82_FR_27420 82 FR 27307 - Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-26, on Customer Account Transfers, To Modernize the Rule and Promote a Uniform Customer Account Transfer Standard

82 FR 27307 - Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-26, on Customer Account Transfers, To Modernize the Rule and Promote a Uniform Customer Account Transfer Standard

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 113 (June 14, 2017)

Page Range27307-27315
FR Document2017-12266

Federal Register, Volume 82 Issue 113 (Wednesday, June 14, 2017)
[Federal Register Volume 82, Number 113 (Wednesday, June 14, 2017)]
[Notices]
[Pages 27307-27315]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-12266]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80890; File No. SR-MSRB-2017-03]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-
26, on Customer Account Transfers, To Modernize the Rule and Promote a 
Uniform Customer Account Transfer Standard

June 7, 2017.
    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 May 26, 2017 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 to amend 
MSRB Rule G-26, on customer account transfers, to modernize the rule 
and promote a uniform customer account transfer standard for all 
brokers, dealers, municipal securities brokers and municipal securities 
dealers (collectively, ``dealers'') (``proposed rule change'').\3\ The 
MSRB requests that the proposed rule change be effective three months 
from the date of Commission approval.
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    \3\ For clarity and ease of reference, current provisions of 
Rule G-26 will be cited herein as ``Rule G-26,'' and proposed 
amendments to Rule G-26 will be cited herein as ``proposed Rule G-
26''.
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    The text of the proposed rule change is available on the MSRB's Web 
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2017-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
    The purpose of the proposed rule change is to modernize Rule G-26 
and promote a uniform customer account transfer standard for all 
dealers. The MSRB believes that, by including certain provisions 
parallel to the customer account transfer rules of other SROs, 
particularly FINRA Rule 11870, in current Rule G-26, as outlined below, 
the transfer of customer securities account assets will be more 
flexible, less burdensome, and more efficient, while reducing confusion 
and risk to investors and allowing them to better move their municipal 
securities to their dealer of choice.
Current Rule G-26
    Rule G-26 requires dealers to cooperate in the transfer of customer 
accounts and specifies procedures for carrying out the transfer 
process. Such transfers occur when a customer decides to transfer an 
account from one dealer, the carrying party (i.e., the dealer from 
which the customer is requesting the account be transferred) to 
another, the receiving party (i.e., the dealer to which the customer is 
requesting the account be transferred). The rule establishes specific 
time frames within which the carrying party is required to transfer a 
customer account; limits the reasons for which a receiving party may 
take exception to an account transfer instruction; provides for the 
establishment of fail-to-receive and fail-to-deliver contracts; \4\ and 
requires that fail contracts be resolved in accordance with MSRB close-
out procedures, established by MSRB Rule G-12(h). In addition, the 
current rule requires the use of the automated customer account 
transfer service in place at a registered clearing agency registered 
with the Commission when both dealers are direct participants in the 
same clearing agency.\5\ Finally, the rule contains a provision for 
enhancing compliance by requiring submission of transfer instructions 
to the enforcement authority with jurisdiction over the dealer carrying 
the account, if the enforcement authority requests such submission.\6\
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    \4\ Fail-to-receive and fail-to-deliver contracts are records 
maintained by the receiving party and the carrying party, 
respectively, when a customer account transfer fails.
    \5\ See Rule G-26(h).
    \6\ See Rule G-26(i).
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    The MSRB adopted Rule G-26 in 1986 as part of an industry-wide 
initiative to create a uniform customer account transfer standard by 
applying a customer account transfer procedure to all dealers that are 
engaged in municipal securities activities.\7\ The uniform standard for 
all customer account transfers (i.e., automated and manual processes) 
is largely driven by the National Securities Clearing Corporation's 
(``NSCC'') Automated Customer Account Transfer Service (``ACATS''). The 
MSRB adopted Rule G-26 in conjunction with the adoption of similar 
rules by other self-regulatory organizations (``SROs'')--New York Stock 
Exchange (``NYSE'') Rule 412 and Financial Industry Regulatory 
Authority (``FINRA'') Rule 11870.\8\ Those rules are not applicable to 
certain accounts at dealers, particularly municipal security-only 
accounts and accounts at bank dealers.\9\ Current Rule G-26 governs the 
municipal security-only customer account transfers performed by those

[[Page 27308]]

dealers to ensure that all customer account transfers are subject to 
regulation that is consistent with the uniform industry standard. Thus, 
in order to maintain consistency and the uniform standard, the MSRB 
has, from time to time, modified the requirements of Rule G-26 to 
conform to certain provisions of the parallel FINRA and NYSE customer 
account transfer rules, as well as to enhancements made to the ACATS 
process by NSCC, that had relevance to municipal securities.
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    \7\ See Exchange Act Release No. 22810 (Jan. 17, 1986), 51 FR 
3287 (Jan. 24, 1986) (SR-MSRB-86-2) (proposing Rule G-26). See also 
Exchange Act Release Nos. 22663 (Nov. 27 1985) (SR-NYSE-85-17) 
(approving NYSE Rule 412); 22941 (Feb. 24, 1986) (SR-NASD-29) 
(approving NASD/FINRA Rule 11870).
    \8\ In 2007, FINRA was created through the consolidation of the 
National Association of Securities Dealers (``NASD'') and the member 
regulation, enforcement and arbitration operations of the NYSE. 
Current NYSE Rule 412 cross-references NASD/FINRA Rule 11870 for the 
purpose of incorporating it into the NYSE rulebook.
    \9\ See Exchange Act Release No. 22810 (Jan. 17, 1986), 51 FR 
3287 (Jan. 24, 1986) (SR-MSRB-86-2) (``Currently certain municipal 
securities brokers or municipal securities dealers, particularly 
those with municipal security-only accounts and bank dealers, will 
not be covered by the standards governing the rest of the securities 
industry.'').
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    On January 6, 2017, the MSRB published a request for comment, 
proposing a number of draft amendments to Rule G-26 to maintain 
consistency with the rules of the NSCC, the NYSE and FINRA by 
conforming to significant updates to those other SRO rules that have 
relevance to municipal securities and municipal security-only customer 
account transfers.\10\ In response to the Request for Comment, the MSRB 
received three comment letters, supporting the general purpose of the 
amendments to Rule G-26, but suggesting alternative approaches and 
raising a few other issues.\11\ After carefully considering all of the 
comments received, the MSRB determined to file this proposed rule 
change.
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    \10\ MSRB Notice 2017-01 (Jan. 6, 2017) (``Request for 
Comment'').
    \11\ See infra note 81.
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Residual Credit Positions
    In 1989, the NSCC expanded ACATS to include the transfer of 
customer account residual credit positions. These are assets in the 
form of cash or securities that can result from dividends, interest 
payments or other types of assets received by the carrying party after 
the transfer process is completed, or which were restricted from being 
included in the original transfer.\12\ The NYSE and FINRA made 
corresponding changes to their rules that require dealers that 
participate in a registered clearing agency with automated residual 
credit processing capabilities to utilize those facilities to transfer 
residual credit positions that accrue to an account after a 
transfer.\13\ Prior to allowing for these transfers, a check frequently 
would have to be produced, or a delivery bill or report, which then 
required a check to be issued or securities to be transferred.\14\ This 
process could result in lost or improperly routed checks and 
securities, as well as the expenses of postage and processing.\15\
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    \12\ See Exchange Act Release No. 26659 (Mar. 22, 1989), 54 FR 
12984 (Mar. 29, 1989) (SR-NSCC-89-3).
    \13\ See Exchange Act Release Nos. 34633 (Sept. 2, 1994), 59 FR 
46872 (Sept. 12, 1994) (SR-NYSE-94-21); 35031 (Nov. 30, 1994), 59 FR 
62761 (Dec. 6, 1994) (SR-NASD-94-56). See also former NYSE Rule 
412(e)(3); FINRA Rule 11870(m)(3).
    \14\ See Exchange Act Release No. 26659 (Mar. 29, 1989) (SR-
NSCC-89-3).
    \15\ Id.
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    The MSRB is proposing to update Rule G-26 to include the transfer 
of customer account residual credit positions, which would benefit both 
customers and dealers by substantially decreasing the paperwork, risks, 
inefficiencies and costs associated with the practice of check issuance 
and initiation of securities deliveries to resolve residual credit 
positions.\16\
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    \16\ See proposed Rule G-26(k)(ii).
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Partial Account Transfers
    In 1994, the NYSE and FINRA amended their rules to permit partial 
or non-standard customer account transfers (i.e., the transfer of 
specifically designated assets from an account held at one dealer to an 
account held at another dealer).\17\ Subsequently, in 2004, the NYSE 
and FINRA further amended their rules generally to apply the same 
procedural standards and time frames that are applicable to the 
transfer of entire accounts to partial transfers as well.\18\ Because 
customer and dealer obligations resulting from the transfer of an 
entire account differ from the obligations arising from the transfer of 
specified assets within an account that will remain active at the 
carrying party, the NYSE and FINRA rules distinguish between the 
transfer of security account assets in whole or in specifically 
designated part. For example, it would not be necessary for a customer 
to instruct the carrying party as to the disposition of his or her 
assets that are nontransferable if the customer is not transferring the 
entire account.
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    \17\ See Exchange Act Release Nos. 34633 (Sept. 2, 1994), 59 FR 
46872 (Sept. 12, 1994) (SR-NYSE-94-21); 35031 (Nov. 30, 1994), 59 FR 
62761 (Dec. 6, 1994) (SR-NASD-94-56). See also former NYSE Rule 412, 
Interpretation (a)/01; FINRA Rule 11870(a)(2).
    \18\ See Exchange Act Release Nos. 49415 (Mar. 12, 2004), 69 FR 
13608 (Mar. 23, 2004) (SR-NYSE-2003-29); 50018 (July 14, 2004), 69 
FR 43873 (July 22, 2004) (SR-NASD-2004-058).
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    The MSRB is proposing to update Rule G-26 to permit partial account 
transfers under the same time frames applicable to transfers of entire 
accounts, which the MSRB believes would provide dealers with the 
ability to facilitate more efficient and expeditious transfers, as well 
as increase accountability for dealers and reduce difficulties 
encountered by customers related to transfers.\19\ The MSRB also 
believes this change will further competition among dealers by more 
easily allowing investors to transfer their municipal securities to the 
dealer of their choice.
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    \19\ See proposed Rule G-26(b), (c)(ii), (d)(i), (e)(ii), 
(k)(i). The proposed rule change would require that dealers expedite 
all authorized municipal securities account asset transfers, whether 
through ACATS or via other means permissible, and coordinate their 
activities with respect thereto.
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Transfer of Third-Party and/or Proprietary Products
    In 1998, the NSCC modified ACATS to better facilitate and expedite 
the transfer of a customer account containing third-party and/or 
proprietary products that the receiving party is unable to receive or 
carry.\20\ The NYSE and FINRA made conforming changes in 2001.\21\ 
Prior to the NSCC's modernization of ACATS in 1998, a receiving party 
was not permitted to reject an individual account asset and only could 
reject an account in its entirety. Today, however, under these other 
SROs' rules, the receiving party has the capability to either accept 
all assets in the account being transferred or, to the extent permitted 
by the receiving party's designated examining authority, accept only 
some of the assets in the account.\22\
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    \20\ See Exchange Act Release No. 40657 (Nov. 10, 1998), 63 FR 
63952 (Nov. 17, 1998) (SR-NSCC-98-06).
    \21\ See Exchange Act Release Nos. 44596 (July 26, 2001), 66 FR 
40306 (Aug. 2, 2001) (SR-NYSE-00-61); 44787 (Sept. 12, 2001), 66 FR 
48301 (Sept. 19, 2001) (SR-NASD-2001-53). See also former NYSE Rule 
412, Interpretation (b)(1),/01,/04,/06; FINRA Rule 11870(c)(2).
    \22\ See FINRA Rule 11870(c)(3)-(4).
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    Although most securities can be transferred, dealers vary in their 
ability to accept and support certain third-party investment products. 
Under the NSCC's prior customer account transfer procedures, and the 
current procedures outlined in Rule G-26, a customer that wishes to 
transfer its entire account to another dealer would submit a signed 
transfer instruction to the receiving party.\23\ The receiving party 
would immediately submit the transfer instruction to the carrying 
party, and the carrying party would have three days to either validate 
and return the transfer instruction or take exception to the 
instruction.\24\ Prior to or at the time of validation of the transfer 
instruction, the carrying party would be required to notify the 
customer with respect to the disposition of any assets it identified as 
nontransferable \25\ and request

[[Page 27309]]

