11542 Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 63331 (Nov. 17, 

2010), 75 FR 72850 (Nov. 26, 2010) (‘‘Notice’’). 

4See Letters from Richard M. Garone, Travelers, 

dated Dec. 16, 2010 (‘‘Travelers’’); Letter from Robert 

J. Duke, The Surety & Fidelity Association of 

America, dated Dec. 17, 2010 (‘‘SFAA’’); and Letter 

from Albert Kramer, Kramer Securities Corporation, 

dated Dec. 31, 2010 (‘‘Kramer’’). 

5See Notice, supra note 3, for a more detailed 

discussion of the proposed rule change. 

6Members may elect to carry additional, optional 

Insuring Agreements not required by proposed 

FINRA Rule 4360 for an amount less than 100 

percent of the minimum required bond coverage. 

7NYSE Rule 319 defines the term ‘‘substantially 

modified’’ as any change in the type or amount of 

fidelity bonding coverage, or in the exclusions to 

which the bond is subject, or any other change in 

the bond such that it no longer complies with the 

requirements of the rule. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63961; File No. SR–FINRA– 

2010–059] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Adopt 

FINRA Rule 4360 (Fidelity Bonds) in 

the Consolidated FINRA Rulebook 

February 24, 2011. 

I. Introduction 

On November 10, 2010, the Financial 

Industry Regulatory Authority, Inc., 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’) pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’) 1

and Rule 19b–4 thereunder,2 a proposed 

rule change to adopt NASD Rule 3020 

(Fidelity Bonds) with certain changes 

into the consolidated FINRA rulebook 

as FINRA Rule 4360 (Fidelity Bonds). 

The proposed rule change was 

published for comment in the Federal 

Register on November 26, 2010.3 The 

Commission received three comment 

letters on the proposed rule change.4

II. Description of Proposed Rule Change 

A. Summary 

FINRA is proposing to adopt NASD 

Rule 3020 (Fidelity Bonds) with certain 

changes into the consolidated FINRA 

rulebook as FINRA Rule 4360 (Fidelity 

Bonds), taking into account 

Incorporated NYSE Rule 319 (Fidelity 

Bonds) and its Interpretation. NASD 

Rule 3020 and NYSE Rule 319 (and its 

Interpretation) generally require 

members to maintain minimum 

amounts of fidelity bond coverage for 

officers and employees, and that such 

coverage address losses incurred due to 

certain specified events. The purpose of 

a fidelity bond is to protect a member 

against certain types of losses, 

including, but not limited to, those 

caused by the malfeasance of its officers 

and employees, and the effect of such 

losses on the member’s capital. 

B. Description of Proposed Rule Change 

1. General Provision 

NASD Rule 3020(a) generally 

provides that each member required to 

join the Securities Investor Protection 

Corporation (‘‘SIPC’’) that has employees 

and that is not a member in good 

standing of one of the enumerated 

national securities exchanges must 

maintain fidelity bond coverage; NYSE 

Rule 319(a) generally requires member 

organizations doing business with the 

public to carry fidelity bonds. Proposed 

FINRA Rule 4360 would require each 

member that is required to join SIPC to 

maintain blanket fidelity bond coverage 

with specified amounts of coverage 

based on the member’s net capital 

requirement, with certain exceptions.5

NASD Rule 3020(a)(1) requires 

members to maintain a blanket fidelity 

bond in a form substantially similar to 

the standard form of Brokers Blanket 

Bond promulgated by the Surety 

Association of America. Under NYSE 

Rule 319(a), the Stockbrokers 

Partnership Bond and the Brokers 

Blanket Bond approved by the NYSE are 

the only bond forms that may be used 

by a member organization; NYSE 

approval is required for any variation 

from such forms. Proposed FINRA Rule 

4360 would require members to 

maintain fidelity bond coverage that 

provides for per loss coverage without 

an aggregate limit of liability. 

Under proposed FINRA Rule 4360, a 

member’s fidelity bond must provide 

against loss and have Insuring 

Agreements covering at least the 

following: Fidelity, on premises, in 

transit, forgery and alteration, securities 

and counterfeit currency. The proposed 

rule change modifies the descriptive 

headings for these Insuring Agreements, 

in part, from NASD Rule 3020(a)(1) and 

NYSE Rule 319(d) to align them with 

the headings in the current bond forms 

available to broker-dealers. 

