[Federal Register Volume 76, Number 4 (Thursday, January 6, 2011)]
[Proposed Rules]
[Pages 824-969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32445]



[[Page 823]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 240 and 249



Registration of Municipal Advisors; Proposed Rule

Federal Register / Vol. 76, No. 4 / Thursday, January 6, 2011 / 
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-63576; File No. S7-45-10]
RIN 3235-AK86


Registration of Municipal Advisors

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: Section 975 of Title IX of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (``Dodd-Frank Act'') amended Section 15B of 
the Securities Exchange Act of 1934 (as amended, the ``Exchange Act'') 
to require municipal advisors, as defined below, to register with the 
Securities and Exchange Commission (``Commission'' or ``SEC'') 
effective October 1, 2010. To enable municipal advisors to temporarily 
satisfy this requirement, the Commission adopted an interim final 
temporary rule and form, Exchange Act rule 15Ba2-6T and Form MA-T, 
effective October 1, 2010. Rule 15Ba2-6T will expire on December 31, 
2011.
    The Commission is proposing new rules 15Ba1-1 through 15Ba1-7 and 
new Forms MA, MA-I, MA-W, and MA-NR under the Exchange Act. These 
proposed rules and forms are designed to give effect to provisions of 
Title IX of the Dodd-Frank Act that, among other things, would 
establish a permanent registration regime with the Commission for 
municipal advisors and would impose certain record-keeping requirements 
on such advisors.

DATES: Comments should be received on or before February 22, 2011.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#b9cbccd5dc94dad6d4d4dcd7cdcaf9cadcda97ded6cf"><span class="__cf_email__" data-cfemail="bfcdcad3da92dcd0d2d2dad1cbccffccdadc91d8d0c9">[email protected]</span></a>. Please include 
File Number S7-45-10 on the subject line; or
    <bullet> Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-45-10. This file number 
should be included on the subject line if e-mail 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/proposed.shtml). Comments will also 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 a.m. and 3 p.m. 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.

FOR FURTHER INFORMATION CONTACT: Martha Haines, Assistant Director and 
Chief, Office of Municipal Securities, at (202) 551-5681; Dave Sanchez, 
Attorney Fellow, Office of Municipal Securities, at (202) 551-5540; 
Victoria Crane, Assistant Director, Office of Market Supervision, at 
(202) 551-5744; Ira Brandriss, Special Counsel, Office of Market 
Supervision, at (202) 551-5651; Jennifer Dodd, Special Counsel, Office 
of Market Supervision, at (202) 551-5653; Steve Kuan, Special Counsel, 
Office of Market Supervision, at (202) 551-5624; Daniel Gien, Attorney-
Adviser, Office of Market Supervision, at (202) 551-5747; Yue Ding, Law 
Clerk, Office of Market Supervision, at (202) 551-5842; or any of the 
above at Division of Trading and Markets, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-6628.

SUPPLEMENTARY INFORMATION: The Commission is proposing rules 15Ba1-1 to 
15Ba1-7 [17 CFR 240.15Ba1-1 to 240.15Ba1-7] under the Exchange Act, and 
Forms MA, MA-I, MA-W, and MA-NR [17 CFR 249.1300, 1310, 1320, and 
1330].