instructions from the customer with respect to their disposition.\26\
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    \23\ See Rule G-26(d)(i).
    \24\ Id.
    \25\ Currently, the term ``nontransferable asset'' means an 
asset that is incapable of being transferred from the carrying party 
to the receiving party because (A) it is an issue in default for 
which the carrying party does not possess the proper denominations 
to effect delivery and no transfer agent is available to re-register 
the securities, or (B) it is a municipal fund security which the 
issuer requires to be held in an account carried by one or more 
specified dealers that does not include the receiving party. See 
Rule G-26(a)(iii).
    \26\ See Rule G-26(c)(ii).
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    A customer account could also contain assets that are 
nontransferable but have not yet been identified as nontransferable 
(e.g., a municipal fund security that the receiving party is unable to 
carry--unbeknownst to the carrying party). Under current Rule G-26, the 
carrying party would have to include such nontransferable assets in the 
transfer of the account, and, if the receiving party were unable to 
receive/carry the nontransferable asset, the receiving party would have 
to send the asset back to the carrying party.\27\ While the instances 
in which dealers would need to rely upon Rule G-26 and the special 
procedures for transfer of nontransferable assets may be rare, these 
fails require substantial processing time for both the carrying and 
receiving parties, and require carrying parties to credit the receiving 
party's funds equivalent to the value of the assets they are unable to 
deliver. These fails can also cause customers confusion in that 
customers receive multiple account statements from the carrying and 
receiving parties as the dealers initiate and then reverse transfers.
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    \27\ See Rule G-26(d)(i)-(ii).
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    The NSCC's modifications regarding third-party and proprietary 
products allow the receiving party to review the asset validation 
report, designate those nontransferable assets it is unable to receive/
carry, provide the customer with a list of those assets, and require 
instructions from the customer regarding their disposition.\28\ The 
proposed rule change would make Rule G-26 consistent with this change 
by requiring the receiving party to designate any third-party products 
it is unable to receive.\29\ Accordingly, the MSRB believes the 
proposed rule change will eliminate the present need for reversing the 
transfer of nontransferable assets, reduce the overall time frame for 
transferring third-party products, and generally reduce delay in and 
the cost of customer account transfers.
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    \28\ See NSCC Rule 50 Section 8.
    \29\ See proposed Rule G-26(e)(vii).
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Electronic Signature for Customer Authorization of Account Transfer
    Under current Rule G-26, a customer can initiate a transfer of a 
municipal securities account from one dealer to another by giving 
written notice to the receiving party.\30\ NYSE Rule 412 and FINRA Rule 
11870 previously had the same requirement; however, in 2004, the NYSE 
and FINRA established that a customer also can initiate an account 
transfer, in whole or in part, using either the customer's actual 
signature or an electronic signature in a format recognized as valid 
under federal law to conduct interstate commerce.\31\ The MSRB believes 
that updating the written notice requirement in Rule G-26 to include 
electronic signatures will expedite the transfer of customer assets 
between dealers and more easily allow investors to transfer their 
assets to the dealer of their choice. Accordingly, the MSRB is 
proposing to replace the written notice requirement with an authorized 
instruction requirement, which can be a customer's actual written or 
electronic signature.\32\
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    \30\ Under Rule G-26(c)(i), customers and dealers may use Form 
G-26 (the transfer instruction prescribed by the MSRB), the transfer 
instructions required by a clearing agency registered with the SEC 
in connection with its automated customer account transfer system or 
transfer instructions that are substantially similar to those 
required by such clearing agency to accomplish a customer account 
transfer.
    \31\ See Exchange Act Release Nos. 49415 (Mar. 12, 2004), 69 FR 
13608 (Mar. 23, 2004) (SR-NYSE-2003-29); 50018 (July 14, 2004), 69 
FR 43873 (July 22, 2004) (SR-NASD-2004-058).
    \32\ See Supplementary Material .01 to proposed Rule G-26.
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Shortened ACATS Cycle
    ACATS has been modified over time to provide a more seamless and 
timely customer account transfer process. Specifically, in 1994, the 
NSCC accelerated the time (from two days to one day) in which accounts 
are transferred by reducing the time a receiving party has after 
receipt of the transfer instruction to determine whether to accept, 
reject or request adjustments to the account.\33\ In 1998 and 2000, the 
NYSE and FINRA, respectively, shortened the time frame for the asset 
review portion of the transfer period from two days to one day, and the 
time frame the carrying party has to complete the transfer of customer 
securities account assets to the receiving party from four days to 
three days following the validation of a transfer instruction.\34\ 
Further, in 2007, FINRA more generally provided that the time frame(s) 
in FINRA Rule 11870 will change, as determined from time to time in any 
publication, relating to the ACATS facility, by the NSCC.\35\ Rule G-26 
currently specifies three days as the time to validate or take 
exception to the transfer instructions and four days as the time frame 
for completion of a customer account transfer.\36\ The MSRB believes 
that reducing those time frames to one and three day(s), respectively, 
will ensure consistency with the industry standard set by the NSCC and 
harmonization with other SROs, while providing greater efficiency and 
improving the customer experience in the customer account transfer 
process.\37\ Therefore, the proposed rule change would shorten the time 
for validation from three days to one, and shorten the time for 
completing the customer account transfer from four days to three.
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    \33\ See Exchange Act Release No. 34879 (Oct. 21, 1994), 59 FR 
54229 (Oct. 28, 1994) (SR-NSCC-94-13).
    \34\ See Exchange Act Release Nos. 40712 (Nov. 25, 1998), 63 FR 
67163 (Dec. 4, 1998) (SR-NYSE-98-30); 43635 (Nov. 29, 2000), 65 FR 
75990 (Dec. 5, 2000) (SR-NASD-00-68). See also former NYSE Rule 
412(b)(3); FINRA Rule 11870(e).
    \35\ See Exchange Act Release No. 56677 (Oct. 19, 2007), 72 FR 
60699 (Oct. 25, 2007) (SR-FINRA-2007-005).
    \36\ See Rule G-26(d)(i), (v).
    \37\ See proposed Rule G-26(d)(i), (f)(i).
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    Because Rule G-26 applies to manual customer account transfers, in 
addition to automated processes, the MSRB is, at this time, not 
incorporating by reference changes in the time frame of the transfer 
cycle as determined by future changes in the ACATS time frames made by 
the NSCC. The MSRB believes that the current time frames are 
sufficiently long to accommodate manual processes, but it would be 
important for the MSRB to evaluate the ability of bank dealers and 
other dealers with municipal securities-only accounts, which are 
subject to Rule G-26, to perform such processes under shorter time 
frames before adopting any such proposal in the future.
Definition of ``Nontransferable Asset''
    In response to a specific question in the Request for Comment,\38\ 
the Securities Industry and Financial Markets Association (``SIFMA'') 
indicated that dealers may sell proprietary products that are municipal 
securities to customers, the transferability of which FINRA Rule 11870 
addresses.\39\ Given this affirmative response, and because a receiving 
party cannot hold a proprietary product of a carrying party, the MSRB 
believes it is important to include proprietary products of the 
carrying party in the definition of ``nontransferable asset'' to better 
harmonize with FINRA's corresponding definition and to ensure that bank 
dealers, and other dealers subject to Rule G-26, have clarity when 
handling

[[Page 27310]]

such proprietary products in customer account transfers.\40\ 
Accordingly, the proposed rule change would also provide the following 
options for the disposition of such proprietary products that would be 
nontransferable assets: Liquidation; retention by the carrying party 
for the customer's benefit; or transfer, physically and directly, in 
the customer's name to the customer.\41\
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    \38\ See Request for Comment, Question 8 (``Do municipal 
securities brokers or municipal securities dealers sell proprietary 
products that are municipal securities to customers?'').
    \39\ See letter from SIFMA at note 81 infra.
    \40\ See proposed Rule G-26(a)(iii)(C); FINRA Rule 
11870(c)(1)(D)(i).
    \41\ See proposed Rule G-26(c)(ii)(A)-(C).
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Transfer Instructions
Disposition of Nontransferable Assets
    Under current Rule G-26, if there are nontransferable assets 
included in a transfer instruction, there are multiple options 
available to the customer for their disposition, and the carrying party 
must request further instructions from the customer with respect to 
which option the customer would like to exercise.\42\ Depending on the 
type of nontransferable asset at issue, FINRA Rule 11870(c) requires 
either the carrying party or the receiving party to provide the 
customer with a list of the specific nontransferable assets and request 
the customer's desired disposition of such assets. For example, FINRA 
Rule 11870(c)(4) places the burden on the receiving party for third-
party products that are nontransferable. In response to the Request for 
Comment, SIFMA noted that current industry practice and standard 
requires that, depending on the type of nontransferable asset, either 
the carrying party or the receiving party provide the customer with a 
list of the nontransferable assets and request the customer's desired 
disposition of such assets, as opposed to limiting that requirement to 
the carrying party, which was proposed in the Request for Comment.\43\ 
Because there are third-party products that are municipal securities 
that a receiving party may not be able to carry, and such a receiving 
party may be the only party to a customer account transfer with that 
knowledge, the MSRB believes allowing the receiving party to notify the 
customer of any nontransferable assets in a transfer and request their 
disposition in such circumstances will help ensure that nontransferable 
assets are properly identified and that both parties to a transfer are 
coordinating closely to complete the transfer efficiently and 
expeditiously. To allow for this, to improve harmonization with FINRA 
Rule 11870 and to promote a uniform standard for all dealers, the 
proposed rule change would explicitly require that the carrying party 
and/or the receiving party provide the list of nontransferable 
assets.\44\
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    \42\ See Rule G-26(c)(ii).
    \43\ See letter from SIFMA at note 81 infra.
    \44\ See proposed Rule G-26(c)(ii).
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Liquidation of Nontransferable Assets
    Under current Rule G-26, one of the disposition options for 
nontransferable assets available to customers is liquidation.\45\ When 
providing customers with this option, dealers are required to 
specifically indicate any redemption or other liquidation-related fees 
that may result from such liquidation and that those fees may be 
deducted from the money balance due the customer.\46\ FINRA Rule 11870 
provides the same requirements, but also requires dealers to refer 
customers to the disclosure information for third-party products or to 
the registered representative at the carrying party for specific 
details regarding any such fees, as well as to distribute any remaining 
balance to the customer and an indication of the method of how it will 
do so.\47\ The MSRB believes the inclusion of these additional 
requirements in Rule G-26 will help ensure that customers receive as 
much relevant information as possible regarding potential redemption 
fees, including for municipal fund securities.\48\ Specifically, the 
proposed rule change would require a referral to the program disclosure 
for a municipal fund security or to the registered representative for 
specific details regarding any such fees for the same.\49\ Further, for 
clarity, the MSRB believes it is important to require explicitly the 
distribution of the remaining balance to the customer and an indication 
of how it will be accomplished.\50\ Therefore, the proposed rule change 
would require dealers to specifically indicate any redemption or other 
liquidation-related fees that may result from liquidation and that 
those fees may be deducted from the money balance due the customer.
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    \45\ See Rule G-26(c)(ii).
    \46\ See Rule G-26(c)(ii)(A).
    \47\ See FINRA Rule 11870(c)(3)(A), (c)(4)(A).
    \48\ See proposed Rule G-26(c)(ii)(A).
    \49\ Id.
    \50\ Id.
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Transfer of Nontransferable Assets to Customers
    FINRA Rule 11870(c)(3)(C) provides an option for nontransferable 
assets that are proprietary products to be transferred, physically and 
directly, in the customer's name to the customer. The MSRB believes 
that some municipal securities that are nontransferable assets could 
similarly be transferred, physically and directly, to the customer, so 
the proposed rule change would add this option to the alternative 
dispositions available to customers.\51\ The MSRB notes that not all 
municipal securities may be appropriate for this option and that the 
carrying party would not be required to physically deliver any 
nontransferable assets of which it does not have physical possession.
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    \51\ See proposed Rule G-26(c)(ii)(C).
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Timing of Disposition of Nontransferable Assets
    Rule G-26 currently does not provide a time frame for the carrying 
party to effect the disposition of nontransferable assets as instructed 
by the customer. FINRA Rule 11870(c)(5) requires that the money balance 
resulting from liquidation must be distributed, and any transfer 
instructed by the customer must be initiated, within five business days 
following receipt of the customer's disposition instruction. The MSRB 
believes it is important to provide clarity as to the timing of these 
dispositions to ensure that customer transfers are handled 
expeditiously.
Accordingly, the proposed rule change would harmonize with FINRA Rule 
11870(c)(5) and establish the same five-day requirement.\52\
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    \52\ See proposed Rule G-26(c)(iii).
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Transfer Procedures
    Current Rule G-26(d) establishes, as part of the transfer 
procedures, the requirements for validation of the transfer 
instructions and completion of the transfer. To detail the specific 
validation/exception and completion processes more clearly and to 
better harmonize with FINRA Rule 11870, the proposed rule change would 
provide the provisions describing those processes in new, separate 
sections of the rule.\53\
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    \53\ See proposed Rule G-26(e), (f). As a result of this 
restructuring, the subsequent, existing sections of the rule would 
be renumbered in proposed Rule G-26.
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Validation of Transfer Instructions
    Under current Rule G-26(d)(iv)(A), upon validation of a transfer 
instruction, the carrying party must ``freeze'' the account to be 
transferred and return the transfer instruction to the receiving party 
with an attachment indicating all securities positions and money 
balance in the account as shown on the books of the carrying party. 
Because the proposed rule change would allow for partial account 
transfers of specifically designated municipal securities assets, the 
proposed rule change would require the account freeze only for 
validation of the transfer of an entire account, as the

[[Page 27311]]

customer's account at the carrying party should not be frozen if 
certain municipal securities would remain in the account and the 
customer may want to continue transacting in that account.\54\ For 
whole and partial account transfers, the carrying party would continue 
to have the responsibility to return the instructions and indicate the 
securities positions and money balance to be transferred.\55\ However, 
to identify the assets held in the customer account at the carrying 
party more comprehensively and to harmonize with FINRA Rule 
11870(d)(5)(A), the proposed rule change would also require the 
carrying party to indicate safekeeping positions,\56\ which are defined 
to be any security held by a carrying party in the name of the 
customer, including securities that are unendorsed or have a stock/bond 
power attached thereto.\57\
---------------------------------------------------------------------------

    \54\ See proposed Rule G-26(e)(i).
    \55\ See proposed Rule G-26(e)(ii).
    \56\ See proposed Rule G-26(e)(ii).
    \57\ See proposed Rule G-26(a)(vi).
---------------------------------------------------------------------------

    Additionally, current Rule G-26(d)(iv)(B) requires the carrying 
party to include a then-current market value for all assets to be 
transferred. FINRA Rule 11870(d)(5) provides that the original cost 
should be used as the value if a then-current value cannot be 
determined for an asset. The proposed rule change would include a 
provision substantially similar to the FINRA provision to provide 
clarity on how any such municipal securities should be valued and to 
improve harmonization between the MSRB and FINRA rules.\58\
---------------------------------------------------------------------------

    \58\ See proposed Rule G-26(e)(ii).
---------------------------------------------------------------------------

Exceptions To Transfer Instructions
    As part of the validation process, current Rule G-26 provides that 
the carrying party may take certain exceptions to the transfer 
instructions authorized by the customer and provided by the receiving 
party. Specifically, Rule G-26(d)(ii) allows a carrying party to take 
exception to a transfer instruction only if it has no record of the 
account on its books or the transfer instruction is incomplete.\59\ 
FINRA Rule 11870(d)(3) provides numerous other bases to take exception 
to a transfer instruction that the MSRB believes would more 
comprehensively address potential issues with a transfer instruction 
with which a carrying party could reasonably take issue and better 
harmonize with FINRA Rule 11870. Accordingly, in addition to the 
existing bases for exceptions, the proposed rule change would allow a 
carrying party to take exception to a transfer instruction if: (1) The 
transfer instruction contains an improper signature; (2) additional 
documentation is required (e.g., legal documents such as death or 
marriage certificate); (3) the account is ``flat'' and reflects no 
transferable assets; \60\ (4) the account number is invalid (i.e., the 
account number is not on the carrying party's books); \61\ (5) it is a 
duplicate request; (6) it violates the receiving party's credit policy; 
(7) it contains unrecognized residual credit assets (i.e., the 
receiving party cannot identify the customer); (8) the customer 
rescinds the instruction (e.g., the customer has submitted a written 
request to cancel the transfer); (9) there is a mismatch of the Social 
Security Number/Tax ID (e.g., the number on the transfer instruction 
does not correspond to that on the carrying party's records); (10) the 
account title on the transfer instruction does not match that on the 
carrying party's records; (11) the account type on the transfer 
instruction does not correspond to that on the carrying party's 
records; (12) the transfer instruction is missing or contains an 
improper authorization (e.g., the transfer instruction requires an 
additional customer authorization or successor custodian's acceptance 
authorization or custodial approval; or (13) the customer has taken 
possession of the assets in the account (e.g., the municipal securities 
account assets in question have been transferred directly to the 
customer).\62\
---------------------------------------------------------------------------

    \59\ See Rule G-26(d)(ii).
    \60\ For such an exception, the receiving party would have to 
resubmit the transfer instruction only if the most recent customer 
statement is attached. See proposed Rule G-26(e)(v).
    \61\ If the carrying party has changed the account number for 
purposes of internally reassigning the account, it would be the 
responsibility of the carrying party to track the changed account 
number, and such reassigned account number would not be considered 
invalid for purposes of fulfilling a transfer instruction. See 
proposed Rule G-26(e)(iv)(F).
    \62\ In order to include the exceptions to transfer instructions 
with the provisions related to validation, the proposed rule change 
would move the existing exceptions to, and add the new exceptions 
in, the new, separate section on validation of transfer 
instructions. See proposed Rule G-26(e)(iv).
---------------------------------------------------------------------------

    Additionally, FINRA Rule 11870(d)(2) precludes a carrying party 
from taking an exception and denying validation of the transfer 
instruction because of a dispute over security positions or the money 
balance in the account to be transferred, and it requires the carrying 
party to transfer the positions and/or money balance reflected on its 
books for the account. The MSRB believes this provision will be equally 
valuable to transfers covered under Rule G-26 to ensure that customers 
are able to hold their municipal securities at their dealers of 
choice.\63\
---------------------------------------------------------------------------

    \63\ See proposed Rule G-26(e)(iii).
---------------------------------------------------------------------------

