specified, persons whose functions are solely would cause the municipal advisor to be a
1 15 U.S.C. 78s(b)(i). clerical or ministerial shall not be considered municipal advisor, as defined in Section 15B(e)(4)
2 17 CFR 240.19b–4. associated persons for purposes of the Board’s rules. of the Exchange Act, 15 U.S.C. 78o–4(e)(4).
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client complaints would be kept for five Rule 4513 17 each require information make such codes available in a manual
years. Because of the potential about customer complaints similar to that would be posted on its Web site. A
importance of municipal advisory client what would be required under the regulated entity, similar to FINRA Rule
complaints to informing other regulators proposed rule change. Those rules 4530, would be required to select the
on inspections of regulated entities and require identifying information about most prominent product and the most
on the potential enforcement of MSRB the customer, the date the complaint egregious problem discussed in the
rules (see discussion under ‘‘Electronic was received, the name of any complaint. In the future, however, the
Complaint Log’’ below), the MSRB associated person named in the Board may require that all products and
believes that the retention period for complaint, a description of the nature of problems be coded in the electronic
such municipal advisory client the complaint and the disposition of the customer or municipal advisory client
complaint records should correspond to complaint.18 Further, FINRA Rule 4530 complaint log.
that of customer complaint records.15 requires that dealers use product and While the electronic complaint log
problem codes to code their electronic requirement would impose a burden on
(ii) Electronic Complaint Log logs of customer complaints.19 dealers and municipal advisors, the
Under the proposed rule change, the In addition, by requiring that Board anticipates that the electronic
Board would amend Rule G–8 to require customer and municipal advisory client complaint log requirement would
that all regulated entities keep an complaint records be kept electronically impose little additional burden on
electronic complaint log of all written using standard codes, the Board believes dealers that are FINRA members. The
complaints of customers or municipal that the proposed rule change would proposed rule change’s complaint log
advisory clients and persons acting on enhance the ability of other financial recordkeeping requirements are similar
behalf of such customers or municipal regulators to conduct more cost-effective to the requirements relating to customer
advisory clients. There would be no and efficient inspections and complaints set forth in Rule 17a–3
option to keep the complaint log in a surveillance of regulated entities. The under the Exchange Act.21 Under Rule
paper format. The electronic complaint Board understands that other financial G–8(f), dealers in compliance with Rule
log would include identifying regulators conduct certain portions of 17a–3 will be deemed to be in
information about the customer or their inspections and monitoring of compliance with Rule G–8 as long as
municipal advisory client (i.e., his, her dealers electronically. Under the certain information is maintained,
or its name, address, and account proposed rule change, the Board would including information relating to
number), the date the complaint was ensure that inspections of certain customer complaints.22 In addition,
received, the date of the activity that dealers and municipal advisors that are dealers that are FINRA members
gave rise to the complaint, and the not members of FINRA also could be currently must comply with FINRA
person whom the customer or accomplished in a more cost-effective Rule 4530, the rule, in part, with which
municipal advisory client names in his and efficient manner. the Board is seeking to align the
or her complaint. The record also would As noted above, under the proposed proposed rule change. Further, as
include a description of the nature of rule change, the Board would develop discussed under ‘‘Self-Regulatory
complaint, and the action, if any, the codes for the electronic complaint log Organization’s Statement on Burden on
dealer or municipal advisor has taken that would be based on the product and Competition’’ below, the recordkeeping
concerning the complaint. The log problem codes required by FINRA Rule burden imposed on dealers and
would require that the regulated entity 4530, but would be tailored to address municipal advisors would be necessary
code the complaint using a standard set municipal securities and municipal to help protect customers and municipal
of product and problem codes. advisory activities.20 The Board would advisory clients.