Table of Contents

I. Introduction
    A. Background
    1. Overview of Municipal Securities Market
    a. Municipal Advisors
    b. Municipal Entities and Municipal Financial Products
    2. Historical Regulation of Municipal Securities and Municipal 
Advisors
    a. Municipal Securities Market
    b. Municipal Advisors
    B. Interim Final Temporary Rule 15Ba2-6T and Form MA-T
II. Discussion
    A. Proposed Rules for the Permanent Registration of Municipal 
Advisors
    1. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor'' 
and Related Terms
    a. Statutory Definition of ``Municipal Advisor''
    b. Interpretation of the Term ``Municipal Advisor''; Definition 
of Related Terms
    c. Exclusions From the Definition of ``Municipal Advisor''
    2. Proposed Rule 15Ba1-2
    a. Application for Municipal Advisor Registration
    b. Instructions and Glossary
    c. Information Requested in Form MA
    d. Information Requested in Form MA-I
    3. Proposed Rule 15Ba1-3
    a. Withdrawal From Municipal Advisor Registration
    b. Form MA-W
    4. Proposed Rule 15Ba1-4: Amendment to Application for 
Registration and Self-Certification
    5. Proposed Rule 15Ba1-5: General Procedures for Serving Non-
Residents and Form MA-NR
    6. Proposed Rule 15Ba1-6: Registration of Successor to Municipal 
Advisor
    B. Approval or Denial of Registration
    C. Proposed Rule 15Ba1-7: Books and Records to be Made and 
Maintained by Municipal Advisors
III. General Request for Comment
IV. Paperwork Reduction Act
    A. Summary of Collection of Information
    B. Proposed Use of Information
    C. Respondents
    D. Total Initial and Annual Reporting and Record-Keeping Burdens
    1. Form MA
    2. Form MA-I
    3. Amendments to Form MA and Form MA-I
    4. Withdrawal From Municipal Advisor Registration
    5. Non-Resident Municipal Advisors
    6. Outside Counsel
    7. Maintenance of Books and Records
    8. Total Burden
    E. Collections of Information Are Mandatory
    F. Request for Comment
V. Economic Analysis
    A. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor'' 
and Related Terms
    B. Registration System
    1. Benefits
    2. Costs
    C. Non-Resident Municipal Advisors
    1. Benefits
    2. Costs
    D. Record keeping
    1. Benefits
    2. Costs
    E. Request for Comment on Economic Analysis
VI. Consideration of Impact on the Economy
VII. Initial Regulatory Flexibility Analysis
    A. Reasons and Objectives for the Proposed Rules
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Reporting, Record keeping, and Other Compliance Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    G. General Request for Comment
VIII. Statutory Basis and Text of Proposed Amendments