Recordkeeping and Customer Notification
    During the validation process for a customer account transfer, 
there is a risk that the parties to the transfer fail to identify 
certain nontransferable assets, resulting in the improper transfer of 
those assets. FINRA Rule 11870(c)(1)(E) explicitly requires that the 
parties promptly resolve and reverse any such misidentified 
nontransferable assets, update their records and bookkeeping systems 
and notify the customer of the action taken. The MSRB believes it is 
important to add this explicit requirement to Rule G-26 to ensure that 
dealers address any errors in the transfer process promptly.\64\ 
Therefore, the proposed rule change would require that the parties 
promptly resolve and reverse any such misidentified nontransferable 
assets, update their records and bookkeeping systems and notify the 
customer of the action taken.
---------------------------------------------------------------------------

    \64\ See proposed Rule G-26(e)(vi).
---------------------------------------------------------------------------

Transfer Rejection
    FINRA Rule 11870(d)(8) allows the receiving party to reject a full 
account transfer if the account would not be in compliance with its 
credit policies or minimum asset requirements. A receiving party may 
not reject only a portion of the account assets (i.e., the particular 
assets not in compliance with the dealer's credit policies or minimum 
asset requirement). Rule G-26 currently does not include any comparable 
provisions, but the MSRB believes it is reasonable for a receiving 
party to deny a customer's transfer request due to noncompliance with 
its credit policies or minimum asset requirements. Accordingly, the 
proposed rule change would provide this ability to the receiving party 
in Rule G-26.\65\
---------------------------------------------------------------------------

    \65\ See proposed Rule G-26(e)(viii).
---------------------------------------------------------------------------

Resolution of Discrepancies
    Rule G-26(f) currently provides that any discrepancies relating to 
positions or money balances that exist or occur after transfer of a 
customer account must be resolved promptly.\66\ FINRA Rule 11870(g) 
includes the same standard but also requires that the carrying party 
must promptly distribute to the receiving party any transferable assets 
that accrue to the customer's transferred account after the transfer 
has been effected. Further, FINRA Rule 11870(g) provides clarity to the 
promptness requirement by requiring

[[Page 27312]]

that any claims of discrepancies after a transfer must be resolved 
within five business days from notice of such claim or the non-claiming 
party must take exception to the claim and set forth specific reasons 
for doing so. To provide the same level of clarity and to improve 
harmonization with FINRA Rule 11870(g), the proposed rule change would 
include these same additional provisions.\67\
---------------------------------------------------------------------------

    \66\ See Rule G-26(f).
    \67\ See proposed Rule G-26(i)(ii)-(iii).
---------------------------------------------------------------------------

Participant in a Registered Clearing Agency
    When both the carrying party and the receiving party are direct 
participants in a clearing agency that is registered with the SEC and 
offers automated customer securities account transfer capabilities, 
Rule G-26(h) currently requires the account transfer procedure to be 
accomplished pursuant to the rules of and through such registered 
clearing agency.\68\ FINRA Rule 11870(m) has a similar requirement that 
provides an exception for specifically designated securities assets 
transferred pursuant to the submittal of a customer's authorized 
alternate instructions to the carrying party. As discussed above, FINRA 
Rule 11870(m)(3) also requires the transfer of residual credit 
positions through the registered clearing agency. Further, FINRA Rule 
11870(m)(4) prescribes several conditions for such transfers for 
participants in a registered clearing agency.\69\ The MSRB believes 
customers and the parties to a customer account transfer should have 
the option of performing the transfer outside of the facilities of a 
registered clearing agency when an appropriate authorized alternate 
instruction is given. Additionally, the MSRB believes the additional 
prescription related to the process provided by FINRA will give greater 
clarity to customers and dealers. Accordingly, the proposed rule change 
would include these provisions.\70\
---------------------------------------------------------------------------

    \68\ See Rule G-26(h).
    \69\ FINRA also defines a ``participant in a registered clearing 
agency'' as ``a member of a registered clearing agency that is 
eligible to make use of the agency's automated customer securities 
account transfer capabilities,'' and ``registered clearing agency'' 
as ``a clearing agency as defined in, and registered in accordance 
with, the Exchange Act.'' The proposed rule change would include 
these same definitions. See proposed Rule G-26(a)(iv)-(v).
    \70\ See proposed Rule G-26(k).
---------------------------------------------------------------------------

Transfer of Residual Positions
    When both the carrying party and the receiving party are direct 
participants in a clearing agency registered with the SEC offering 
automated customer securities account transfer capabilities, FINRA Rule 
11870(n) requires each party to transfer credit balances that occur in 
any transferred account assets (both cash and securities) through the 
automated service within 10 business days after the credit balances 
accrue to the account for a minimum period of six months. Given that 
the majority of customer account transfers subject to Rule G-26 occur 
manually, the MSRB believes it is important to provide clarity on the 
obligation and timing required to transfer such credit balances for any 
customer account transfer, so the proposed rule change would include a 
provision with the same 10-business-day requirement as FINRA Rule 
11870(n) that is not limited to when both parties are direct 
participants in a clearing agency registered with the SEC offering 
automated customer securities account transfer capabilities.\71\
---------------------------------------------------------------------------

    \71\ See proposed Rule G-26(g).
---------------------------------------------------------------------------

Written Procedures
    Current Rule G-26 does not itself include any requirement for 
policies and procedures, but Supplementary Material .01 to FINRA Rule 
11870 requires the establishment, maintenance and enforcement of 
written procedures to affect and supervise customer account transfers. 
The MSRB believes it is important for dealers to document the 
procedures they follow to effect customer account transfers and to 
require explicitly written procedures for supervision of the same, 
which is consistent with MSRB Rule G-27, on supervision. Accordingly, 
the proposed rule change would include such a requirement.\72\
---------------------------------------------------------------------------

    \72\ See Supplementary Material .02 to proposed Rule G-26.
---------------------------------------------------------------------------

FINRA Rule 11650--Transfer Fees
    Neither current Rule G-26 nor any other MSRB rule specifically 
addresses transfer fees. However, FINRA Rule 11650, on transfer fees, 
specifies that the party at the instance of which a transfer of 
securities is made shall pay all service charges of the transfer agent. 
The MSRB believes it is important to clarify which party is responsible 
for the fees incurred for a customer account transfer. Accordingly, the 
proposed rule change would include a provision identical to FINRA Rule 
11650.\73\
---------------------------------------------------------------------------

    \73\ See Supplementary Material .03 to proposed Rule G-26.
---------------------------------------------------------------------------

2. Statutory Basis
    Section 15B(b)(2) of the Act \74\ provides that:
---------------------------------------------------------------------------

    \74\ 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 Act \75\ provides that the MSRB's rules 
shall:
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78o-4(b)(2)(C).


be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principals 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 
the provisions of Sections 15B(b)(2) \76\ and 15B(b)(2)(C) \77\ of the 
Act because it would re-establish consistency with the customer account 
transfer rules of other SROs by conforming to significant updates by 
the NSCC, the NYSE and FINRA that have relevance to municipal 
securities. Further, the MSRB believes that including certain 
provisions from the other rules in the proposed rule change will make 
the transfer of customer securities account assets more flexible, less 
burdensome, and more efficient, while reducing confusion and risk to 
investors and allowing them to better move their securities to their 
dealer of choice. The MSRB believes the proposed rule change will 
promote fairness and provide greater efficiency in the transfer of 
customer accounts, which should prevent fraudulent and manipulative 
acts and practices, promote just and equitable principals of trade, 
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, remove impediments to and perfect the mechanism of 
a free and open market in municipal securities and municipal financial 
products, and, in general, protect investors and the public interest.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78o-4(b)(2).
    \77\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The MSRB also believes that the proposed rule change is consistent 
with

[[Page 27313]]

Section 15B(b)(2)(G) of the Act,\78\ which provides that the MSRB's 
rules shall:
---------------------------------------------------------------------------

    \78\ 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 MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(G) of the Act \79\ because it would require dealers 
to document the procedures they follow to effect customer account 
transfers and to require explicitly written procedures for supervision 
of the same.
---------------------------------------------------------------------------

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

B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 15B(b)(2)(C) of the Act \80\ requires that MSRB rules not 
be designed to impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. 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. In 
accordance with this policy, the Board has evaluated the potential 
impacts on competition of the proposed rule change, including in 
comparison to reasonable alternative regulatory approaches, relative to 
the baseline. The MSRB does not believe the proposed rule change 
imposes any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The MSRB does not believe the proposed rule change will create a 
burden on competition, as all municipal securities brokers and 
municipal securities dealers would be subject to the same modified 
requirements for customer account transfers. The MSRB believes that the 
proposed rule change may reduce inefficiencies that stem from 
uncertainty and confusion associated with existing Rule G-26. The MSRB 
also believes that dealers may benefit from clarifications and 
revisions that more closely reflect the securities industry standard, 
which may, in turn, reduce operational risk to dealers and investors. 
Finally, the MSRB believes that the proposed rule change will make the 
transfer of customer municipal securities account assets more flexible, 
less burdensome, and more efficient, while reducing confusion and risk 
to investors and allowing them to more conveniently move their 
municipal securities to their dealer of choice.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The MSRB received three comment letters in response to the Request 
for Comment.\81\ The comment letters are summarized below by topic, and 
the MSRB's responses are provided.
---------------------------------------------------------------------------

    \81\ See Letters from: Mike Nicholas, Chief Executive Officer, 
Bond Dealers of America (``BDA''), dated February 17, 2017; Michael 
Paganini (``Paganini''), dated January 6, 2017; and Leslie M. 
Norwood, Managing Director and Associate General Counsel, SIFMA, 
dated February 17, 2017.
---------------------------------------------------------------------------

The Need for Rule G-26
    SIFMA supported the stated purpose of the draft amendments to 
modernize Rule G-26 and promote a uniform customer account transfer 
standard, but it suggests some alternative approaches to achieve that 
end. Specifically, SIFMA recognized that Rule G-26 is only applicable 
to municipal securities brokers and municipal securities dealers, 
particularly those with municipal security-only accounts and bank 
dealers, but believes the rule is unnecessary. Further, SIFMA noted 
that the firms subject to Rule G-26 are a small fraction of the total 
number of firms and, for the most part, are not direct clearing 
participants of the NSCC and, therefore, not eligible to participate in 
the ACATS process.\82\ SIFMA stated that, because these firms are not 
members of the NYSE or FINRA and, therefore, not subject to NYSE Rule 
412 and FINRA Rule 11870, they are exempt from participating in ACATS 
under Rule G-26. Finally, SIFMA believes that there are few customer 
account transfers that occur ex-clearing (i.e., a manual process 
outside of ACATS), making Rule G-26 redundant, and suggests that the 
MSRB eliminate it.
---------------------------------------------------------------------------

    \82\ As of May 16, 2017, there were 27 bank dealers registered 
with the MSRB.
---------------------------------------------------------------------------

    Although SIFMA is correct that most of the firms subject to Rule G-
26 do not participate in ACATS, SIFMA did not recognize that, from the 
rule's inception, it has been intended to cover these firms, which are 
not subject to NSCC, FINRA or NYSE rules, regardless of how few of them 
there may be and regardless of how few customer account transfers they 
may perform.\83\ As such, the MSRB believes that there remains a need 
for Rule G-26 to address the manual processes used by these firms in 
transferring customer accounts.
---------------------------------------------------------------------------

    \83\ See Exchange Act Release No. 22810 (Jan. 17, 1986), 51 FR 
3287 (Jan. 24, 1986) (SR-MSRB-86-2).
---------------------------------------------------------------------------

    SIFMA alternatively suggested that, if the MSRB does not eliminate 
Rule G-26, it should amend the rule to incorporate FINRA Rule 11870 by 
reference, similar to what the NYSE has done in its Rule 412 and what 
the Board has done in MSRB Rule G-41, on anti-money laundering 
compliance programs.\84\ SIFMA specifically proposed that the rule 
state that dealers ``shall comply with FINRA Rule 11870, concerning the 
transfer of customer accounts between members, and any amendments 
thereto, as if such Rule is part of MSRB's Rules.'' SIFMA believed this 
``methodology is the most efficient way to reduce confusion and risk to 
investors, and reduce regulatory risk to dealers,'' which SIFMA stated 
have largely not been complying with the rule. SIFMA further believes 
this would ensure that all dealers are covered by a rule and that there 
is harmonization between the various SROs' rules.
---------------------------------------------------------------------------

    \84\ Rule G-41 provides that dealers will be deemed to be in 
compliance with anti-money laundering program requirements if they 
establish and implement a program that is in compliance with the 
rules, regulations or requirements governing the establishment and 
maintenance of anti-money laundering programs of the registered 
securities association of which the dealer is a member or the 
appropriate regulatory agency as defined in the Exchange Act.
---------------------------------------------------------------------------

    Although amending Rule G-26 to incorporate FINRA Rule 11870 by 
reference could be a simple and efficient solution to provide a uniform 
industry standard, the MSRB does not typically incorporate other 
regulators' rules by reference. The MSRB believes that, while the 
incorporation by reference approach suggested by SIFMA may enhance 
harmonization with FINRA's rules, that approach would raise significant 
concerns for the MSRB, given its statutory mandate and mission. For 
example, if FINRA or its staff were to provide an interpretation of 
FINRA Rule 11870, the MSRB automatically would be adopting that 
interpretation without deliberately considering the issues that may be 
unique to, or the interpretation's ramifications for, the municipal 
securities market. Further, there are municipal securities dealers that 
are not members of FINRA. Those dealers may not have notice of FINRA's 
rule interpretations unless the MSRB were to monitor FINRA's rulemaking 
and independently notify dealers. Therefore, if the MSRB were to 
regulate customer account transfers over which it has jurisdiction by 
simply incorporating a FINRA rule by reference, the MSRB potentially 
could be seen as delegating its core mission to protect investors, 
issuers, and the public interest and to promote a fair and efficient 
municipal market.