By enhancing the information about (iii) Supplementary Material
customer and municipal advisory client (i) As to each associated person of each written
customer complaint received by the member, broker The proposed rule change would
complaints that a regulated entity would or dealer concerning that associated person. The
be required to keep, as well as by record shall include the complainant’s name,
include supplementary material under
requiring that the regulated entity keep address, and account number; the date the Rule G–8 that would (i) provide
those records electronically using complaint was received; the name of any other guidance as to the term ‘‘electronic
associated person identified in the complaint; a format’’ used in the proposed
standard codes, the Board would align description of the nature of the complaint; and the
Rule G–8 with the recordkeeping disposition of the complaint . . .
amendments to Rules G–8(a) and (h)
requirements of other financial (ii) Indicating that each customer of the member, and (ii) remind regulated entities of
regulators. For example, Rule 17a–3(18) broker or dealer has been provided with a notice their reporting obligations to other
containing the address and telephone number of the regulatory authorities. The
under the Exchange Act 16 and FINRA department of the member, broker or dealer to
which any complaints as to the account may be
supplementary material, in .01, would
15 The Board notes, however, that there are directed. make clear that a regulated entity could
instances where the record retention requirements 17 FINRA Rule 4513(a) provides, in part, that: use any electronic format, i.e., computer
between dealers and municipal advisors differ. For [e]ach member shall keep and preserve in each software that allows for the storing,
example, dealers are required to retain records of office of supervisory jurisdiction either a separate organization and manipulation of data,
gifts and gratuities under Rule G–20 for six years, file of all written customer complaints that relate
while municipal advisors only are required to retain to that office (including complaints that relate to
as long as the software would allow for
such records for five years. activities supervised from that office) and action the electronic complaint log to be
16 Rule 17a–3(a)(18), 17 CFR 240.17a–3(a)(18), taken by the member, if any, or a separate record
provides, in part, that every member of a national of such complaints and a clear reference to the files 21 See supra note 16.
securities exchange who transacts a business in in that office containing the correspondence 22 Specifically, Rule G–8(f) provides that:
mstockstill on DSK3G9T082PROD with NOTICES
securities directly with others than members of a connected with such complaints. Brokers, dealers and municipal securities dealers
national securities exchange, and every broker or 18 See supra notes 16 and 17.
other than bank dealers which are in compliance
dealer who transacts a business in securities 19 See FINRA Rule 4530(d). The product and
with rule 17a–3 of the Commission will be deemed
through the medium of any such member, and problem codes used under Rule 4530 as of August to be in compliance with the requirements of this
every broker or dealer registered pursuant to section 29, 2016 are available at http://www.finra.org/sites rule, provided that the information required by
15 of the Securities Exchange Act of 1934, as /default/files/Web%20-%20Complaints subparagraph (a)(iv)(D) of this rule as it relates to
amended, shall make and keep current the %20%20Problem%20and%20Product%20Codes_ uncompleted transactions involving customers;
following books and records relating to its business: 0.pdf. paragraph (a)(viii); and paragraphs (a)(xi) through
A record: 20 Id. (a)(xxvi) shall in any event be maintained.
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![Federal Register / Vol. 81, No. 223 / Friday, November 18, 2016 / Notices 81841
Board’s electronic delivery guidance, as related recordkeeping requirements The MSRB also believes that the
well as to ensure that the proposed under Rule G–8 about written customer proposed rule change is consistent with
amendments to Rule G–10 would work and municipal advisory client Section 15B(b)(2)(G) of the Exchange
as intended, the proposed rule change complaints to require that regulated Act,34 which provides that the MSRB’s
would extend the Board’s guidance entities keep more detailed information rules shall
provided by the 1998 Notice to about written customer or municipal prescribe records to be made and kept by
municipal advisors. advisory client complaints in an municipal securities brokers, municipal
electronic format. securities dealers, and municipal advisors
2. Statutory Basis
The proposed rule change would and the periods for which such records shall
Section 15B(b)(2) of the Exchange align the Board’s customer and be preserved.