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I. Introduction

A. Background

    On July 21, 2010, President Obama signed into law the Dodd-Frank 
Act.\1\ The Dodd-Frank Act was enacted, among other things, to promote 
the financial stability of the United States by improving 
accountability and transparency in the financial system.\2\ With 
Section 975 of Title IX of the Dodd-Frank Act, Congress amended Section 
15B of the Exchange Act \3\ to, among other things, make it unlawful 
for municipal advisors \4\ to provide certain advice to, or solicit, 
municipal entities \5\ or certain other persons without registering 
with the Commission.\6\
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    \1\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ See Public Law 111-203 Preamble.
    \3\ 15 U.S.C. 78o-4. All references in this Release to the 
Exchange Act refer to the Exchange Act as amended by the Dodd-Frank 
Act.
    \4\ See infra Section II.A.1. (discussing the term ``municipal 
advisor'').
    \5\ See infra note 82, and accompanying text (discussing the 
term ``municipal entity'').
    \6\ See Section 975(a)(1)(B) of the Dodd-Frank Act; 15 U.S.C. 
78o-4(a)(1)(B).
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1. Overview of Municipal Securities Market
a. Municipal Advisors
    Until the passage of the Dodd-Frank Act, the activities of 
municipal advisors were largely unregulated and municipal advisors were 
generally not required to register with the Commission or any other 
Federal, State or self-regulatory entity with respect to their 
municipal advisory activities. As discussed below in this section, some 
entities that are now subject to registration as municipal advisors 
pursuant to Section 15B of the Exchange Act, and rules or regulations 
promulgated thereunder, currently are subject to regulation by various 
Federal and State regulators in other capacities. These entities 
include brokers, dealers, municipal securities dealers, investment 
advisers, and banks. Such regulations, however, generally do not apply 
to their activities as municipal advisors.
    Municipal advisors engage in municipal advisory activities in a 
variety of contexts. For example, municipal advisors participate in the 
majority of issuances of municipal securities.\7\ According to the 
Municipal Securities Rulemaking Board (``MSRB'' or ``Board''), 
approximately $315 billion (70%) \8\ of the municipal debt issued in 
2008 was issued with the participation of municipal advisors commonly 
referred to as ``financial advisors.'' \9\ Research also suggests that 
participation by municipal advisory firms in the issuance of municipal 
securities is rising, with the MSRB noting a 63% participation rate in 
2006, a 66% participation rate in 2007, and a 70% participation rate in 
2008.\10\ A study that looked at historical involvement by ``financial 
advisors'' identified participation rates of approximately 50% in a 
nearly twenty-year period ending in 2002.\11\
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    \7\ With respect to the issuance of municipal securities, 
municipal advisors (which may include entities registered as broker-
dealers acting as municipal advisors) engage in such activities as 
assisting municipal entities in developing a financing plan, 
assisting in the selection of other parties to the financing such as 
bond counsel and underwriters, coordinating the rating process, 
ensuring adequate disclosure, and evaluating and negotiating the 
financing terms. See JayaramanVijayakumar and Kenneth N. Daniels, 
2006, The Role and Impact of Financial Advisors in the Market for 
Municipal Bonds (``Vijayakumar and Daniels''), Journal of Financial 
Services Research, 30:43, at 46.
    \8\ See Municipal Securities Rulemaking Board, ``Unregulated 
Municipal Market Participants: A Case for Reform'' (Apr. 2009), 
available at http://www.msrb.org/News-and-Events/Press-Releases/
Press-Releases/~/media/Files/Special-Publications/
MSRBReportonUnregulatedMarketParticipants--April09.ashx (``MSRB 
Study'').
    \9\ See id. (referring to municipal advisors as ``financial 
advisors''). Approximately 43% of the $453 billion of municipal debt 
issued in 2008 (by par amount of bonds) (or 62% of the $315 billion 
of municipal debt issued with financial advisors) was issued with 
the assistance of ``financial advisors'' that were not part of 
dealer firms regulated by the MSRB. Id.
    \10\ See id.
    \11\ See Arthur Allen and Donna Dudney, May 2010, Does the 
Quality of Financial Advice Affect Prices? The Financial Review 45: 
389 (``Allen and Dudney'') (analyzing data from 1984 to 2002).
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    Municipal advisors also engage in municipal advisory activities 
with respect to municipal financial products.\12\ For example, as 
derivatives have developed in the municipal securities market, some 
municipal advisory firms developed expertise in that area. These 
municipal advisory firms are generally referred to as ``swap 
advisors.'' \13\ Swap advisors may provide advice solely with respect 
to a municipal derivative transaction or may provide such advice in 
connection with other types of municipal advisory activities.
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    \12\ See infra note 93 and accompanying text (discussing the 
term ``municipal financial products'').
    \13\ See MSRB study, supra note 8.
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    In addition, municipal advisors may provide advice to municipal 
entities concerning investment strategies. These advisory firms assist 
in investing proceeds from bond offerings as well as manage other 
public monies. Such public monies include, for example, the general 
funds of states and local governments, public pension plans and funds 
dedicated to other public programs, such as public transportation, 
police and fire protection, public health, and public education. In 
addition, municipal advisors provide risk management, asset allocation, 
financial planning and cash management services and help State and 
local governments find and evaluate other advisors that manage public 
funds and provide other types of services.\14\ As discussed in more 
detail below, unless excluded, these firms generally will have to 
register as municipal advisors under Section 15B of the Exchange 
Act.\15\ Municipal advisors subject to registration may include Federal 
and State registered investment advisers, depending on the activities 
in which they are engaged.\16\
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    \14\ See Investment Advisers Act Release No. IA-2910 (August 3, 
2009), 74 FR 39840, 39840-41 (August 7, 2009) (``Political 
Contributions Proposed Rule'').
    \15\ See infra Section II.A.1. (discussing the term ``municipal 
advisor'').
    \16\ See id.
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    Depending on their role with respect to investment strategies for 
municipal entities, commercial banks subject to regulation by various 
Federal and State regulators may also engage in activities that would 
subject them to registration as municipal advisors. Such commercial 
banks may act as trustees with respect to an issuance of municipal 
securities or otherwise provide advice with respect to municipal 
financial products. Other persons that are subject to registration as 
municipal advisors include those who solicit municipal entities on 
behalf of the types of municipal advisors discussed above, as well as 
on behalf of brokers, dealers, municipal securities dealers and other 
parties.
b. Municipal Entities and Municipal Financial Products
    The municipal securities market consists of over 51,000 
issuers,\17\ a diverse group that includes states, their political 
subdivisions such as cities, towns and counties, and their 
instrumentalities such as school districts or port authorities. These 
public bodies are governed by State and local laws, including State 
constitutions, statutes, city charters, and municipal codes.\18\ Such 
constitutions, statutes, charters, and codes impose on municipal 
issuers a vast and varied multiplicity of requirements relating to