[[Page 27314]]

Consistency With FINRA Rule 11870 and the Definition of 
``Nontransferable Asset''
    As discussed in the Request for Comment, FINRA Rule 11870(f)(1) 
requires that any fail contracts resulting from an account transfer, 
which includes municipal securities, be included in a dealer's fail 
file and that, not later than 30 business days following the date 
delivery was due, the dealer shall take steps to obtain physical 
possession or control of the municipal securities so failed to receive 
by initiating a buy-in procedure or otherwise.\85\ This 30-day time 
frame, however, is inconsistent with Rule G-26, which, through 
reference to MSRB Rule G-12(h), provides 10 calendar days with the 
option for a one-time extension of 10 calendar days, totaling up to 20 
calendar days, for dealers to close out failed inter-dealer municipal 
securities transactions.\86\ The Request for Comment also noted that an 
additional layer of inconsistency and complexity arises due to the 
system used to process most failed securities resulting from customer 
account transfers and inter-dealer transactions. Specifically, an 
inter-dealer transaction of municipal securities is processed in the 
NSCC's Continuous Net Settlement (``CNS'') system to be paired up with 
potentially another counterparty and settled.\87\ Any CNS-eligible 
municipal security in a customer account transfer that fails to be 
delivered also enters CNS. Once in CNS, it is difficult to determine 
which fails resulted from inter-dealer transactions or customer account 
transfers, and the counterparties that are paired up may not be the 
same counterparties to the original transaction/transfer. As a result, 
it may be unclear with which rule and corresponding time frame firms 
should comply--Rule G-12(h) or FINRA Rule 11870.
---------------------------------------------------------------------------

    \85\ A buy-in occurs when the seller in a transaction, who 
failed to deliver the securities sold to the buyer, purchases all or 
any part of the securities necessary to complete the transaction at 
the current market, with the seller bearing any burden from any 
change in the market price, and any benefit from any change in the 
market price remaining with the buyer.
    \86\ The MSRB notes that market participants were very 
supportive of, and, in fact, suggested the time frames recently 
adopted in Rule G-12(h) for closing out failed inter-dealer 
transactions. The MSRB further notes that the inconsistency between 
the timing of FINRA's buy-in procedures under FINRA Rule 11870(f)(1) 
(30 business days) and the timing of the MSRB's previous close-out 
procedures for inter-dealer transactions (up to 90 business days) 
existed prior to the amendments to Rule G-12(h).
    \87\ As a key part of the CNS system, NSCC acts as the central 
counterparty for clearance and settlement for virtually all broker-
to-broker equity, corporate and municipal bond and unit investment 
trust trading in the United States. CNS processes include an 
automated book-entry accounting system that centralizes settlement 
and maintains an orderly flow of security and money balances.
---------------------------------------------------------------------------

    To avoid these inconsistencies and uncertainties, the draft 
amendments in the Request for Comment proposed to amend the definition 
of ``nontransferable asset'' to include any customer long position in a 
municipal security that allocates to a short position, which resulted 
from either the carrying party's trading activity or failure to receive 
the securities it purchased to fill a customer's municipal securities 
order (i.e., an inter-dealer transaction fail). In the Request for 
Comment, the MSRB noted that, if FINRA were to similarly amend Rule 
11870 to make these short positions nontransferable, then customer 
account transfers of municipal securities would be significantly less 
likely to fail and there might no longer be a need to establish fail 
contracts and provide a process by which those fails could be closed 
out, eliminating the timing inconsistencies and ambiguity. The MSRB 
further noted that dealers may not be subject to the costs associated 
with these transfer fails, as well as the complication and confusion 
that may arise on coupon payment dates from the need to provide 
substitute interest for tax-exempt municipal securities. The MSRB 
stated its belief that this draft amendment would have the additional 
benefits of reducing counterparty risk and increasing investor 
confidence.
    SIFMA recognized the inconsistency between Rule G-26 and FINRA Rule 
11870, as well as the complexity in CNS created by the inconsistency; 
however, it disagreed with the MSRB's analysis that the draft amendment 
to the definition of ``nontransferable asset'' would reduce 
counterparty risk and increase customer confidence, and it believed 
that it would be disruptive to industry practice and outside of 
standard ACATS procedures. SIFMA stated that ``[a]utomated systems fail 
to be efficient if they require manual processes, such as validating if 
a long municipal security position is allocated to a short firm 
position.'' BDA also had concerns and believes that the proposed 
amendment to the definition is unworkable. BDA stated that significant 
operational changes would have to occur in order to make the change 
feasible because current dealer systems are not designed to code or 
segregate inter-dealer transaction fails and account transfer fails, 
and because most firms track fails at the firm level, not at the 
account level for compliance with regulatory issues, such as properly 
tracking substitute interest. BDA urged the MSRB to engage in dealer 
outreach to find a different solution that better aligns with existing 
dealer systems and processes.
    As an alternative to amending the definition of ``nontransferable 
asset,'' SIFMA believed that FINRA Rule 11870 must be amended as soon 
as practicable to reflect the recent amendments to Rule G-12 relating 
to close-outs to eliminate the inconsistency in the time frames. 
Accordingly, SIFMA suggested that FINRA simply cross-reference Rule G-
12(h), and any amendments thereto, for any fail contracts in municipal 
securities resulting from customer account transfers.\88\ BDA commented 
that it did not see a policy reason to amend Rule G-26, but BDA's 
letter did not confront the inconsistency between Rule G-26 and FINRA 
Rule 11870, and the related complexity created in CNS. BDA further 
questioned the need for any changes by FINRA to FINRA Rule 11870, and 
believed FINRA Rule 11870(f) is an adequate standard with which Rule G-
26 should harmonize instead.
---------------------------------------------------------------------------

    \88\ SIFMA also suggested that FINRA consolidate its rules 
relating to customer account transfers, including related fees, into 
FINRA Rule 11870.
---------------------------------------------------------------------------

    Given both SIFMA's and BDA's concerns about the operational changes 
needed and the corresponding costs that would result from such a 
change, the MSRB, at this time, does not believe amending the 
definition of ``nontransferable asset'' to include any customer long 
position in a municipal security that allocates to a short position is 
appropriate, particularly without certainty that FINRA would similarly 
amend FINRA Rule 11870 to ensure that all short municipal securities 
positions in customer account transfers receive identical treatment.
Miscellaneous Comments
    As discussed above, in response to comments from SIFMA, the 
proposed rule change would amend the definition of ``nontransferable 
asset'' to include proprietary products of the carrying party and would 
allow for either the carrying party or the receiving party (or both) to 
provide the list of nontransferable assets to a customer and request 
their disposition.\89\ Additionally, Paganini believed that firms are 
``very inefficient when it comes to account transfers of specific types 
of assets i.e., some municipal bonds,'' and that ``it is exasperating, 
frustrating, and time consuming for the private investor'' when there 
is a problem with an account transfer. He recommended that there be 
some type of enforcement mechanism or financial penalty for transfers 
that cannot be

[[Page 27315]]

accomplished within a reasonable time period. The MSRB notes that 
dealers are expected to comply with the appropriate customer account 
transfer rule, including Rule G-26 (and the time frames included 
therein) where applicable, and that, if they do not, they could be 
subject to an enforcement action for violating the rule.
---------------------------------------------------------------------------

    \89\ See Definition of ``Nontransferable Asset'' and Transfer 
Instructions supra.
---------------------------------------------------------------------------

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-2017-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-MSRB-2017-03. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the MSRB. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-MSRB-2017-03 and should be 
submitted on or before July 5, 2017.

    For the Commission, pursuant to delegated authority.\90\
---------------------------------------------------------------------------

    \90\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-12266 Filed 6-13-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                                               Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices                                                     27307

                                                  IV. Conclusion                                          proposed rule change be effective three                establishment of fail-to-receive and fail-
                                                     It is therefore ordered, pursuant to                 months from the date of Commission                     to-deliver contracts; 4 and requires that
                                                  Section 19(b)(2) of the Act,25 that the                 approval.                                              fail contracts be resolved in accordance
                                                  proposed rule change (SR–NYSEArca–                         The text of the proposed rule change                with MSRB close-out procedures,
                                                  2017–44), as modified by Amendment                      is available on the MSRB’s Web site at                 established by MSRB Rule G–12(h). In
                                                  Nos. 1 and 2 thereto, be, and it hereby                 www.msrb.org/Rules-and-                                addition, the current rule requires the
                                                  is, approved.                                           Interpretations/SEC-Filings/2017-                      use of the automated customer account
                                                                                                          Filings.aspx, at the MSRB’s principal                  transfer service in place at a registered
                                                    For the Commission, by the Division of                office, and at the Commission’s Public                 clearing agency registered with the
                                                  Trading and Markets, pursuant to delegated
                                                  authority.26
                                                                                                          Reference Room.                                        Commission when both dealers are
                                                                                                                                                                 direct participants in the same clearing
                                                  Eduardo A. Aleman,                                      II. Self-Regulatory Organization’s
                                                                                                                                                                 agency.5 Finally, the rule contains a
                                                  Assistant Secretary.                                    Statement of the Purpose of, and
                                                                                                                                                                 provision for enhancing compliance by
                                                  [FR Doc. 2017–12260 Filed 6–13–17; 8:45 am]             Statutory Basis for, the Proposed Rule
                                                                                                                                                                 requiring submission of transfer
                                                                                                          Change
                                                  BILLING CODE 8011–01–P                                                                                         instructions to the enforcement
                                                                                                            In its filing with the Commission, the               authority with jurisdiction over the
                                                                                                          MSRB included statements concerning                    dealer carrying the account, if the
                                                  SECURITIES AND EXCHANGE                                 the purpose of and basis for the                       enforcement authority requests such
                                                  COMMISSION                                              proposed rule change and discussed any                 submission.6
                                                  [Release No. 34–80890; File No. SR–MSRB–                comments it received on the proposed                      The MSRB adopted Rule G–26 in
                                                  2017–03]                                                rule change. The text of these statements              1986 as part of an industry-wide
                                                                                                          may be examined at the places specified                initiative to create a uniform customer
                                                  Self-Regulatory Organizations;                          in Item IV below. The MSRB has                         account transfer standard by applying a
                                                  Municipal Securities Rulemaking                         prepared summaries, set forth in                       customer account transfer procedure to
                                                  Board; Notice of Filing of a Proposed                   Sections A, B, and C below, of the most                all dealers that are engaged in municipal
                                                  Rule Change To Amend MSRB Rule G–                       significant aspects of such statements.                securities activities.7 The uniform
                                                  26, on Customer Account Transfers,                                                                             standard for all customer account
                                                  To Modernize the Rule and Promote a                     A. Self-Regulatory Organization’s
                                                                                                          Statement of the Purpose of, and                       transfers (i.e., automated and manual
                                                  Uniform Customer Account Transfer                                                                              processes) is largely driven by the
                                                  Standard                                                Statutory Basis for, the Proposed Rule
                                                                                                          Change                                                 National Securities Clearing
                                                  June 7, 2017.                                                                                                  Corporation’s (‘‘NSCC’’) Automated
                                                                                                          1. Purpose                                             Customer Account Transfer Service
                                                     Pursuant to Section 19(b)(1) of the
                                                  Securities Exchange Act of 1934 (the                       The purpose of the proposed rule                    (‘‘ACATS’’). The MSRB adopted Rule
                                                  ‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule                 change is to modernize Rule G–26 and                   G–26 in conjunction with the adoption
                                                  19b–4 thereunder,2 notice is hereby                     promote a uniform customer account                     of similar rules by other self-regulatory
                                                  given that on May 26, 2017 the                          transfer standard for all dealers. The                 organizations (‘‘SROs’’)—New York
                                                  Municipal Securities Rulemaking Board                   MSRB believes that, by including                       Stock Exchange (‘‘NYSE’’) Rule 412 and
                                                  (the ‘‘MSRB’’ or ‘‘Board’’) filed with the              certain provisions parallel to the                     Financial Industry Regulatory Authority
                                                  Securities and Exchange Commission                      customer account transfer rules of other               (‘‘FINRA’’) Rule 11870.8 Those rules are
                                                  (the ‘‘SEC’’ or ‘‘Commission’’) the                     SROs, particularly FINRA Rule 11870,                   not applicable to certain accounts at
                                                  proposed rule change as described in                    in current Rule G–26, as outlined below,               dealers, particularly municipal security-
                                                  Items I, II, and III below, which Items                 the transfer of customer securities                    only accounts and accounts at bank
                                                  have been prepared by the MSRB. The                     account assets will be more flexible, less             dealers.9 Current Rule G–26 governs the
                                                  Commission is publishing this notice to                 burdensome, and more efficient, while                  municipal security-only customer
                                                  solicit comments on the proposed rule                   reducing confusion and risk to investors               account transfers performed by those
                                                  change from interested persons.                         and allowing them to better move their                   4 Fail-to-receive and fail-to-deliver contracts are
                                                                                                          municipal securities to their dealer of                records maintained by the receiving party and the
                                                  I. Self-Regulatory Organization’s                       choice.                                                carrying party, respectively, when a customer
                                                  Statement of the Terms of Substance of                                                                         account transfer fails.
                                                  the Proposed Rule Change                                Current Rule G–26                                        5 See Rule G–26(h).

                                                     The MSRB filed with the Commission                      Rule G–26 requires dealers to                         6 See Rule G–26(i).
                                                                                                                                                                   7 See Exchange Act Release No. 22810 (Jan. 17,
                                                  a proposed rule change to amend MSRB                    cooperate in the transfer of customer
                                                                                                                                                                 1986), 51 FR 3287 (Jan. 24, 1986) (SR–MSRB–86–
                                                  Rule G–26, on customer account                          accounts and specifies procedures for                  2) (proposing Rule G–26). See also Exchange Act
                                                  transfers, to modernize the rule and                    carrying out the transfer process. Such                Release Nos. 22663 (Nov. 27 1985) (SR–NYSE–85–
                                                  promote a uniform customer account                      transfers occur when a customer decides                17) (approving NYSE Rule 412); 22941 (Feb. 24,
                                                  transfer standard for all brokers, dealers,             to transfer an account from one dealer,                1986) (SR–NASD–29) (approving NASD/FINRA
                                                                                                                                                                 Rule 11870).
                                                  municipal securities brokers and                        the carrying party (i.e., the dealer from                8 In 2007, FINRA was created through the
                                                  municipal securities dealers                            which the customer is requesting the                   consolidation of the National Association of
                                                  (collectively, ‘‘dealers’’) (‘‘proposed rule            account be transferred) to another, the                Securities Dealers (‘‘NASD’’) and the member
                                                  change’’).3 The MSRB requests that the                  receiving party (i.e., the dealer to which             regulation, enforcement and arbitration operations
                                                                                                          the customer is requesting the account                 of the NYSE. Current NYSE Rule 412 cross-
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                                                                                                                                                                 references NASD/FINRA Rule 11870 for the
                                                    25 15  U.S.C. 78s(b)(2).                              be transferred). The rule establishes                  purpose of incorporating it into the NYSE rulebook.
                                                    26 17  CFR 200.30–3(a)(12).                           specific time frames within which the                    9 See Exchange Act Release No. 22810 (Jan. 17,
                                                     1 15 U.S.C. 78s(b)(1).
                                                                                                          carrying party is required to transfer a               1986), 51 FR 3287 (Jan. 24, 1986) (SR–MSRB–86–
                                                     2 17 CFR 240.19b–4.
                                                                                                          customer account; limits the reasons for               2) (‘‘Currently certain municipal securities brokers
                                                     3 For clarity and ease of reference, current                                                                or municipal securities dealers, particularly those
                                                  provisions of Rule G–26 will be cited herein as
                                                                                                          which a receiving party may take                       with municipal security-only accounts and bank
                                                  ‘‘Rule G–26,’’ and proposed amendments to Rule G–       exception to an account transfer                       dealers, will not be covered by the standards
                                                  26 will be cited herein as ‘‘proposed Rule G–26’’.      instruction; provides for the                          governing the rest of the securities industry.’’).