Proposed FINRA Rule 4360 would 

also eliminate the specific coverage 

provisions in NASD Rule 3020(a)(4) and 

(a)(5), and NYSE Rule 319(d)(ii)(B) and 

(C), and (e)(ii)(B) and (C), that permit 

less than 100 percent of coverage for 

certain Insuring Agreements (i.e., 

fraudulent trading and securities 

forgery) to require that coverage for all 

Insuring Agreements be equal to 100 

percent of the firm’s minimum required 

bond coverage.6

As currently provided in NASD Rule 

3020 and NYSE Rule 319, proposed 

FINRA Rule 4360 would require that a 

member’s fidelity bond include a 

cancellation rider providing that the 

insurer will use its best efforts to 

promptly notify FINRA in the event the 

bond is cancelled, terminated or 

‘‘substantially modified.’’ Also, the 

proposed rule change would adopt the 

definition of ‘‘substantially modified’’ in 

NYSE Rule 319 and would incorporate 

NYSE Rule 319.12’s standard that a firm 

must immediately advise FINRA in 

writing if its fidelity bond is cancelled, 

terminated or substantially modified.7

FINRA is proposing to add 

supplementary material to proposed 

FINRA Rule 4360 that would require 

members that do not qualify for a bond 

with per loss coverage without an 

aggregate limit of liability to secure 

alternative coverage. Specifically, a 

member that does not qualify for blanket 

fidelity bond coverage as required by 

proposed FINRA Rule 4360(a)(3) would 

be required to maintain substantially 

similar fidelity bond coverage in 

compliance with all other provisions of 

the proposed rule, provided that the 

member maintains written 

correspondence from two insurance 

providers stating that the member does 

not qualify for the coverage required by 

proposed FINRA Rule 4360(a)(3). 

2. Minimum Required Coverage 

Proposed FINRA Rule 4360 would 

require each member to maintain, at a 

minimum, fidelity bond coverage for 

any person associated with the member, 

except directors or trustees of a member 

who are not performing acts within the 

scope of the usual duties of an officer or 

employee. As further detailed below, 

the proposed rule change would 

eliminate the exemption in NASD Rule 

3020 for sole stockholders and sole 

proprietors. 

The proposed rule change would 

increase the minimum required fidelity 

bond coverage for members, while 

continuing to base the coverage on a 

member’s net capital requirement. To 

that end, proposed FINRA Rule 4360 

would require a member with a net 

capital requirement that is less than 

$250,000 to maintain minimum 

coverage of the greater of 120 percent of 

the firm’s required net capital under 

Exchange Act Rule 15c3–1 or $100,000. 

The increase to $100,000 would modify 

the present minimum requirement of 

$25,000. 

Under proposed FINRA Rule 4360, 

members with a net capital requirement 

of at least $250,000 would use a table 

in the rule to determine their minimum 

fidelity bond coverage requirement. The 


emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Notices 11543 

8FINRA notes that a member may elect, subject 

to availability, a deductible of less than 10 percent 

of the coverage purchased. 

9NASD Rule 3020 bases the deduction from net 

worth for an excess deductible on a firm’s 

minimum required coverage, while proposed 

FINRA Rule 4360 would base such deduction from 

net worth on coverage purchased by the member. 

10See Exchange Act Release No. 58845 (Oct. 24, 

2008), 73 FR 64379 (Oct. 29, 2008) (Order 

Approving File No. SR–NYSE–2008–46). In this 

rule filing, the role of the specialist was altered in 

certain respects and the term ‘‘specialist’’ was 

replaced with the term ‘‘Designated Market Maker.’’ 

11A one-person member (that is, a firm owned by 

a sole proprietor or stockholder that has no other 

associated persons, registered or unregistered) has 

no ‘‘employees’’ for purposes of NASD Rule 3020, 

and therefore such a firm currently is not subject 

to the fidelity bonding requirements. Conversely, a 

firm owned by a sole proprietor or stockholder that 

has other associated persons has ‘‘employees’’ for 

purposes of NASD Rule 3020, and currently is, and 

will continue to be, subject to the fidelity bonding 

requirements. 

table is a modified version of the tables 

in NASD Rule 3020(a)(3) and NYSE 

Rule 319(e)(i). The identical NASD and 

NYSE requirements for members that 

have a minimum net capital 

requirement that exceeds $1 million 

would be retained in proposed FINRA 

Rule 4360; however, the proposed rule 

would adopt the higher requirements in 

NYSE Rule 319(e)(i) for a member with 

a net capital requirement of at least 

$250,000, but less than $1 million. 