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governance, budgeting, accounting, and other financial matters.\19\ The 
governing bodies of municipal issuers are as varied as the types of 
issuers, ranging from State governments, cities, towns, and counties 
with elected officials to commissions and other special purpose 
enterprises having appointed members.\20\ Municipal securities are 
issued by government entities to pay for a variety of public projects, 
for cash flow and other governmental needs, and to fund non-
governmental private projects by acting as a conduit on behalf of 
private organizations that wish to obtain tax-exempt interest 
rates.\21\ As of March 31, 2010, municipal issuers had an outstanding 
principal amount of securities in excess of $2.8 trillion.\22\ In 2009 
alone, 15,055 new issuances of municipal securities took place, with a 
value of over $474.5 billion.\23\ As of 2009, the average daily trading 
volume for the municipal bond market was $12.5 billion, as compared to 
$16.8 billion in the corporate bond market and $407.9 billion in the 
Treasury bond market.\24\
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    \17\ See Report on Transactions in Municipal Securities, Office 
of Economic Analysis and Office of Municipal Securities, the 
Division of Trading and Markets, U.S. Securities and Exchange 
Commission, (July 1, 2004).
    \18\ See American Bar Association, Disclosure Roles of Counsel 
in State and Local Government Securities Offerings 1 (Third Edition, 
2009) (``Disclosure of Bond Counsel'').
    \19\ See id. at 2.
    \20\ See id. at 78.
    \21\ The Internal Revenue Code delineates the purposes for which 
tax-exempt municipal bonds may be issued for the benefit of 
organizations other than states and local governments, i.e., conduit 
borrowers. See 26 U.S.C. 142-145, 1394.
    \22\ See Federal Reserve Board, Flow of Funds Accounts, Flows 
and Outstandings, First Quarter 2010.
    \23\ See The Bond Buyer Yearbook 14 (SourceMedia Inc.) (2010).
    \24\ See SIFMA, Average Daily Trading Volume in the U.S. Bond 
Markets, available at http://www.google.com/url?q=http://www.sifma.org/uploadedFiles/Research/Statistics/StatisticsFiles/CM-US-Bond-Market-Trading-Volume-SIFMA.xls&sa=U&ei=5EHsTLvBFoT58AbPqdGjAQ&ved=0CBYQFjAA&usg=AFQjCNHv-FKIpdi_QB8m7jgvg2ssJJ1ikg (last visited November 23, 2010).
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    Presently, there is no definitive public information regarding the 
size of the municipal securities derivative market. Estimates of the 
size of the market have been reported to range from $100 billion to 
$300 billion, annually, in notional principal amount.\25\ Estimates of 
the number of municipal issuers that have engaged in derivative 
transactions also vary. Since interest rate swaps are bilateral 
contracts entered into privately, there is no comprehensive data on how 
many municipal issuers are active in the $450 trillion interest-rate 
swap market, although some anecdotal evidence suggests a relatively 
wide use. For instance, a review of Pennsylvania Department of 
Community and Economic Development records revealed that 185 school 
districts, towns and counties in Pennsylvania have engaged in 
derivative transactions since 2003, when the State's law was explicitly 
changed to allow for such transactions.\26\ However, other estimates 
have pointed to a less widespread use of derivatives among municipal 
issuers.\27\ Since 2008, the use of derivatives by municipal entities 
has declined and many municipal entities have terminated existing 
interest rate swaps.\28\
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    \25\ See MSRB Study, supra note 8.
    \26\ See Martin Z. Braun, Deutsche Bank Swap Lures County as 
Budgets Crumble, Bloomberg (November 26, 2008).
    \27\ In a 2007 study, Standard & Poor's identified 750 municipal 
issuers that used swaps. See Joe Mysak, California Declares War on 
State Bond Short-Sellers, Bloomberg Businessweek (Apr. 27, 2010). In 
October 2009, Moody's undertook a review of the state and local 
governments that it rates with outstanding swaps and identified 500 
of such entities. See id. Moody's also estimated that Pennsylvania 
issuers accounted for 22% of all municipal derivative transactions, 
suggesting that broad participation by municipal entities in 
Pennsylvania did not translate into broad participation by municipal 
entities nationwide. See Joe Mysak, Swaps Nightmares Become Real for 
Amateur Financiers, Bloomberg (Dec. 15, 2009).
    \28\ See, e.g., Michael McDonald, Wall Street Collects $4 