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                                                  27308                        Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices

                                                  dealers to ensure that all customer                     issued or securities to be transferred.14                   believes this change will further
                                                  account transfers are subject to                        This process could result in lost or                        competition among dealers by more
                                                  regulation that is consistent with the                  improperly routed checks and                                easily allowing investors to transfer
                                                  uniform industry standard. Thus, in                     securities, as well as the expenses of                      their municipal securities to the dealer
                                                  order to maintain consistency and the                   postage and processing.15                                   of their choice.
                                                  uniform standard, the MSRB has, from                       The MSRB is proposing to update
                                                                                                          Rule G–26 to include the transfer of                        Transfer of Third-Party and/or
                                                  time to time, modified the requirements                                                                             Proprietary Products
                                                  of Rule G–26 to conform to certain                      customer account residual credit
                                                  provisions of the parallel FINRA and                    positions, which would benefit both                            In 1998, the NSCC modified ACATS
                                                  NYSE customer account transfer rules,                   customers and dealers by substantially                      to better facilitate and expedite the
                                                  as well as to enhancements made to the                  decreasing the paperwork, risks,                            transfer of a customer account
                                                  ACATS process by NSCC, that had                         inefficiencies and costs associated with                    containing third-party and/or
                                                  relevance to municipal securities.                      the practice of check issuance and                          proprietary products that the receiving
                                                                                                          initiation of securities deliveries to                      party is unable to receive or carry.20 The
                                                     On January 6, 2017, the MSRB                         resolve residual credit positions.16                        NYSE and FINRA made conforming
                                                  published a request for comment,                                                                                    changes in 2001.21 Prior to the NSCC’s
                                                  proposing a number of draft                             Partial Account Transfers
                                                                                                                                                                      modernization of ACATS in 1998, a
                                                  amendments to Rule G–26 to maintain                        In 1994, the NYSE and FINRA                              receiving party was not permitted to
                                                  consistency with the rules of the NSCC,                 amended their rules to permit partial or                    reject an individual account asset and
                                                  the NYSE and FINRA by conforming to                     non-standard customer account                               only could reject an account in its
                                                  significant updates to those other SRO                  transfers (i.e., the transfer of specifically               entirety. Today, however, under these
                                                  rules that have relevance to municipal                  designated assets from an account held                      other SROs’ rules, the receiving party
                                                  securities and municipal security-only                  at one dealer to an account held at                         has the capability to either accept all
                                                  customer account transfers.10 In                        another dealer).17 Subsequently, in                         assets in the account being transferred
                                                  response to the Request for Comment,                    2004, the NYSE and FINRA further                            or, to the extent permitted by the
                                                  the MSRB received three comment                         amended their rules generally to apply                      receiving party’s designated examining
                                                  letters, supporting the general purpose                 the same procedural standards and time                      authority, accept only some of the assets
                                                  of the amendments to Rule G–26, but                     frames that are applicable to the transfer                  in the account.22
                                                  suggesting alternative approaches and                   of entire accounts to partial transfers as                     Although most securities can be
                                                  raising a few other issues.11 After                     well.18 Because customer and dealer                         transferred, dealers vary in their ability
                                                  carefully considering all of the                        obligations resulting from the transfer of                  to accept and support certain third-party
                                                  comments received, the MSRB                             an entire account differ from the                           investment products. Under the NSCC’s
                                                  determined to file this proposed rule                   obligations arising from the transfer of                    prior customer account transfer
                                                  change.                                                 specified assets within an account that                     procedures, and the current procedures
                                                                                                          will remain active at the carrying party,                   outlined in Rule G–26, a customer that
                                                  Residual Credit Positions                               the NYSE and FINRA rules distinguish                        wishes to transfer its entire account to
                                                     In 1989, the NSCC expanded ACATS                     between the transfer of security account                    another dealer would submit a signed
                                                  to include the transfer of customer                     assets in whole or in specifically                          transfer instruction to the receiving
                                                  account residual credit positions. These                designated part. For example, it would                      party.23 The receiving party would
                                                  are assets in the form of cash or                       not be necessary for a customer to                          immediately submit the transfer
                                                  securities that can result from                         instruct the carrying party as to the                       instruction to the carrying party, and the
                                                  dividends, interest payments or other                   disposition of his or her assets that are                   carrying party would have three days to
                                                                                                          nontransferable if the customer is not                      either validate and return the transfer
                                                  types of assets received by the carrying
                                                                                                          transferring the entire account.                            instruction or take exception to the
                                                  party after the transfer process is
                                                                                                             The MSRB is proposing to update                          instruction.24 Prior to or at the time of
                                                  completed, or which were restricted                     Rule G–26 to permit partial account
                                                  from being included in the original                                                                                 validation of the transfer instruction, the
                                                                                                          transfers under the same time frames
                                                  transfer.12 The NYSE and FINRA made                                                                                 carrying party would be required to
                                                                                                          applicable to transfers of entire
                                                  corresponding changes to their rules                                                                                notify the customer with respect to the
                                                                                                          accounts, which the MSRB believes
                                                  that require dealers that participate in a                                                                          disposition of any assets it identified as
                                                                                                          would provide dealers with the ability
                                                  registered clearing agency with                                                                                     nontransferable 25 and request
                                                                                                          to facilitate more efficient and
                                                  automated residual credit processing                    expeditious transfers, as well as increase
                                                  capabilities to utilize those facilities to                                                                         dealers expedite all authorized municipal securities
                                                                                                          accountability for dealers and reduce                       account asset transfers, whether through ACATS or
                                                  transfer residual credit positions that                 difficulties encountered by customers                       via other means permissible, and coordinate their
                                                  accrue to an account after a transfer.13                related to transfers.19 The MSRB also                       activities with respect thereto.
                                                  Prior to allowing for these transfers, a                                                                               20 See Exchange Act Release No. 40657 (Nov. 10,

                                                  check frequently would have to be                         14 See Exchange Act Release No. 26659 (Mar. 29,           1998), 63 FR 63952 (Nov. 17, 1998) (SR–NSCC–98–
                                                  produced, or a delivery bill or report,                 1989) (SR–NSCC–89–3).                                       06).
                                                                                                                                                                         21 See Exchange Act Release Nos. 44596 (July 26,
                                                  which then required a check to be                         15 Id.
                                                                                                                                                                      2001), 66 FR 40306 (Aug. 2, 2001) (SR–NYSE–00–
                                                                                                            16 See proposed Rule G–26(k)(ii).
                                                                                                            17 See Exchange Act Release Nos. 34633 (Sept. 2,
                                                                                                                                                                      61); 44787 (Sept. 12, 2001), 66 FR 48301 (Sept. 19,
                                                    10 MSRB Notice 2017–01 (Jan. 6, 2017) (‘‘Request                                                                  2001) (SR–NASD–2001–53). See also former NYSE
                                                                                                          1994), 59 FR 46872 (Sept. 12, 1994) (SR–NYSE–94–
                                                  for Comment’’).                                                                                                     Rule 412, Interpretation (b)(1),/01,/04,/06; FINRA
                                                                                                          21); 35031 (Nov. 30, 1994), 59 FR 62761 (Dec. 6,
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                                                    11 See infra note 81.                                                                                             Rule 11870(c)(2).
                                                                                                          1994) (SR–NASD–94–56). See also former NYSE
                                                    12 See Exchange Act Release No. 26659 (Mar. 22,                                                                      22 See FINRA Rule 11870(c)(3)–(4).
                                                                                                          Rule 412, Interpretation (a)/01; FINRA Rule
                                                                                                                                                                         23 See Rule G–26(d)(i).
                                                  1989), 54 FR 12984 (Mar. 29, 1989) (SR–NSCC–89–         11870(a)(2).
                                                  3).                                                       18 See Exchange Act Release Nos. 49415 (Mar. 12,             24 Id.
                                                    13 See Exchange Act Release Nos. 34633 (Sept. 2,      2004), 69 FR 13608 (Mar. 23, 2004) (SR–NYSE–                   25 Currently, the term ‘‘nontransferable asset’’

                                                  1994), 59 FR 46872 (Sept. 12, 1994) (SR–NYSE–94–        2003–29); 50018 (July 14, 2004), 69 FR 43873 (July          means an asset that is incapable of being transferred
                                                  21); 35031 (Nov. 30, 1994), 59 FR 62761 (Dec. 6,        22, 2004) (SR–NASD–2004–058).                               from the carrying party to the receiving party
                                                  1994) (SR–NASD–94–56). See also former NYSE               19 See proposed Rule G–26(b), (c)(ii), (d)(i), (e)(ii),   because (A) it is an issue in default for which the
                                                  Rule 412(e)(3); FINRA Rule 11870(m)(3).                 (k)(i). The proposed rule change would require that         carrying party does not possess the proper



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                                                                                 Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices                                                      27309

                                                  instructions from the customer with                        another by giving written notice to the                 in any publication, relating to the
                                                  respect to their disposition.26                            receiving party.30 NYSE Rule 412 and                    ACATS facility, by the NSCC.35 Rule G–
                                                     A customer account could also                           FINRA Rule 11870 previously had the                     26 currently specifies three days as the
                                                  contain assets that are nontransferable                    same requirement; however, in 2004,                     time to validate or take exception to the
                                                  but have not yet been identified as                        the NYSE and FINRA established that a                   transfer instructions and four days as
                                                  nontransferable (e.g., a municipal fund                    customer also can initiate an account                   the time frame for completion of a
                                                  security that the receiving party is                       transfer, in whole or in part, using either             customer account transfer.36 The MSRB
                                                  unable to carry—unbeknownst to the                         the customer’s actual signature or an                   believes that reducing those time frames
                                                  carrying party). Under current Rule G–                     electronic signature in a format                        to one and three day(s), respectively,
                                                  26, the carrying party would have to                       recognized as valid under federal law to                will ensure consistency with the
                                                  include such nontransferable assets in                     conduct interstate commerce.31 The                      industry standard set by the NSCC and
                                                  the transfer of the account, and, if the                   MSRB believes that updating the written                 harmonization with other SROs, while
                                                  receiving party were unable to receive/                    notice requirement in Rule G–26 to                      providing greater efficiency and
                                                  carry the nontransferable asset, the                       include electronic signatures will                      improving the customer experience in
                                                  receiving party would have to send the                     expedite the transfer of customer assets                the customer account transfer process.37
                                                  asset back to the carrying party.27 While                  between dealers and more easily allow                   Therefore, the proposed rule change
                                                  the instances in which dealers would                       investors to transfer their assets to the               would shorten the time for validation
                                                  need to rely upon Rule G–26 and the                        dealer of their choice. Accordingly, the                from three days to one, and shorten the
                                                  special procedures for transfer of                         MSRB is proposing to replace the                        time for completing the customer
                                                  nontransferable assets may be rare, these                  written notice requirement with an                      account transfer from four days to three.
                                                  fails require substantial processing time                  authorized instruction requirement,                        Because Rule G–26 applies to manual
                                                  for both the carrying and receiving                        which can be a customer’s actual                        customer account transfers, in addition
                                                  parties, and require carrying parties to                   written or electronic signature.32                      to automated processes, the MSRB is, at
                                                  credit the receiving party’s funds                         Shortened ACATS Cycle                                   this time, not incorporating by reference
                                                  equivalent to the value of the assets they                                                                         changes in the time frame of the transfer
                                                  are unable to deliver. These fails can                        ACATS has been modified over time                    cycle as determined by future changes
                                                  also cause customers confusion in that                     to provide a more seamless and timely                   in the ACATS time frames made by the
                                                  customers receive multiple account                         customer account transfer process.                      NSCC. The MSRB believes that the
                                                  statements from the carrying and                           Specifically, in 1994, the NSCC                         current time frames are sufficiently long
                                                  receiving parties as the dealers initiate                  accelerated the time (from two days to                  to accommodate manual processes, but
                                                  and then reverse transfers.                                one day) in which accounts are                          it would be important for the MSRB to
                                                     The NSCC’s modifications regarding                      transferred by reducing the time a                      evaluate the ability of bank dealers and
                                                  third-party and proprietary products                       receiving party has after receipt of the                other dealers with municipal securities-
                                                  allow the receiving party to review the                    transfer instruction to determine                       only accounts, which are subject to Rule
                                                  asset validation report, designate those                   whether to accept, reject or request                    G–26, to perform such processes under
                                                  nontransferable assets it is unable to                     adjustments to the account.33 In 1998                   shorter time frames before adopting any
                                                  receive/carry, provide the customer                        and 2000, the NYSE and FINRA,                           such proposal in the future.
                                                  with a list of those assets, and require                   respectively, shortened the time frame
                                                                                                             for the asset review portion of the                     Definition of ‘‘Nontransferable Asset’’
                                                  instructions from the customer
                                                  regarding their disposition.28 The                         transfer period from two days to one                       In response to a specific question in
                                                  proposed rule change would make Rule                       day, and the time frame the carrying                    the Request for Comment,38 the
                                                  G–26 consistent with this change by                        party has to complete the transfer of                   Securities Industry and Financial
                                                  requiring the receiving party to                           customer securities account assets to the               Markets Association (‘‘SIFMA’’)
                                                  designate any third-party products it is                   receiving party from four days to three                 indicated that dealers may sell
                                                  unable to receive.29 Accordingly, the                      days following the validation of a                      proprietary products that are municipal
                                                                                                             transfer instruction.34 Further, in 2007,               securities to customers, the
                                                  MSRB believes the proposed rule
                                                                                                             FINRA more generally provided that the                  transferability of which FINRA Rule
                                                  change will eliminate the present need
                                                                                                             time frame(s) in FINRA Rule 11870 will                  11870 addresses.39 Given this
                                                  for reversing the transfer of
                                                                                                             change, as determined from time to time                 affirmative response, and because a
                                                  nontransferable assets, reduce the
                                                  overall time frame for transferring third-                                                                         receiving party cannot hold a
                                                                                                                30 Under Rule G–26(c)(i), customers and dealers
                                                  party products, and generally reduce                       may use Form G–26 (the transfer instruction
                                                                                                                                                                     proprietary product of a carrying party,
                                                  delay in and the cost of customer                          prescribed by the MSRB), the transfer instructions      the MSRB believes it is important to
                                                  account transfers.                                         required by a clearing agency registered with the       include proprietary products of the
                                                                                                             SEC in connection with its automated customer           carrying party in the definition of
                                                  Electronic Signature for Customer                          account transfer system or transfer instructions that
                                                                                                                                                                     ‘‘nontransferable asset’’ to better
                                                  Authorization of Account Transfer                          are substantially similar to those required by such
                                                                                                             clearing agency to accomplish a customer account        harmonize with FINRA’s corresponding
                                                    Under current Rule G–26, a customer                      transfer.                                               definition and to ensure that bank
                                                  can initiate a transfer of a municipal                        31 See Exchange Act Release Nos. 49415 (Mar. 12,
                                                                                                                                                                     dealers, and other dealers subject to
                                                                                                             2004), 69 FR 13608 (Mar. 23, 2004) (SR–NYSE–
                                                  securities account from one dealer to                      2003–29); 50018 (July 14, 2004), 69 FR 43873 (July
                                                                                                                                                                     Rule G–26, have clarity when handling
                                                                                                             22, 2004) (SR–NASD–2004–058).
                                                  denominations to effect delivery and no transfer              32 See Supplementary Material .01 to proposed          35 See Exchange Act Release No. 56677 (Oct. 19,
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                                                  agent is available to re-register the securities, or (B)   Rule G–26.                                              2007), 72 FR 60699 (Oct. 25, 2007) (SR–FINRA–
                                                  it is a municipal fund security which the issuer              33 See Exchange Act Release No. 34879 (Oct. 21,      2007–005).
                                                  requires to be held in an account carried by one or        1994), 59 FR 54229 (Oct. 28, 1994) (SR–NSCC–94–
                                                                                                                                                                       36 See Rule G–26(d)(i), (v).
                                                  more specified dealers that does not include the           13).                                                      37 See proposed Rule G–26(d)(i), (f)(i).
                                                  receiving party. See Rule G–26(a)(iii).                       34 See Exchange Act Release Nos. 40712 (Nov. 25,       38 See Request for Comment, Question 8 (‘‘Do
                                                     26 See Rule G–26(c)(ii).
                                                                                                             1998), 63 FR 67163 (Dec. 4, 1998) (SR–NYSE–98–          municipal securities brokers or municipal securities
                                                     27 See Rule G–26(d)(i)–(ii).
                                                                                                             30); 43635 (Nov. 29, 2000), 65 FR 75990 (Dec. 5,        dealers sell proprietary products that are municipal
                                                     28 See NSCC Rule 50 Section 8.                                                                                  securities to customers?’’).
                                                                                                             2000) (SR–NASD–00–68). See also former NYSE
                                                     29 See proposed Rule G–26(e)(vii).                      Rule 412(b)(3); FINRA Rule 11870(e).                      39 See letter from SIFMA at note 81 infra.