Under the proposed rule, the entire 

amount of a member’s minimum 

required coverage must be available for 

covered losses and may not be eroded 

by the costs an insurer may incur if it 

chooses to defend a claim. Specifically, 

any defense costs for covered losses 

must be in addition to a member’s 

minimum coverage requirements. A 

member may include defense costs as 

part of its fidelity bond coverage, but 

only to the extent that it does not reduce 

a member’s minimum required coverage 

under the proposed rule. 

3. Deductible Provision 

Under current NASD Rule 3020(b), a 

deductible provision may be included 

in a member’s bond of up to $5,000 or 

10 percent of the member’s minimum 

insurance requirement, whichever is 

greater. If a member desires to maintain 

coverage in excess of the minimum 

insurance requirement, then a 

deductible provision may be included 

in the bond of up to $5,000 or 10 

percent of the amount of blanket 

coverage provided in the bond 

purchased, whichever is greater. The 

excess of any such deductible amount 

over the maximum permissible 

deductible amount based on the 

member’s minimum required coverage 

must be deducted from the member’s 

net worth in the calculation of the 

member’s net capital for purposes of 

Exchange Act Rule 15c3–1. Where the 

member is a subsidiary of another 

member, the excess may be deducted 

from the parent’s rather than the 

subsidiary’s net worth, but only if the 

parent guarantees the subsidiary’s net 

capital in writing. 

Under NYSE Rule 319(b), each 

member organization may self-insure to 

the extent of $10,000 or 10 percent of its 

minimum insurance requirement as 

fixed by the NYSE, whichever is greater, 

for each type of coverage required by the 

rule. Self-insurance in amounts 

exceeding the above maximum may be 

permitted by the NYSE provided the 

member or member organization 

certifies to the satisfaction of the NYSE 

that it is unable to obtain greater 

bonding coverage, and agrees to reduce 

its self-insurance so as to comply with 

the above stated limits as soon as 

possible, and appropriate charges to 

capital are made pursuant to Exchange 

Act Rule 15c3–1. This provision also 

contains identical language to the NASD 

rule regarding net worth deductions for 

subsidiaries. 

Proposed FINRA Rule 4360 would 

provide for an allowable deductible 

amount of up to 25 percent of the 

fidelity bond coverage purchased by a 

member. Any deductible amount 

elected by the firm that is greater than 

10 percent of the coverage purchased by 

the member 8 would be deducted from 

the member’s net worth in the 

calculation of its net capital for 

purposes of Exchange Act Rule 15c3–1.9

Like the NASD and NYSE rules, if the 

member is a subsidiary of another 

FINRA member, this amount may be 

deducted from the parent’s rather than 

the subsidiary’s net worth, but only if 

the parent guarantees the subsidiary’s 

net capital in writing. 

4. Annual Review of Coverage 

Consistent with NASD Rule 3020(c) 

and NYSE Rule 319.10, proposed 

FINRA Rule 4360 would require a 

member (including a firm that signs a 

multi-year insurance policy), annually 

as of the yearly anniversary date of the 

issuance of the fidelity bond, to review 

the adequacy of its fidelity bond 

coverage and make any required 

adjustments to its coverage, as set forth 

in the proposed rule. Under proposed 

FINRA Rule 4360(d), a member’s 

highest net capital requirement during 

the preceding 12-month period, based 

on the applicable method of computing 

net capital (dollar minimum, aggregate 

indebtedness or alternative standard), 

would be used as the basis for 

determining the member’s minimum 

required fidelity bond coverage for the 

succeeding 12-month period. The 

‘‘preceding 12-month period’’ includes 

the 12-month period that ends 60 days 

before the yearly anniversary date of a 

member’s fidelity bond. This would give 

a firm time to determine its required 

fidelity bond coverage by the 

anniversary date of the bond. 

Proposed FINRA Rule 4360 would 

allow a member that has only been in 

business for one year and elected the 

aggregate indebtedness ratio for 

calculating its net capital requirement to 

use, solely for the purpose of 

determining the adequacy of its fidelity 

bond coverage for its second year, the 15 

to 1 ratio of aggregate indebtedness to 

net capital in lieu of the 8 to 1 ratio 

(required for broker-dealers in their first 

year of business) to calculate its net 

capital requirement. Notwithstanding 

the above, such member would not be 

permitted to carry less minimum 

fidelity bond coverage in its second year 

than it carried in its first year. 