Billion From Taxpayers as Swaps Backfire, Bloomberg (Nov. 10, 2010), 
available at http://www.bloomberg.com/news/2010-11-10/wall-street-collects-4-billion-from-taxpayers-as-swaps-backfire.html.
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    According to recently available United States census data, as of 
2008, there were approximately 2,550 state and local government 
employee retirement systems.\29\ These ``public pension plans'' had 
over $2.2 trillion of assets and represented one-third of all U.S. 
pension assets.\30\ Public pension plans might seek advice with respect 
to municipal financial products. In addition, third parties might 
solicit these public pension plans on behalf of firms seeking to 
provide services to these plans.\31\
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    \29\ See U.S. Census Bureau, State & Local Government Employee 
Retirement Systems, available at http://www.census.gov/govs/retire.
    \30\ See Federal Reserve Board, Flow of Funds Accounts, Flows 
and Outstanding, First Quarter 2009 (at table L.119).
    \31\ See Investment Advisers Act Release No. IA-3043 (July 1, 
2010), 75 FR 41018, 41019 (July 14, 2010) (``Political Contributions 
Final Rule'').
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    College savings plans (``529 Plans'') that comply with Section 529 
of the Internal Revenue Code (``IRC'') provide tax advantages designed 
to encourage saving for future college costs.\32\ 529 Plans are 
sponsored by states, state agencies, or educational institutions. 529 
plan assets have increased from $8.6 billion in 2000 to $104.9 billion 
in the fourth quarter of 2008, and the number of 529 plan participants 
has increased from 1.3 million in 2000 to 11.2 million in the fourth 
quarter of 2008.\33\ Like public pension plans, 529 Plans might be 
solicited on behalf of third parties seeking to do business with such 
plans.\34\ 529 Plans might also seek advice with respect to municipal 
financial products and the issuance of municipal securities.\35\
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    \32\ See 26 U.S.C. 529.
    \33\ See Investment Company Institute, 529 Plan Program 
Statistics, December 2008 (May 22, 2009), available at http://www.ici.org/research/stats/529s/529s_12-08.
    \34\ See Political Contributions Final Rule, supra note 31, at 
41019.
    \35\ See MSRB, Interpretation Relating to Sales of Municipal 
Fund Securities in the Primary Market, Interpretative Notice of Rule 
D-12, dated January 18, 2001, available at http://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/Definitional/Rule-D-12.aspx?tab=2 (citing Letter from Catherine McGuire, Chief Counsel, 
Division of Trading and Markets, Commission, to Diane G. Klinke, 
General Counsel, MSRB, dated February 26, 1999, in response to 
letter from Diane G. Klinke, General Counsel, MSRB, to Catherine 
McGuire, Chief Counsel, Division of Trading and Markets, Commission, 
dated June 2, 1998).
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    In addition to public pension plans and 529 Plans, state and local 
government agencies also maintain other pools of assets including their 
general funds and other special funds. Governmental entities generally 
invest such funds in a combination of individualized investments, 
investment agreements or local government investment pools 
(``LGIPs'').\36\
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    \36\ 45 states have LGIPs with assets totaling more than $250 
billion. See Jeff Pentages, Local Government Investment Pools and 
the Financial Crisis: Lessons Learned, October 2009, Government 
Finance Review 25. States have several trillion dollars in state 
funds, including general funds, public pension plans, and 529 plans. 
See e.g.,The National Association of State Treasurers, Reforming 
Corporate Governance, State Government News (June/July 2003), 
available at http://www.csg.org/knowledgecenter/docs/sgn0307ReformingCorporate.pdf.
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2. Historical Regulation of Municipal Securities and Municipal Advisors
a. Municipal Securities Market
    The Securities Act of 1933 (``Securities Act'') \37\ and the 
Exchange Act \38\ were both enacted with broad exemptions for municipal 
securities from all of their provisions except for the antifraud 
provisions of Section 17(a) of the Securities Act and Section 10(b) of 
the Exchange Act.\39\ In the early 1970s, the municipal securities 
market was still relatively small.\40\ Up until that time, the standard 
issue was usually a general obligation bond, with fairly