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                                                  27310                        Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices

                                                  such proprietary products in customer                   proposed rule change would explicitly                  physically and directly, to the customer,
                                                  account transfers.40 Accordingly, the                   require that the carrying party and/or                 so the proposed rule change would add
                                                  proposed rule change would also                         the receiving party provide the list of                this option to the alternative
                                                  provide the following options for the                   nontransferable assets.44                              dispositions available to customers.51
                                                  disposition of such proprietary products                                                                       The MSRB notes that not all municipal
                                                                                                          Liquidation of Nontransferable Assets
                                                  that would be nontransferable assets:                                                                          securities may be appropriate for this
                                                  Liquidation; retention by the carrying                     Under current Rule G–26, one of the                 option and that the carrying party
                                                  party for the customer’s benefit; or                    disposition options for nontransferable                would not be required to physically
                                                  transfer, physically and directly, in the               assets available to customers is                       deliver any nontransferable assets of
                                                  customer’s name to the customer.41                      liquidation.45 When providing                          which it does not have physical
                                                                                                          customers with this option, dealers are                possession.
                                                  Transfer Instructions                                   required to specifically indicate any
                                                  Disposition of Nontransferable Assets                   redemption or other liquidation-related                Timing of Disposition of
                                                                                                          fees that may result from such                         Nontransferable Assets
                                                     Under current Rule G–26, if there are
                                                  nontransferable assets included in a                    liquidation and that those fees may be                    Rule G–26 currently does not provide
                                                  transfer instruction, there are multiple                deducted from the money balance due                    a time frame for the carrying party to
                                                  options available to the customer for                   the customer.46 FINRA Rule 11870                       effect the disposition of nontransferable
                                                  their disposition, and the carrying party               provides the same requirements, but                    assets as instructed by the customer.
                                                  must request further instructions from                  also requires dealers to refer customers               FINRA Rule 11870(c)(5) requires that
                                                  the customer with respect to which                      to the disclosure information for third-               the money balance resulting from
                                                  option the customer would like to                       party products or to the registered                    liquidation must be distributed, and any
                                                  exercise.42 Depending on the type of                    representative at the carrying party for               transfer instructed by the customer must
                                                  nontransferable asset at issue, FINRA                   specific details regarding any such fees,              be initiated, within five business days
                                                  Rule 11870(c) requires either the                       as well as to distribute any remaining                 following receipt of the customer’s
                                                  carrying party or the receiving party to                balance to the customer and an                         disposition instruction. The MSRB
                                                  provide the customer with a list of the                 indication of the method of how it will                believes it is important to provide
                                                  specific nontransferable assets and                     do so.47 The MSRB believes the                         clarity as to the timing of these
                                                  request the customer’s desired                          inclusion of these additional                          dispositions to ensure that customer
                                                  disposition of such assets. For example,                requirements in Rule G–26 will help                    transfers are handled expeditiously.
                                                                                                          ensure that customers receive as much                  Accordingly, the proposed rule change
                                                  FINRA Rule 11870(c)(4) places the
                                                                                                          relevant information as possible                       would harmonize with FINRA Rule
                                                  burden on the receiving party for third-
                                                                                                          regarding potential redemption fees,                   11870(c)(5) and establish the same five-
                                                  party products that are nontransferable.
                                                                                                          including for municipal fund                           day requirement.52
                                                  In response to the Request for Comment,
                                                  SIFMA noted that current industry                       securities.48 Specifically, the proposed               Transfer Procedures
                                                  practice and standard requires that,                    rule change would require a referral to
                                                                                                          the program disclosure for a municipal                    Current Rule G–26(d) establishes, as
                                                  depending on the type of                                                                                       part of the transfer procedures, the
                                                  nontransferable asset, either the carrying              fund security or to the registered
                                                                                                          representative for specific details                    requirements for validation of the
                                                  party or the receiving party provide the                                                                       transfer instructions and completion of
                                                  customer with a list of the                             regarding any such fees for the same.49
                                                                                                          Further, for clarity, the MSRB believes                the transfer. To detail the specific
                                                  nontransferable assets and request the                                                                         validation/exception and completion
                                                  customer’s desired disposition of such                  it is important to require explicitly the
                                                                                                          distribution of the remaining balance to               processes more clearly and to better
                                                  assets, as opposed to limiting that                                                                            harmonize with FINRA Rule 11870, the
                                                  requirement to the carrying party, which                the customer and an indication of how
                                                                                                          it will be accomplished.50 Therefore, the              proposed rule change would provide the
                                                  was proposed in the Request for
                                                                                                          proposed rule change would require                     provisions describing those processes in
                                                  Comment.43 Because there are third-
                                                                                                          dealers to specifically indicate any                   new, separate sections of the rule.53
                                                  party products that are municipal
                                                  securities that a receiving party may not               redemption or other liquidation-related                Validation of Transfer Instructions
                                                  be able to carry, and such a receiving                  fees that may result from liquidation
                                                                                                          and that those fees may be deducted                       Under current Rule G–26(d)(iv)(A),
                                                  party may be the only party to a                                                                               upon validation of a transfer instruction,
                                                  customer account transfer with that                     from the money balance due the
                                                                                                          customer.                                              the carrying party must ‘‘freeze’’ the
                                                  knowledge, the MSRB believes allowing                                                                          account to be transferred and return the
                                                  the receiving party to notify the                       Transfer of Nontransferable Assets to                  transfer instruction to the receiving
                                                  customer of any nontransferable assets                  Customers                                              party with an attachment indicating all
                                                  in a transfer and request their                            FINRA Rule 11870(c)(3)(C) provides                  securities positions and money balance
                                                  disposition in such circumstances will                  an option for nontransferable assets that              in the account as shown on the books
                                                  help ensure that nontransferable assets                 are proprietary products to be                         of the carrying party. Because the
                                                  are properly identified and that both                   transferred, physically and directly, in               proposed rule change would allow for
                                                  parties to a transfer are coordinating                  the customer’s name to the customer.                   partial account transfers of specifically
                                                  closely to complete the transfer                        The MSRB believes that some municipal                  designated municipal securities assets,
                                                  efficiently and expeditiously. To allow                 securities that are nontransferable assets             the proposed rule change would require
                                                  for this, to improve harmonization with                 could similarly be transferred,                        the account freeze only for validation of
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                                                  FINRA Rule 11870 and to promote a                                                                              the transfer of an entire account, as the
                                                  uniform standard for all dealers, the                     44 See proposed Rule G–26(c)(ii).
                                                                                                            45 See Rule G–26(c)(ii).                               51 See  proposed Rule G–26(c)(ii)(C).
                                                    40 See proposed Rule G–26(a)(iii)(C); FINRA Rule        46 See Rule G–26(c)(ii)(A).                            52 See  proposed Rule G–26(c)(iii).
                                                  11870(c)(1)(D)(i).                                        47 See FINRA Rule 11870(c)(3)(A), (c)(4)(A).
                                                                                                                                                                   53 See proposed Rule G–26(e), (f). As a result of
                                                    41 See proposed Rule G–26(c)(ii)(A)–(C).                48 See proposed Rule G–26(c)(ii)(A).
                                                                                                                                                                 this restructuring, the subsequent, existing sections
                                                    42 See Rule G–26(c)(ii).                                49 Id.
                                                                                                                                                                 of the rule would be renumbered in proposed Rule
                                                    43 See letter from SIFMA at note 81 infra.              50 Id.                                               G–26.



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                                                                               Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices                                                 27311

                                                  customer’s account at the carrying party                if: (1) The transfer instruction contains              their municipal securities at their
                                                  should not be frozen if certain                         an improper signature; (2) additional                  dealers of choice.63
                                                  municipal securities would remain in                    documentation is required (e.g., legal                 Recordkeeping and Customer
                                                  the account and the customer may want                   documents such as death or marriage                    Notification
                                                  to continue transacting in that                         certificate); (3) the account is ‘‘flat’’ and
                                                  account.54 For whole and partial                        reflects no transferable assets; 60 (4) the              During the validation process for a
                                                  account transfers, the carrying party                   account number is invalid (i.e., the                   customer account transfer, there is a risk
                                                  would continue to have the                              account number is not on the carrying                  that the parties to the transfer fail to
                                                  responsibility to return the instructions               party’s books); 61 (5) it is a duplicate               identify certain nontransferable assets,
                                                  and indicate the securities positions and               request; (6) it violates the receiving                 resulting in the improper transfer of
                                                  money balance to be transferred.55                      party’s credit policy; (7) it contains                 those assets. FINRA Rule 11870(c)(1)(E)
                                                  However, to identify the assets held in                                                                        explicitly requires that the parties
                                                                                                          unrecognized residual credit assets (i.e.,
                                                  the customer account at the carrying                                                                           promptly resolve and reverse any such
                                                                                                          the receiving party cannot identify the
                                                  party more comprehensively and to                                                                              misidentified nontransferable assets,
                                                                                                          customer); (8) the customer rescinds the
                                                  harmonize with FINRA Rule                                                                                      update their records and bookkeeping
                                                                                                          instruction (e.g., the customer has                    systems and notify the customer of the
                                                  11870(d)(5)(A), the proposed rule                       submitted a written request to cancel
                                                  change would also require the carrying                                                                         action taken. The MSRB believes it is
                                                                                                          the transfer); (9) there is a mismatch of              important to add this explicit
                                                  party to indicate safekeeping
                                                                                                          the Social Security Number/Tax ID (e.g.,               requirement to Rule G–26 to ensure that
                                                  positions,56 which are defined to be any
                                                                                                          the number on the transfer instruction                 dealers address any errors in the transfer
                                                  security held by a carrying party in the
                                                  name of the customer, including                         does not correspond to that on the                     process promptly.64 Therefore, the
                                                  securities that are unendorsed or have a                carrying party’s records); (10) the                    proposed rule change would require
                                                  stock/bond power attached thereto.57                    account title on the transfer instruction              that the parties promptly resolve and
                                                     Additionally, current Rule G–                        does not match that on the carrying                    reverse any such misidentified
                                                  26(d)(iv)(B) requires the carrying party                party’s records; (11) the account type on              nontransferable assets, update their
                                                  to include a then-current market value                  the transfer instruction does not                      records and bookkeeping systems and
                                                  for all assets to be transferred. FINRA                 correspond to that on the carrying                     notify the customer of the action taken.
                                                  Rule 11870(d)(5) provides that the                      party’s records; (12) the transfer
                                                                                                          instruction is missing or contains an                  Transfer Rejection
                                                  original cost should be used as the value
                                                  if a then-current value cannot be                       improper authorization (e.g., the transfer                FINRA Rule 11870(d)(8) allows the
                                                  determined for an asset. The proposed                   instruction requires an additional                     receiving party to reject a full account
                                                  rule change would include a provision                   customer authorization or successor                    transfer if the account would not be in
                                                  substantially similar to the FINRA                      custodian’s acceptance authorization or                compliance with its credit policies or
                                                  provision to provide clarity on how any                 custodial approval; or (13) the customer               minimum asset requirements. A
                                                  such municipal securities should be                     has taken possession of the assets in the              receiving party may not reject only a
                                                  valued and to improve harmonization                     account (e.g., the municipal securities                portion of the account assets (i.e., the
                                                  between the MSRB and FINRA rules.58                     account assets in question have been                   particular assets not in compliance with
                                                                                                          transferred directly to the customer).62               the dealer’s credit policies or minimum
                                                  Exceptions To Transfer Instructions                                                                            asset requirement). Rule G–26 currently
                                                                                                             Additionally, FINRA Rule 11870(d)(2)                does not include any comparable
                                                     As part of the validation process,
                                                                                                          precludes a carrying party from taking                 provisions, but the MSRB believes it is
                                                  current Rule G–26 provides that the
                                                                                                          an exception and denying validation of                 reasonable for a receiving party to deny
                                                  carrying party may take certain
                                                  exceptions to the transfer instructions                 the transfer instruction because of a                  a customer’s transfer request due to
                                                  authorized by the customer and                          dispute over security positions or the                 noncompliance with its credit policies
                                                  provided by the receiving party.                        money balance in the account to be                     or minimum asset requirements.
                                                  Specifically, Rule G–26(d)(ii) allows a                 transferred, and it requires the carrying              Accordingly, the proposed rule change
                                                  carrying party to take exception to a                   party to transfer the positions and/or                 would provide this ability to the
                                                  transfer instruction only if it has no                  money balance reflected on its books for               receiving party in Rule G–26.65
                                                  record of the account on its books or the               the account. The MSRB believes this
                                                                                                          provision will be equally valuable to                  Resolution of Discrepancies
                                                  transfer instruction is incomplete.59
                                                  FINRA Rule 11870(d)(3) provides                         transfers covered under Rule G–26 to                      Rule G–26(f) currently provides that
                                                  numerous other bases to take exception                  ensure that customers are able to hold                 any discrepancies relating to positions
                                                  to a transfer instruction that the MSRB                                                                        or money balances that exist or occur
                                                  believes would more comprehensively                        60 For such an exception, the receiving party       after transfer of a customer account
                                                                                                          would have to resubmit the transfer instruction        must be resolved promptly.66 FINRA
                                                  address potential issues with a transfer                only if the most recent customer statement is
                                                  instruction with which a carrying party                 attached. See proposed Rule G–26(e)(v).
                                                                                                                                                                 Rule 11870(g) includes the same
                                                  could reasonably take issue and better                     61 If the carrying party has changed the account    standard but also requires that the
                                                  harmonize with FINRA Rule 11870.                        number for purposes of internally reassigning the      carrying party must promptly distribute
                                                  Accordingly, in addition to the existing                account, it would be the responsibility of the         to the receiving party any transferable
                                                                                                          carrying party to track the changed account number,    assets that accrue to the customer’s
                                                  bases for exceptions, the proposed rule                 and such reassigned account number would not be
                                                  change would allow a carrying party to                  considered invalid for purposes of fulfilling a        transferred account after the transfer has
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                                                  take exception to a transfer instruction                transfer instruction. See proposed Rule G–             been effected. Further, FINRA Rule
                                                                                                          26(e)(iv)(F).                                          11870(g) provides clarity to the
                                                                                                             62 In order to include the exceptions to transfer
                                                    54 See proposed Rule G–26(e)(i).                                                                             promptness requirement by requiring
                                                    55 See                                                instructions with the provisions related to
                                                           proposed Rule G–26(e)(ii).
                                                    56 See proposed Rule G–26(e)(ii).
                                                                                                          validation, the proposed rule change would move         63 See
                                                                                                          the existing exceptions to, and add the new                    proposed Rule G–26(e)(iii).
                                                    57 See proposed Rule G–26(a)(vi).                                                                             64 See proposed Rule G–26(e)(vi).
                                                                                                          exceptions in, the new, separate section on
                                                    58 See proposed Rule G–26(e)(ii).                                                                             65 See proposed Rule G–26(e)(viii).
                                                                                                          validation of transfer instructions. See proposed
                                                    59 See Rule G–26(d)(ii).                              Rule G–26(e)(iv).                                       66 See Rule G–26(f).