Act 29 provides that: municipal advisory client complaint The proposed rule change would
[t]he Board shall propose and adopt rules to rules and related recordkeeping enhance the current customer complaint
effect the purposes of this title with respect requirements with those of other recordkeeping requirements under Rule
to transactions in municipal securities financial regulators. By so doing, the G–8 by requiring that dealers keep more
effected by brokers, dealers, and municipal proposed rule change will likely detailed information about written
securities dealers and advice provided to or promote compliance with Board rules
on behalf of municipal entities or obligated customer complaints in an electronic
by providing regulated entities with the format and then would extend those
persons by brokers, dealers, municipal
opportunity to streamline their recordkeeping requirements to
securities dealers, and municipal advisors
with respect to municipal financial products, compliance procedures, and thus municipal advisors. Further, the
the issuance of municipal securities, and promote compliance with MSRB rules proposed rule change would extend the
solicitations of municipal entities or and reduce their compliance costs. six-year record retention period
obligated persons undertaken by brokers, In addition, the proposed applicable to customer complaints to
dealers, municipal securities dealers, and amendments to Rules G–8 and G–9 municipal advisory client complaints.
municipal advisors. would enhance the ability of other As noted above, the MSRB believes that
Section 15B(b)(2)(C) of the Exchange financial regulators to conduct more the proposed amendments to Rule G–8
Act 30 provides that the MSRB’s rules cost-effective and efficient inspections related to books and records, and Rule
shall: and surveillance of regulated entities by G–9 related to the retention of those
requiring that all regulated entities keep records, will promote compliance with
be designed to prevent fraudulent and
manipulative acts and practices, to promote
and maintain their electronic records of and facilitate enforcement of MSRB
just and equitable principles of trade, to written customer or municipal advisory rules, including Rule G–10 and other
foster cooperation and coordination with client complaints for six years. The applicable securities laws and
persons engaged in regulating, clearing, Board believes that the ability to more regulations.
settling, processing information with respect cost-effectively and efficiently monitor
to, and facilitating transactions in municipal written customer and municipal B. Self-Regulatory Organization’s
securities and municipal financial products, advisory client complaints will promote Statement on Burden on Competition
to remove impediments to and perfect the compliance with Board rules. Increased
mechanism of a free and open market in
Section 15B(b)(2)(C) of the Exchange
compliance with Board rules will likely Act 35 requires that MSRB rules not be
municipal securities and municipal financial
products, and, in general, to protect
reduce the frequency and magnitude of designed to impose any burden on
investors, municipal entities, obligated compliance issues that could potentially competition not necessary or
persons, and the public interest. result in harm to investors, municipal appropriate in furtherance of the
entities, or obligated persons, or purposes of the Exchange Act. In
The MSRB believes that the proposed undermine the public’s confidence in
rule change is consistent with Sections addition, Section 15B(b)(2)(L)(iv) of the
the municipal securities market. Exchange Act 36 provides that MSRB
15B(b)(2) 31 and 15B(b)(2)(C) 32 of the Section 15B(b)(2)(L)(iv) of the
Exchange Act. The proposed rule rules may not impose a regulatory
Exchange Act 33 requires that rules burden on small municipal advisors that
change would help prevent fraudulent
adopted by the Board: is not necessary or appropriate in the
and manipulative practices, promote
just and equitable principles of trade, not impose a regulatory burden on small public interest and for the protection of
foster cooperation and coordination municipal advisors that is not necessary or investors, municipal entities, and
appropriate in the public interest and for the obligated persons, provided that there is
with persons engaged in regulating
protection of investors, municipal entities, robust protection of investors against
transactions in municipal securities and and obligated persons, provided that there is
municipal financial products, and fraud.