5. Exemptions 

Based in part on NASD Rule 3020(a), 

proposed FINRA Rule 4360 would 

exempt from the fidelity bond 

requirements members in good standing 

with a national securities exchange that 

maintain a fidelity bond subject to the 

requirements of such exchange that are 

equal to or greater than the requirements 

set forth in the proposed rule. 

Additionally, consistent with NYSE 

Rule Interpretation 319/01, proposed 

FINRA Rule 4360 would continue to 

exempt from the fidelity bond 

requirements any firm that acts solely as 

a Designated Market Maker (‘‘DMM’’),10

floor broker or registered floor trader 

and does not conduct business with the 

public. 

Proposed FINRA Rule 4360 would not 

maintain the exemption in NASD Rule 

3020(e) for a one-person firm.11

Historically, a sole proprietor or sole 

stockholder member was excluded from 

the fidelity bond requirements based 

upon the assumption that such firms 

were one-person shops and, therefore, 

could not obtain coverage for their own 

acts. FINRA has determined that sole 

proprietors and sole stockholder firms 

can and often do acquire fidelity bond 

coverage, even though it is currently not 

required, since all claims (irrespective 

of firm size) are likely to be paid or 

denied on a facts-and-circumstances 

basis. Also, certain coverage areas of the 

fidelity bond benefit a one-person shop 

(e.g., those covering customer property 

lost in transit). 


emcdonald on DSK2BSOYB1PROD with NOTICES
11544 Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Notices 

12See supra note 4. 

13See Letter from Erika L. Lazar, Counsel, FINRA, 

to Elizabeth M. Murphy, Secretary, Commission, 

dated February 23, 2010 (‘‘FINRA Letter’’). 

14See Kramer, SFAA and Travelers. 

15See Travelers. 

16See Kramer. 

17See SFAA. 

18See SFAA and Travelers. 

19See SFAA. 

20See FINRA Letter. 

21 Id. 

22See Notice, supra note 3; see also FINRA Letter. 

23See FINRA Letter. 

24 Id. 

25 Id. 

26See Travelers. Furthermore, Travelers argues 

that this proposed change would remove the 

industry standard aggregate limit of liability. 

27 Id. 

28See FINRA Letter. 

29 Id. 

30See Travelers. 

31 Id. 

III. Summary of Comments 

The Commission received three 

comment letters in response to the 

proposed rule change addressing 

different aspects of the proposal.12

FINRA submitted a response to these 

comment letters.13

A. Elimination of the Exemption in 

NASD Rule 3020 for Sole Proprietors 

and Sole Stockholders 

All three commenters oppose the 

proposed elimination of the exemption 

from the fidelity bond requirements in 

NASD Rule 3020 for sole proprietors 

and sole stockholders.14 One 

commenter believes that it is 

irresponsible to require one-person 

shops to maintain a fidelity bond that 

would provide little, if any, true 

coverage and that a one-person shop 

should be allowed to decide if they 

want to self-insure in other areas that 

would not invoke the alter-ego 

concept.15 Another commenter requests 

that the proposed rule change not be 

approved without an exemption for sole 

proprietors and sole stockholders and 

notes that maintaining a fidelity bond 

will be a great financial burden for small 

firms.16 The third commenter agrees 

with the premise that sole proprietors 

and sole stockholders may rely on 

certain Insuring Agreements in a fidelity 

bond.17 However, two commenters, 

including the third commenter 

referenced above, are concerned that 

Insuring Agreement A—Fidelity as 

required by the proposed rule, is not 

available in the market for a sole 

proprietor or sole stockholder because 

the sole owner is considered an alterego of the company and dishonesty of 

a sole owner cannot be underwritten 

prudently.18 One commenter suggests 

language that would exclude sole 

proprietors and sole stockholders from 

Insuring Agreement A—Fidelity 

coverage and believes that the rule filing 

does not accurately describe Insuring 

Agreement A—Fidelity because it uses 

the term ‘‘malfeasance.’’19

In its response to comments, FINRA 

notes that a one-person member has no 

‘‘employees’’ for purposes of the rule, 

and therefore such a firm currently is 

not subject to the fidelity bonding 

requirements.20 However, a firm owned 

by a sole proprietor or stockholder that 

has other associated persons has 

‘‘employees’’ for purposes of current 

NASD Rule 3020, and currently is, and 

will continue to be, subject to fidelity 

bonding requirements.21 FINRA further 

disputes the claim that sole proprietors 

and sole stockholder firms cannot 

obtain fidelity bond coverage. 