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                                                  27312                        Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices

                                                  that any claims of discrepancies after a                party to transfer credit balances that                 securities dealers and advice provided to or
                                                  transfer must be resolved within five                   occur in any transferred account assets                on behalf of municipal entities or obligated
                                                  business days from notice of such claim                 (both cash and securities) through the                 persons by brokers, dealers, municipal
                                                  or the non-claiming party must take                     automated service within 10 business                   securities dealers, and municipal advisors
                                                                                                                                                                 with respect to municipal financial products,
                                                  exception to the claim and set forth                    days after the credit balances accrue to               the issuance of municipal securities, and
                                                  specific reasons for doing so. To provide               the account for a minimum period of six                solicitations of municipal entities or
                                                  the same level of clarity and to improve                months. Given that the majority of                     obligated persons undertaken by brokers,
                                                  harmonization with FINRA Rule                           customer account transfers subject to                  dealers, municipal securities dealers, and
                                                  11870(g), the proposed rule change                      Rule G–26 occur manually, the MSRB                     municipal advisors.
                                                  would include these same additional                     believes it is important to provide
                                                  provisions.67                                           clarity on the obligation and timing                     Section 15B(b)(2)(C) of the Act 75
                                                                                                          required to transfer such credit balances              provides that the MSRB’s rules shall:
                                                  Participant in a Registered Clearing
                                                                                                          for any customer account transfer, so the              be designed to prevent fraudulent and
                                                  Agency
                                                                                                          proposed rule change would include a                   manipulative acts and practices, to promote
                                                     When both the carrying party and the                 provision with the same 10-business-                   just and equitable principals of trade, to
                                                  receiving party are direct participants in              day requirement as FINRA Rule                          foster cooperation and coordination with
                                                  a clearing agency that is registered with               11870(n) that is not limited to when                   persons engaged in regulating, clearing,
                                                  the SEC and offers automated customer                   both parties are direct participants in a              settling, processing information with respect
                                                  securities account transfer capabilities,                                                                      to, and facilitating transactions in municipal
                                                                                                          clearing agency registered with the SEC
                                                  Rule G–26(h) currently requires the                                                                            securities and municipal financial products,
                                                                                                          offering automated customer securities                 to remove impediments to and perfect the
                                                  account transfer procedure to be                        account transfer capabilities.71                       mechanism of a free and open market in
                                                  accomplished pursuant to the rules of                                                                          municipal securities and municipal financial
                                                  and through such registered clearing                    Written Procedures
                                                                                                                                                                 products, and, in general, to protect
                                                  agency.68 FINRA Rule 11870(m) has a                        Current Rule G–26 does not itself                   investors, municipal entities, obligated
                                                  similar requirement that provides an                    include any requirement for policies                   persons, and the public interest.
                                                  exception for specifically designated                   and procedures, but Supplementary
                                                  securities assets transferred pursuant to               Material .01 to FINRA Rule 11870                          The MSRB believes that the proposed
                                                  the submittal of a customer’s authorized                requires the establishment, maintenance                rule change is consistent with the
                                                  alternate instructions to the carrying                  and enforcement of written procedures                  provisions of Sections 15B(b)(2) 76 and
                                                  party. As discussed above, FINRA Rule                   to affect and supervise customer                       15B(b)(2)(C) 77 of the Act because it
                                                  11870(m)(3) also requires the transfer of               account transfers. The MSRB believes it                would re-establish consistency with the
                                                  residual credit positions through the                   is important for dealers to document the               customer account transfer rules of other
                                                  registered clearing agency. Further,                    procedures they follow to effect                       SROs by conforming to significant
                                                  FINRA Rule 11870(m)(4) prescribes                       customer account transfers and to                      updates by the NSCC, the NYSE and
                                                  several conditions for such transfers for               require explicitly written procedures for              FINRA that have relevance to municipal
                                                  participants in a registered clearing                   supervision of the same, which is                      securities. Further, the MSRB believes
                                                  agency.69 The MSRB believes customers                   consistent with MSRB Rule G–27, on                     that including certain provisions from
                                                  and the parties to a customer account                   supervision. Accordingly, the proposed                 the other rules in the proposed rule
                                                  transfer should have the option of                      rule change would include such a                       change will make the transfer of
                                                  performing the transfer outside of the                  requirement.72                                         customer securities account assets more
                                                  facilities of a registered clearing agency                                                                     flexible, less burdensome, and more
                                                                                                          FINRA Rule 11650—Transfer Fees                         efficient, while reducing confusion and
                                                  when an appropriate authorized
                                                  alternate instruction is given.                            Neither current Rule G–26 nor any                   risk to investors and allowing them to
                                                  Additionally, the MSRB believes the                     other MSRB rule specifically addresses                 better move their securities to their
                                                  additional prescription related to the                  transfer fees. However, FINRA Rule                     dealer of choice. The MSRB believes the
                                                  process provided by FINRA will give                     11650, on transfer fees, specifies that the            proposed rule change will promote
                                                  greater clarity to customers and dealers.               party at the instance of which a transfer              fairness and provide greater efficiency
                                                  Accordingly, the proposed rule change                   of securities is made shall pay all                    in the transfer of customer accounts,
                                                  would include these provisions.70                       service charges of the transfer agent. The             which should prevent fraudulent and
                                                                                                          MSRB believes it is important to clarify               manipulative acts and practices,
                                                  Transfer of Residual Positions                          which party is responsible for the fees                promote just and equitable principals of
                                                    When both the carrying party and the                  incurred for a customer account                        trade, foster cooperation and
                                                  receiving party are direct participants in              transfer. Accordingly, the proposed rule               coordination with persons engaged in
                                                  a clearing agency registered with the                   change would include a provision                       regulating, clearing, settling, processing
                                                  SEC offering automated customer                         identical to FINRA Rule 11650.73                       information with respect to, and
                                                  securities account transfer capabilities,                                                                      facilitating transactions in municipal
                                                                                                          2. Statutory Basis
                                                  FINRA Rule 11870(n) requires each                                                                              securities and municipal financial
                                                                                                             Section 15B(b)(2) of the Act 74                     products, remove impediments to and
                                                    67 See proposed Rule G–26(i)(ii)–(iii).               provides that:                                         perfect the mechanism of a free and
                                                    68 See Rule G–26(h).                                  [t]he Board shall propose and adopt rules to           open market in municipal securities and
                                                    69 FINRA also defines a ‘‘participant in a
                                                                                                          effect the purposes of this title with respect         municipal financial products, and, in
                                                  registered clearing agency’’ as ‘‘a member of a         to transactions in municipal securities                general, protect investors and the public
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                                                  registered clearing agency that is eligible to make     effected by brokers, dealers, and municipal
                                                  use of the agency’s automated customer securities                                                              interest.
                                                  account transfer capabilities,’’ and ‘‘registered
                                                                                                            71 See
                                                                                                                                                                    The MSRB also believes that the
                                                  clearing agency’’ as ‘‘a clearing agency as defined              proposed Rule G–26(g).
                                                                                                            72 See
                                                                                                                                                                 proposed rule change is consistent with
                                                  in, and registered in accordance with, the Exchange              Supplementary Material .02 to proposed
                                                  Act.’’ The proposed rule change would include           Rule G–26.
                                                                                                                                                                  75 15 U.S.C. 78o–4(b)(2)(C).
                                                  these same definitions. See proposed Rule G–              73 See Supplementary Material .03 to proposed

                                                  26(a)(iv)–(v).                                          Rule G–26.                                              76 15 U.S.C. 78o–4(b)(2).
                                                    70 See proposed Rule G–26(k).                           74 15 U.S.C. 78o–4(b)(2).                             77 15 U.S.C. 78o–4(b)(2)(C).




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                                                                                  Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices                                                   27313

                                                  Section 15B(b)(2)(G) of the Act,78 which                   C. Self-Regulatory Organization’s                      26, it should amend the rule to
                                                  provides that the MSRB’s rules shall:                      Statement on Comments on the                           incorporate FINRA Rule 11870 by
                                                  prescribe records to be made and kept by                   Proposed Rule Change Received From                     reference, similar to what the NYSE has
                                                  municipal securities brokers, municipal                    Members, Participants, or Others                       done in its Rule 412 and what the Board
                                                  securities dealers, and municipal advisors                    The MSRB received three comment                     has done in MSRB Rule G–41, on anti-
                                                  and the periods for which such records shall               letters in response to the Request for                 money laundering compliance
                                                  be preserved.                                                                                                     programs.84 SIFMA specifically
                                                                                                             Comment.81 The comment letters are
                                                    The MSRB believes that the proposed                      summarized below by topic, and the                     proposed that the rule state that dealers
                                                  rule change is consistent with Section                     MSRB’s responses are provided.                         ‘‘shall comply with FINRA Rule 11870,
                                                  15B(b)(2)(G) of the Act 79 because it                                                                             concerning the transfer of customer
                                                  would require dealers to document the                      The Need for Rule G–26                                 accounts between members, and any
                                                  procedures they follow to effect                              SIFMA supported the stated purpose                  amendments thereto, as if such Rule is
                                                  customer account transfers and to                          of the draft amendments to modernize                   part of MSRB’s Rules.’’ SIFMA believed
                                                  require explicitly written procedures for                  Rule G–26 and promote a uniform                        this ‘‘methodology is the most efficient
                                                  supervision of the same.                                   customer account transfer standard, but                way to reduce confusion and risk to
                                                                                                             it suggests some alternative approaches                investors, and reduce regulatory risk to
                                                  B. Self-Regulatory Organization’s                                                                                 dealers,’’ which SIFMA stated have
                                                                                                             to achieve that end. Specifically, SIFMA
                                                  Statement on Burden on Competition                                                                                largely not been complying with the
                                                                                                             recognized that Rule G–26 is only
                                                    Section 15B(b)(2)(C) of the Act 80                       applicable to municipal securities                     rule. SIFMA further believes this would
                                                  requires that MSRB rules not be                            brokers and municipal securities                       ensure that all dealers are covered by a
                                                  designed to impose any burden on                           dealers, particularly those with                       rule and that there is harmonization
                                                  competition not necessary or                               municipal security-only accounts and                   between the various SROs’ rules.
                                                  appropriate in furtherance of the                          bank dealers, but believes the rule is                    Although amending Rule G–26 to
                                                  purposes of the Act. In determining                        unnecessary. Further, SIFMA noted that                 incorporate FINRA Rule 11870 by
                                                  whether these standards have been met,                     the firms subject to Rule G–26 are a                   reference could be a simple and efficient
                                                  the MSRB was guided by the Board’s                         small fraction of the total number of                  solution to provide a uniform industry
                                                  Policy on the Use of Economic Analysis                     firms and, for the most part, are not                  standard, the MSRB does not typically
                                                  in MSRB Rulemaking. In accordance                          direct clearing participants of the NSCC               incorporate other regulators’ rules by
                                                  with this policy, the Board has                            and, therefore, not eligible to participate            reference. The MSRB believes that,
                                                  evaluated the potential impacts on                         in the ACATS process.82 SIFMA stated                   while the incorporation by reference
                                                  competition of the proposed rule                           that, because these firms are not                      approach suggested by SIFMA may
                                                  change, including in comparison to                         members of the NYSE or FINRA and,                      enhance harmonization with FINRA’s
                                                  reasonable alternative regulatory                          therefore, not subject to NYSE Rule 412                rules, that approach would raise
                                                  approaches, relative to the baseline. The                  and FINRA Rule 11870, they are exempt                  significant concerns for the MSRB,
                                                  MSRB does not believe the proposed                         from participating in ACATS under                      given its statutory mandate and mission.
                                                  rule change imposes any burden on                          Rule G–26. Finally, SIFMA believes that                For example, if FINRA or its staff were
                                                  competition not necessary or                               there are few customer account transfers               to provide an interpretation of FINRA
                                                  appropriate in furtherance of the                          that occur ex-clearing (i.e., a manual                 Rule 11870, the MSRB automatically
                                                  purposes of the Act.                                       process outside of ACATS), making                      would be adopting that interpretation
                                                     The MSRB does not believe the                           Rule G–26 redundant, and suggests that                 without deliberately considering the
                                                  proposed rule change will create a                         the MSRB eliminate it.                                 issues that may be unique to, or the
                                                  burden on competition, as all municipal                       Although SIFMA is correct that most                 interpretation’s ramifications for, the
                                                  securities brokers and municipal                           of the firms subject to Rule G–26 do not               municipal securities market. Further,
                                                  securities dealers would be subject to                     participate in ACATS, SIFMA did not
                                                                                                                                                                    there are municipal securities dealers
                                                  the same modified requirements for                         recognize that, from the rule’s inception,
                                                                                                                                                                    that are not members of FINRA. Those
                                                  customer account transfers. The MSRB                       it has been intended to cover these
                                                                                                                                                                    dealers may not have notice of FINRA’s
                                                  believes that the proposed rule change                     firms, which are not subject to NSCC,
                                                                                                                                                                    rule interpretations unless the MSRB
                                                  may reduce inefficiencies that stem                        FINRA or NYSE rules, regardless of how
                                                                                                                                                                    were to monitor FINRA’s rulemaking
                                                  from uncertainty and confusion                             few of them there may be and regardless
                                                                                                                                                                    and independently notify dealers.
                                                  associated with existing Rule G–26. The                    of how few customer account transfers
                                                                                                                                                                    Therefore, if the MSRB were to regulate
                                                  MSRB also believes that dealers may                        they may perform.83 As such, the MSRB
                                                                                                                                                                    customer account transfers over which
                                                  benefit from clarifications and revisions                  believes that there remains a need for
                                                                                                                                                                    it has jurisdiction by simply
                                                  that more closely reflect the securities                   Rule G–26 to address the manual
                                                                                                                                                                    incorporating a FINRA rule by
                                                  industry standard, which may, in turn,                     processes used by these firms in
                                                  reduce operational risk to dealers and                     transferring customer accounts.                        reference, the MSRB potentially could
                                                  investors. Finally, the MSRB believes                         SIFMA alternatively suggested that, if              be seen as delegating its core mission to
                                                  that the proposed rule change will make                    the MSRB does not eliminate Rule G–                    protect investors, issuers, and the public
                                                  the transfer of customer municipal                                                                                interest and to promote a fair and
                                                  securities account assets more flexible,                      81 See Letters from: Mike Nicholas, Chief           efficient municipal market.
                                                  less burdensome, and more efficient,                       Executive Officer, Bond Dealers of America
                                                                                                             (‘‘BDA’’), dated February 17, 2017; Michael              84 Rule G–41 provides that dealers will be deemed
                                                  while reducing confusion and risk to
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                                                                                                             Paganini (‘‘Paganini’’), dated January 6, 2017; and    to be in compliance with anti-money laundering
                                                  investors and allowing them to more                        Leslie M. Norwood, Managing Director and               program requirements if they establish and
                                                  conveniently move their municipal                          Associate General Counsel, SIFMA, dated February       implement a program that is in compliance with the
                                                  securities to their dealer of choice.                      17, 2017.                                              rules, regulations or requirements governing the
                                                                                                                82 As of May 16, 2017, there were 27 bank dealers
                                                                                                                                                                    establishment and maintenance of anti-money
                                                                                                             registered with the MSRB.                              laundering programs of the registered securities
                                                    78 15    U.S.C. 78o–4(b)(2)(G).                             83 See Exchange Act Release No. 22810 (Jan. 17,     association of which the dealer is a member or the
                                                    79 Id.
                                                                                                             1986), 51 FR 3287 (Jan. 24, 1986) (SR–MSRB–86–         appropriate regulatory agency as defined in the
                                                    80 15    U.S.C. 78o–4(b)(2)(C).                          2).                                                    Exchange Act.