robust protection of investors against fraud. In determining whether these
protect investors, municipal entities,
obligated persons and the public The proposed rule change’s extension standards have been met, the MSRB was
interest by developing more of Rule G–10’s customer education and guided by the Board’s Policy on the Use
comprehensive and modern customer protection requirements and the related of Economic Analysis in MSRB
and municipal advisory client Rules G–8 and G–9 recordkeeping Rulemaking.37 In accordance with this
complaint and recordkeeping rules. The requirements to municipal advisors policy, the Board has evaluated the
proposed rule change would overhaul does represent an additional burden on potential impacts on competition of the
Rule G–10 so that the rule would more municipal advisors, including small proposed rule change, including in
clearly focus on customer and municipal advisors. However, the Board comparison to reasonable alternative
believes that the regulatory burden will regulatory approaches, relative to the
mstockstill on DSK3G9T082PROD with NOTICES
municipal advisory client education and
protection. Further, the proposed rule be relatively limited and is necessary to
change would enhance the Board’s protect municipal entity and obligated 34 15 U.S.C. 78o–4(b)(2)(G).
35 15 U.S.C. 78o–4(b)(2)(C).
person clients, and the integrity of the
36 15 U.S.C. 78o–4(b)(2)(L)(iv).
29 15 U.S.C. 78o–4(b)(2). municipal securities and municipal 37 Policy on the Use of Economic Analysis in
30 15 U.S.C. 78o–4(b)(2)(C). advisory marketplaces. MSRB Rulemaking, available at, http://msrb.org/
31 15 U.S.C. 78o–4(b)(2).
Rules-and-Interpretations/Economic-Analysis-
32 15 U.S.C. 78o–4(b)(2)(C). 33 15 U.S.C. 78o–4(b)(2)(L)(iv). Policy.aspx.
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![81842 Federal Register / Vol. 81, No. 223 / Friday, November 18, 2016 / Notices
baseline. The MSRB also considered Register or within such longer period of information that you wish to make
other economic impacts of the proposed up to 90 days (i) as the Commission may available publicly. All submissions
rule change and has addressed any designate if it finds such longer period should refer to File Number SR–MSRB–
comments relevant to these impacts in to be appropriate and publishes its 2016–15 and should be submitted on or
other sections of this document. reasons for so finding or (ii) as to which before December 9, 2016.
The MSRB does not believe that the the self-regulatory organization For the Commission, pursuant to delegated
proposed rule change will impose any consents, the Commission will: authority.39
additional burdens on competition, (A) By order approve or disapprove Brent J. Fields,
relative to the baseline, that are not such proposed rule change, or Secretary.
necessary or appropriate in furtherance (B) institute proceedings to determine
[FR Doc. 2016–27738 Filed 11–17–16; 8:45 am]
of the purposes of the Exchange Act. whether the proposed rule change
should be disapproved. BILLING CODE 8011–01–P
While the MSRB believes that the
proposed rule changes represent a IV. Solicitation of Comments
reduction in burden compared to the SECURITIES AND EXCHANGE
existing Rule G–10, the MSRB Interested persons are invited to
submit written data, views, and COMMISSION
recognizes that the recordkeeping
requirements associated with the arguments concerning the foregoing, [Release No. 34–79307; File No. SR–
proposed rule change may impose some including whether the proposed rule BatsBYX–2016–34]
initial costs on dealers that currently change is consistent with the Act.
Comments may be submitted by any of Self-Regulatory Organizations; Bats
comply with FINRA Rule 4530 but need BYX Exchange, Inc.; Notice of Filing
to adopt a new set of complaint codes. the following methods:
and Immediate Effectiveness of a
The MSRB also recognizes that dealers Electronic Comments Proposed Rule Change Related to Fees
that are not currently FINRA members • Use the Commission’s Internet for Use of Bats BYX Exchange, Inc.
may experience a greater burden as the comment form (http://www.sec.gov/
proposed recordkeeping requirements rules/sro.shtml); or
November 14, 2016.