Specifically, FINRA has determined that 

sole proprietors and sole stockholder 

firms can and do acquire fidelity bond 

coverage, even though it is not currently 

required under the NASD rule.22

FINRA further provides that Insuring 

Agreements B through F in the proposed 

rule are all premised on losses suffered 

by the insured based on the acts of 

another person; such persons do not 

have to be an ‘‘employee’’ of the firm and 

therefore sole proprietor and sole 

stockholder firms can obtain fidelity 

coverage through these agreements.23

FINRA notes that the term ‘‘employee’’ 

currently is defined in the Securities 

Dealer Blanket Bond to include, among 

others, an officer or other employee of 

the insured, while employed in, at or by 

any of the insured’s offices or premises, 

an attorney retained by the insured 

while performing legal services for the 

insured and any natural person 

performing acts coming with the scope 

of the usual duties of an officer or 

employee of the insured, including any 

persons provided by an employment 

contractor. FINRA believes that while a 

sole proprietor or sole stockholder may 

not have other associated persons or 

registered persons, it may have 

‘‘employees’’ for purposes of a fidelity 

bond and therefore may benefit from 

Fidelity coverage.24 FINRA believes that 

requiring all SIPC member firms, 

regardless of size, to maintain fidelity 

bond coverage promotes investor 

protection objectives and protects firms 

from unforeseen losses. 

With respect to the comment that the 

rule filing inaccurately describes 

Insuring Agreement A—Fidelity by 

using the term ‘‘malfeasance,’’ FINRA 

responds that the term ‘‘malfeasance’’ 

was used as part of a description of the 

purpose of the fidelity bond in general 

and does not aim to impose additional 

requirements beyond what is covered by 

the proposed rule.25

B. Requirement for Per Loss Coverage 

Without an Aggregate Limit of Liability 

One commenter notes that the 

proposed rule change, which would 

require members to maintain fidelity 

bond coverage that provides for per loss 

coverage without an aggregate limit of 

liability, will significantly modify the 

Financial Institutional Form 14 Bond 

(‘‘Form 14’’) by creating a competitive 

disadvantage to underwriters that do not 

offer this type of coverage.26 The 

commenter further stated that only two 

underwriting firms offer this type of 

coverage and therefore the proposed 

rule change would increase costs to 

members.27

FINRA argues that a member’s fidelity 

bond coverage should not include an 

aggregate limit of liability to prevent a 

member’s coverage from being eroded 

by covered losses within the bond 

period.28 FINRA further states that it 

was advised by industry representatives 

that Form 14 could be revised to 

provide this type of coverage and that it 

could be offered by a firm that offers the 

current Form 14.29

C. Proposed Changes to the Deductible 

Provision 

One commenter opposes provision (c) 

in proposed FINRA Rule 4360 that 

would require a deduction from net 

capital in the case of certain deductible 

levels.30 This commenter supported the 

increased maximum permissible 

deductible of 25% of the coverage 

purchased by a member, but believes 

that the net capital deduction that the 

broker-dealer would be required to take 

for any deductible greater than 10% of 

their fidelity bond limit could provide 

a strong disincentive for any firm to 

consider a higher deductible. The 

commenter believes that this could lead 

to higher premium costs for members.31

In response, FINRA notes the 

difference between the deduction linked 

to the current NASD rule and what is 

proposed. Specifically, the proposed 

rule eliminates the current concept of an 

‘‘excess deductible’’ linked to a 

member’s required minimum bond 

requirement and instead proposed Rule 

4360 would only be subject to a 

deduction from net capital in the 

amount of any deductible over 10% of 

the coverage purchased by the member. 

Therefore, FINRA does not believe that 

the proposed deductible provision will 

result in a higher premium costs than 

the current rule. Rather, FINRA argues 

that the option for a deductible of up to 

25% of the coverage purchased and any 


emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 41 / Wednesday, March 2, 2011 / Notices 11545 

32 In approving this rule proposal, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. 15 U.S.C. 78c(f). 

33 15 U.S.C. 78o–3(b)(6). 