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                                                  27314                        Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices

                                                  Consistency With FINRA Rule 11870                        comply—Rule G–12(h) or FINRA Rule                     aligns with existing dealer systems and
                                                  and the Definition of ‘‘Nontransferable                  11870.                                                processes.
                                                  Asset’’                                                     To avoid these inconsistencies and                    As an alternative to amending the
                                                     As discussed in the Request for                       uncertainties, the draft amendments in                definition of ‘‘nontransferable asset,’’
                                                  Comment, FINRA Rule 11870(f)(1)                          the Request for Comment proposed to                   SIFMA believed that FINRA Rule 11870
                                                  requires that any fail contracts resulting               amend the definition of                               must be amended as soon as practicable
                                                  from an account transfer, which                          ‘‘nontransferable asset’’ to include any              to reflect the recent amendments to Rule
                                                  includes municipal securities, be                        customer long position in a municipal                 G–12 relating to close-outs to eliminate
                                                  included in a dealer’s fail file and that,               security that allocates to a short                    the inconsistency in the time frames.
                                                  not later than 30 business days                          position, which resulted from either the              Accordingly, SIFMA suggested that
                                                  following the date delivery was due, the                 carrying party’s trading activity or                  FINRA simply cross-reference Rule G–
                                                  dealer shall take steps to obtain physical               failure to receive the securities it                  12(h), and any amendments thereto, for
                                                  possession or control of the municipal                   purchased to fill a customer’s municipal              any fail contracts in municipal
                                                  securities so failed to receive by                       securities order (i.e., an inter-dealer               securities resulting from customer
                                                  initiating a buy-in procedure or                         transaction fail). In the Request for                 account transfers.88 BDA commented
                                                  otherwise.85 This 30-day time frame,                     Comment, the MSRB noted that, if                      that it did not see a policy reason to
                                                  however, is inconsistent with Rule G–                    FINRA were to similarly amend Rule                    amend Rule G–26, but BDA’s letter did
                                                  26, which, through reference to MSRB                     11870 to make these short positions                   not confront the inconsistency between
                                                  Rule G–12(h), provides 10 calendar days                  nontransferable, then customer account                Rule G–26 and FINRA Rule 11870, and
                                                  with the option for a one-time extension                 transfers of municipal securities would               the related complexity created in CNS.
                                                  of 10 calendar days, totaling up to 20                   be significantly less likely to fail and              BDA further questioned the need for any
                                                  calendar days, for dealers to close out                  there might no longer be a need to                    changes by FINRA to FINRA Rule
                                                  failed inter-dealer municipal securities                 establish fail contracts and provide a                11870, and believed FINRA Rule
                                                  transactions.86 The Request for                          process by which those fails could be                 11870(f) is an adequate standard with
                                                  Comment also noted that an additional                    closed out, eliminating the timing                    which Rule G–26 should harmonize
                                                  layer of inconsistency and complexity                    inconsistencies and ambiguity. The                    instead.
                                                                                                           MSRB further noted that dealers may                      Given both SIFMA’s and BDA’s
                                                  arises due to the system used to process
                                                                                                           not be subject to the costs associated                concerns about the operational changes
                                                  most failed securities resulting from
                                                                                                           with these transfer fails, as well as the             needed and the corresponding costs that
                                                  customer account transfers and inter-
                                                                                                           complication and confusion that may                   would result from such a change, the
                                                  dealer transactions. Specifically, an
                                                                                                           arise on coupon payment dates from the                MSRB, at this time, does not believe
                                                  inter-dealer transaction of municipal
                                                                                                           need to provide substitute interest for               amending the definition of
                                                  securities is processed in the NSCC’s
                                                                                                           tax-exempt municipal securities. The                  ‘‘nontransferable asset’’ to include any
                                                  Continuous Net Settlement (‘‘CNS’’)
                                                                                                           MSRB stated its belief that this draft                customer long position in a municipal
                                                  system to be paired up with potentially
                                                                                                           amendment would have the additional                   security that allocates to a short position
                                                  another counterparty and settled.87 Any
                                                                                                           benefits of reducing counterparty risk                is appropriate, particularly without
                                                  CNS-eligible municipal security in a                                                                           certainty that FINRA would similarly
                                                                                                           and increasing investor confidence.
                                                  customer account transfer that fails to be                  SIFMA recognized the inconsistency                 amend FINRA Rule 11870 to ensure that
                                                  delivered also enters CNS. Once in CNS,                  between Rule G–26 and FINRA Rule                      all short municipal securities positions
                                                  it is difficult to determine which fails                 11870, as well as the complexity in CNS               in customer account transfers receive
                                                  resulted from inter-dealer transactions                  created by the inconsistency; however,                identical treatment.
                                                  or customer account transfers, and the                   it disagreed with the MSRB’s analysis
                                                  counterparties that are paired up may                                                                          Miscellaneous Comments
                                                                                                           that the draft amendment to the
                                                  not be the same counterparties to the                    definition of ‘‘nontransferable asset’’                  As discussed above, in response to
                                                  original transaction/transfer. As a result,              would reduce counterparty risk and                    comments from SIFMA, the proposed
                                                  it may be unclear with which rule and                    increase customer confidence, and it                  rule change would amend the definition
                                                  corresponding time frame firms should                    believed that it would be disruptive to               of ‘‘nontransferable asset’’ to include
                                                                                                           industry practice and outside of                      proprietary products of the carrying
                                                     85 A buy-in occurs when the seller in a
                                                                                                           standard ACATS procedures. SIFMA                      party and would allow for either the
                                                  transaction, who failed to deliver the securities sold
                                                  to the buyer, purchases all or any part of the           stated that ‘‘[a]utomated systems fail to             carrying party or the receiving party (or
                                                  securities necessary to complete the transaction at      be efficient if they require manual                   both) to provide the list of
                                                  the current market, with the seller bearing any          processes, such as validating if a long               nontransferable assets to a customer and
                                                  burden from any change in the market price, and          municipal security position is allocated              request their disposition.89
                                                  any benefit from any change in the market price
                                                  remaining with the buyer.                                to a short firm position.’’ BDA also had              Additionally, Paganini believed that
                                                     86 The MSRB notes that market participants were       concerns and believes that the proposed               firms are ‘‘very inefficient when it
                                                  very supportive of, and, in fact, suggested the time     amendment to the definition is                        comes to account transfers of specific
                                                  frames recently adopted in Rule G–12(h) for closing      unworkable. BDA stated that significant               types of assets i.e., some municipal
                                                  out failed inter-dealer transactions. The MSRB                                                                 bonds,’’ and that ‘‘it is exasperating,
                                                  further notes that the inconsistency between the
                                                                                                           operational changes would have to
                                                  timing of FINRA’s buy-in procedures under FINRA          occur in order to make the change                     frustrating, and time consuming for the
                                                  Rule 11870(f)(1) (30 business days) and the timing       feasible because current dealer systems               private investor’’ when there is a
                                                  of the MSRB’s previous close-out procedures for          are not designed to code or segregate                 problem with an account transfer. He
                                                  inter-dealer transactions (up to 90 business days)                                                             recommended that there be some type of
                                                                                                           inter-dealer transaction fails and
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                                                  existed prior to the amendments to Rule G–12(h).
                                                     87 As a key part of the CNS system, NSCC acts as      account transfer fails, and because most              enforcement mechanism or financial
                                                  the central counterparty for clearance and               firms track fails at the firm level, not at           penalty for transfers that cannot be
                                                  settlement for virtually all broker-to-broker equity,    the account level for compliance with
                                                  corporate and municipal bond and unit investment                                                                  88 SIFMA also suggested that FINRA consolidate
                                                                                                           regulatory issues, such as properly
                                                  trust trading in the United States. CNS processes                                                              its rules relating to customer account transfers,
                                                  include an automated book-entry accounting system
                                                                                                           tracking substitute interest. BDA urged               including related fees, into FINRA Rule 11870.
                                                  that centralizes settlement and maintains an orderly     the MSRB to engage in dealer outreach                    89 See Definition of ‘‘Nontransferable Asset’’ and

                                                  flow of security and money balances.                     to find a different solution that better              Transfer Instructions supra.



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                                                                               Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices                                              27315

                                                  accomplished within a reasonable time                   public in accordance with the                          applicable listing standard after
                                                  period. The MSRB notes that dealers are                 provisions of 5 U.S.C. 552, will be                    satisfying the required seasoning period.
                                                  expected to comply with the                             available for Web site viewing and                        The text of the proposed rule change
                                                  appropriate customer account transfer                   printing in the Commission’s Public                    is set forth below. Proposed new
                                                  rule, including Rule G–26 (and the time                 Reference Room, 100 F Street NE.,                      language is italicized; deleted text is in
                                                  frames included therein) where                          Washington, DC 20549 on official                       brackets.
                                                  applicable, and that, if they do not, they              business days between the hours of                     *      *     *    *     *
                                                  could be subject to an enforcement                      10:00 a.m. and 3:00 p.m. Copies of the
                                                  action for violating the rule.                          filing also will be available for                      5110. Change of Control, Bankruptcy
                                                                                                          inspection and copying at the principal                and Liquidation, and Reverse Mergers
                                                  III. Date of Effectiveness of the                       office of the MSRB. All comments
                                                  Proposed Rule Change and Timing for                                                                              (a)–(b) No change.
                                                                                                          received will be posted without change;
                                                  Commission Action                                       the Commission does not edit personal                  (c) Reverse Mergers
                                                     Within 45 days of the date of                        identifying information from                              (1) A Company that is formed by a
                                                  publication of this notice in the Federal               submissions. You should submit only                    Reverse Merger (a ‘‘Reverse Merger
                                                  Register or within such longer period of                information that you wish to make                      Company’’) shall be eligible to submit
                                                  up to 90 days (i) as the Commission may                 available publicly. All submissions                    an application for initial listing only if
                                                  designate if it finds such longer period                should refer to File Number SR–MSRB–                   the combined entity has, immediately
                                                  to be appropriate and publishes its                     2017–03 and should be submitted on or                  preceding the filing of the initial listing
                                                  reasons for so finding or (ii) as to which              before July 5, 2017.                                   application:
                                                  the self-regulatory organization                          For the Commission, pursuant to delegated               (A) No change.
                                                  consents, the Commission will:                          authority.90                                              (B) maintained a closing price [of $4
                                                     (A) By order approve or disapprove                   Robert W. Errett,                                      per share or higher]equal to the share
                                                  such proposed rule change, or                           Deputy Secretary.                                      price requirement applicable to the
                                                     (B) institute proceedings to determine                                                                      initial listing standard under which the
                                                                                                          [FR Doc. 2017–12266 Filed 6–13–17; 8:45 am]
                                                  whether the proposed rule change                                                                               Reverse Merger Company is qualifying
                                                                                                          BILLING CODE 8011–01–P
                                                  should be disapproved.                                                                                         to list for a sustained period of time, but
                                                  IV. Solicitation of Comments                                                                                   in no event for less than 30 of the most
                                                    Interested persons are invited to                     SECURITIES AND EXCHANGE                                recent 60 trading days.
                                                  submit written data, views, and                         COMMISSION                                                (2) In addition to satisfying all of
                                                  arguments concerning the foregoing,                                                                            Nasdaq’s other initial listing
                                                                                                          [Release No. 34–80888; File No. SR–
                                                  including whether the proposed rule                     NASDAQ–2017–053]                                       requirements, a Reverse Merger
                                                  change is consistent with the Act.                                                                             Company will only be approved for
                                                  Comments may be submitted by any of                     Self-Regulatory Organizations; The                     listing if, at the time of approval, it has:
                                                  the following methods:                                  NASDAQ Stock Market LLC; Notice of                        (A) No change.
                                                                                                          Filing and Immediate Effectiveness of                     (B) maintained a closing price [of $4
                                                  Electronic Comments                                     Proposed Rule Change To Amend Rule                     per share or higher]equal to the share
                                                    • Use the Commission’s Internet                       5110(c) To Permit a Reverse Merger                     price requirement applicable to the
                                                  comment form (http://www.sec.gov/                       Company To Qualify for Initial Listing                 initial listing standard under which the
                                                  rules/sro.shtml); or                                    Under Any Applicable Listing Standard                  Reverse Merger Company is qualifying
                                                    • Send an email to rule-comments@                     After Satisfying the Required                          to list for a sustained period of time, but
                                                  sec.gov. Please include File Number SR–                 Seasoning Period                                       in no event for less than 30 of the most
                                                  MSRB–2017–03 on the subject line.                                                                              recent 60 trading days prior to approval.
                                                                                                          June 8, 2017.                                             (3) No change.
                                                  Paper Comments                                             Pursuant to Section 19(b)(1) of the
                                                                                                          Securities Exchange Act of 1934                        *      *      *     *    *
                                                    • Send paper comments in triplicate                                                                             The text of the proposed rule change
                                                  to Secretary, Securities and Exchange                   (‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                                                                          notice is hereby given that, on May 25,                is available on the Exchange’s Web site
                                                  Commission, 100 F Street NE.,                                                                                  at http://nasdaq.cchwallstreet.com, at
                                                  Washington, DC 20549.                                   2017, The NASDAQ Stock Market LLC
                                                                                                          (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the            the principal office of the Exchange, and
                                                  All submissions should refer to File                                                                           at the Commission’s Public Reference
                                                                                                          Securities and Exchange Commission
                                                  Number SR–MSRB–2017–03. This file                                                                              Room.
                                                                                                          (‘‘SEC’’ or ‘‘Commission’’) the proposed
                                                  number should be included on the
                                                                                                          rule change as described in Items I, II,               II. Self-Regulatory Organization’s
                                                  subject line if email is used. To help the
                                                                                                          and III below, which Items have been                   Statement of the Purpose of, and
                                                  Commission process and review your
                                                                                                          prepared by the Exchange. The                          Statutory Basis for, the Proposed Rule
                                                  comments more efficiently, please use
                                                                                                          Commission is publishing this notice to                Change
                                                  only one method. The Commission will
                                                                                                          solicit comments on the proposed rule
                                                  post all comments on the Commission’s                                                                            In its filing with the Commission, the
                                                                                                          change from interested persons.
                                                  Internet Web site (http://www.sec.gov/                                                                         Exchange included statements
                                                  rules/sro.shtml). Copies of the                         I. Self-Regulatory Organization’s                      concerning the purpose of and basis for
                                                  submission, all subsequent                              Statement of the Terms of Substance of                 the proposed rule change and discussed
                                                  amendments, all written statements                      the Proposed Rule Change                               any comments it received on the
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                                                  with respect to the proposed rule                          The Exchange proposes to allow a                    proposed rule change. The text of these
                                                  change that are filed with the                          former reverse merger company to                       statements may be examined at the
                                                  Commission, and all written                             qualify for initial listing under any                  places specified in Item IV below. The
                                                  communications relating to the                                                                                 Exchange has prepared summaries, set
                                                  proposed rule change between the                          90 17 CFR 200.30–3(a)(12).                           forth in sections A, B, and C below, of
                                                  Commission and any person, other than                     1 15 U.S.C. 78s(b)(1).                               the most significant aspects of such
                                                  those that may be withheld from the                       2 17 CFR 240.19b–4.                                  statements.


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Document Created: 2017-06-14 01:24:10
Document Modified: 2017-06-14 01:24:10
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 27307 

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