may constitute a new activity that they • Send an email to rule-comments@ Pursuant to Section 19(b)(1) of the
have not previously performed. The sec.gov. Please include File Number SR– Securities Exchange Act of 1934 (the
MSRB does not believe, however, that MSRB–2016–15 on the subject line. ‘‘Act’’),1 and Rule 19b–4 thereunder,2
the potentially greater burden on dealers notice is hereby given that on November
that are not FINRA members is Paper Comments 7, 2016, Bats BYX Exchange, Inc. (the
significant enough to constitute a • Send paper comments in triplicate ‘‘Exchange’’ or ‘‘BYX’’) filed with the
burden on competition. to Secretary, Securities and Exchange Securities and Exchange Commission
The MSRB recognizes that the Commission, 100 F Street NE., (‘‘Commission’’) the proposed rule
proposal represents a new requirement Washington, DC 20549. change as described in Items I, II, and
on municipal advisors and that the All submissions should refer to File III below, which Items have been
recordkeeping requirements in Number SR–MSRB–2016–15. This file prepared by the Exchange. The
particular may disproportionately number should be included on the Exchange has designated the proposed
impact small municipal advisors. subject line if email is used. To help the rule change as one establishing or
However, the MSRB does not believe Commission process and review your changing a member due, fee, or other
that the overall burden of the proposed comments more efficiently, please use charge imposed by the Exchange under
rule change is significant or that the only one method. The Commission will Section 19(b)(3)(A)(ii) of the Act 3 and
impact on small municipal advisors will post all comments on the Commission’s Rule 19b–4(f)(2) thereunder,4 which
materially alter the competitive Internet Web site (http://www.sec.gov/ renders the proposed rule change
landscape. To the extent the proposed effective upon filing with the
rules/sro.shtml). Copies of the
rule changes do lead some firms to exit Commission. The Commission is
submission, all subsequent
the market or consolidate, based on the publishing this notice to solicit
amendments, all written statements
SEC’s analysis in its order adopting the comments on the proposed rule change
with respect to the proposed rule
municipal advisor rules, the MSRB from interested persons.
change that are filed with the
believes that the market for municipal Commission, and all written I. Self-Regulatory Organization’s
advisory activities is likely to remain communications relating to the Statement of the Terms of Substance of
competitive.38 proposed rule change between the the Proposed Rule Change
C. Self-Regulatory Organization’s Commission and any person, other than The Exchange filed a proposal to
Statement on Comments on the those that may be withheld from the amend the fee schedule applicable to
Proposed Rule Change Received From public in accordance with the Members 5 and non-members of the
Members, Participants, or Others provisions of 5 U.S.C. 552, will be Exchange pursuant to BYX Rules 15.1(a)
available for Web site viewing and and (c).
Written comments were neither printing in the Commission’s Public
solicited nor received on the proposed The text of the proposed rule change
Reference Room, 100 F Street NE., is available at the Exchange’s Web site
rule change. Washington, DC 20549 on official at www.batstrading.com, at the
III. Date of Effectiveness of the business days between the hours of
Proposed Rule Change and Timing for 10:00 a.m. and 3:00 p.m. Copies of the
mstockstill on DSK3G9T082PROD with NOTICES
39 17 CFR 200.30–3(a)(12).
Commission Action filing also will be available for 1 15 U.S.C. 78s(b)(1).
inspection and copying at the principal 2 17 CFR 240.19b–4.
Within 45 days of the date of 3 15 U.S.C. 78s(b)(3)(A)(ii).
office of the MSRB. All comments
publication of this notice in the Federal 4 17 CFR 240.19b–4(f)(2).
received will be posted without change; 5 The term ‘‘Member’’ is defined as ‘‘any
38 Securities Exchange Act Release No. 70462 the Commission does not edit personal registered broker or dealer that has been admitted
(Sept. 20, 2013), 78 FR 67468, 67608 (Nov. 12, identifying information from to membership in the Exchange.’’ See Exchange
2013). submissions. You should submit only Rule 1.5(n).
VerDate Sep<11>2014 20:21 Nov 17, 2016 Jkt 241001 PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 E:\FR\FM\18NON1.SGM 18NON1](https://thefederalregister.org/doc/81_FR_82060/page/6.svg)
Document Created: 2018-02-14 08:31:46
Document Modified: 2018-02-14 08:31:46
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 81837 |
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