34 15 U.S.C. 78s(b)(2). 

35 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 17 CFR 240.19b4–(f)(6). 

deductible amount elected by the 

member that is greater than 10% of the 

coverage purchased must be deduced 

from the member’s net worth in the 

calculation of its net capital for 

purposes of Exchange Act Rule 15c3–1. 

IV. Discussion 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities association.32 In particular, 

the Commission believes the proposal is 

consistent with the requirements of 

Section 15A(b)(6) of the Act,33 which 

requires, among other things, that the 

Association’s rules be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. The Commission 

believes that FINRA adequately 

addressed the comments raised in 

response to the notice of this proposed 

rule change. 

The Commission believes that 

FINRA’s proposed Rule 4360 (Fidelity 

Bond) will update and clarify the 

requirements governing fidelity bonds 

for adoption in the Consolidated FINRA 

Rulebook. The Commission believes 

that the proposed requirements of 

FINRA Rule 4360, including, but not 

limited to, requiring each member that 

is required to join SIPC to maintain 

blanket fidelity bond coverage, 

increasing the minimum requirement 

fidelity bond coverage and maintaining 

a fidelity bond that provides for per loss 

coverage without an aggregate limit of 

liability promotes investor protection by 

protecting firms from unforeseen losses. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,34 that the 

proposed rule change (SR–FINRA– 

2010–059) is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.35

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–4690 Filed 3–1–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63962; File No. SR–MSRB– 

2011–05] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Notice of Filing and Immediate 

Effectiveness of Amendments to Rule 

A–15, on Notification To Board of 

Termination of Municipal Securities 

Activities and Change of Name or 

Address 

February 24, 2011. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

14, 2011, the Municipal Securities 

Rulemaking Board (‘‘Board’’ or ‘‘MSRB’’) 

filed with the Securities and Exchange 

Commission (‘‘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 

MSRB has filed the proposal as a ‘‘noncontroversial’’ rule change pursuant to 

Section 19(b)(3)(A)(iii) of the Act,3 and 

Rule 19b–4(f)(6) thereunder,4 which 

renders the proposal effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The MSRB is filing a proposed rule 

change relating to the notification 

requirements in the event of a change in 

status of a broker, dealer, municipal 

securities dealer, or municipal advisor, 

consisting of amendments to Rule A–15, 

on Notification to Board of Termination 

of Municipal Securities Activities and 

Change of Name or Address. 

The text of the proposed rule change 

is available on the MSRB’s website at 

http://www.msrb.org/Rules-andInterpretations/SEC–Filings/2011– 

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 Board 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 purposes of the proposed rule 

change are: (i) To extend the provisions 

of Rule A–15 to municipal advisors; and 

(ii) to expand the circumstances under 

which the MSRB must be notified to 

include: (A) a bar or suspension from 

engaging in municipal securities 

activities or municipal advisory 

activities by the appropriate regulatory 

agency, judicial authority, or otherwise; 

and (B) in the case of a broker, dealer, 

or municipal securities dealer, 

expulsion or suspension from 

membership or participation in a 

national securities exchange or 

registered securities association. 

Although existing Rule A–15 establishes 

a procedure for notification of a change 

in status with respect to brokers, dealers 

and municipal securities dealers, it does 

not apply to municipal advisors. 

Further, existing Rule A–15 does not 

provide for notification to the Board in 

the event of disbarment or suspension 

by regulatory agencies or judicial 

authorities or otherwise, or, with respect 

to brokers, dealers and municipal 

securities dealers, expulsion or 

suspension from membership or 

participation in a national securities 

exchange or registered securities 

association. The proposed rule change 

(i) adds municipal advisors to the 

entities subject to the rule; (ii) requires 

notification if (A) a broker, dealer, 

municipal securities dealer, or 

municipal advisor has been barred or 

suspended from engaging in municipal 

securities activities or municipal 

advisory activities by the appropriate 

regulatory agency, judicial authority or 

otherwise; and (B) if a broker, dealer or 

municipal securities dealer has been 

expelled or suspended from 

membership or participation in a 

national securities exchange or 

registered securities association. 

2. Statutory Basis 

The MSRB believes that the proposed 

rule change is consistent with Section 

15B(b)(2) of the Act, which provides 

that: 

The Board shall propose and adopt rules to 

effect the purposes of this title with respect 


emcdonald on DSK2BSOYB1PROD with NOTICES