[[Page 827]]

standard features, and the typical participants were banks, 
underwriters, and bond counsel.\41\
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    \37\ 15 U.S.C. 77a et seq.
    \38\ 15 U.S.C. 78a et seq.
    \39\ See, e.g., Securities Act Section 3(a)(2) (15 U.S.C. 
77c(a)(2)); Securities Act Section 12(a)(2) (15 U.S.C. 77l(a)(2)); 
Exchange Act Section 3(a)(12) (15 U.S.C. 78c(a)(12)); Exchange Act 
Section 3(a)(29) (15 U.S.C. 78c(a)(29)).
    \40\ There were $235.4 billion of bonds outstanding in 1975 
after an issuance of $58 billion in that year. See The Bond Buyer's 
Municipal Finance Statistics, 1975 (June 1976).
    \41\ See Ann Judith Gellis, Municipal Securities Market: Same 
Problems--No Solutions, 21 Del. J. Corp. L. 427, 428 (1996).
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    The regulation of the market for municipal securities at the 
Federal level essentially began in 1975. Congress, as part of the 
Securities Act Amendments of 1975 (``1975 Amendments'') created a 
limited regulatory scheme for the municipal securities market at the 
Federal level.\42\ That scheme included mandatory registration with the 
Commission of brokers and dealers in municipal securities and gave the 
Commission broad rulemaking and enforcement authority over such brokers 
and dealers. At the same time, however, Congress prohibited the 
Commission from requiring issuers of municipal securities to file 
disclosures, such as a prospectus, with the Commission before selling 
municipal securities to investors. Thus, the Commission's oversight of 
the municipal securities market has been focused on the intermediaries 
between municipal entities and investors, rather than on municipal 
entities themselves. In addition, the 1975 Amendments authorized the 
creation of the MSRB and granted it authority to promulgate rules 
concerning broker and dealer transactions in municipal securities.
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    \42\ See, e.g., Exchange Act Sections 15(c)(1), 15(c)(2), 
15B(c)(1), 15B(c)(2), 17(a), 17(b), and 21(a)(1) (15 U.S.C. 
78o(c)(1), 78o(c)(2), 78o-4(c)(1), 78o-4(c)(2), 78q(a), 78q(b), and 
78u(a)(1)).
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    As noted above, pursuant to the 1975 Amendments, all brokers and 
dealers that underwrite or trade municipal securities are required to 
register with the Commission.\43\ If a person engages in the activities 
of a broker or dealer in municipal securities and does not satisfy an 
exception from the registration provisions of the Exchange Act, such 
person must register with the Commission and may have to join a self-
regulatory organization (``SRO'') such as the Financial Industry 
Regulatory Authority, Inc. (``FINRA''). The Exchange Act defines a 
``municipal securities dealer'' as any person (including a separately 
identifiable department or division of a bank) engaged in the business 
of buying and selling municipal securities for its own account other 
than in a fiduciary capacity, through a broker or otherwise \44\ and 
requires such person to register with the Commission.\45\ All brokers, 
dealers, and municipal securities dealers that engage in municipal 
securities transactions also must register with the MSRB and may not 
act in contravention of its rules.\46\
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    \43\ See 15 U.S.C. 78o-4(a)-(b).
    \44\ See 15 U.S.C. 78c(a)(30).
    \45\ See 15 U.S.C. 78o-4(a)-(b).
    \46\ See MSRB rule A-12. These requirements for registration 
with the Commission and MSRB were in effect prior to passage of the 
Dodd-Frank Act and remain in effect.
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    Since 1975, the municipal securities market has grown and evolved 
significantly to encompass a wide variety of bond structures \47\ and 
credit enhancement. Municipal bond insurance was first introduced in 
1971 and letter of credit-supported municipal bonds became very popular 
after the introduction of variable rate municipal bonds in the early 
1980s.\48\ In 1988, auction rate securities were introduced into the 
municipal market.\49\ In addition, the municipal securities market has 
experienced a proliferation of complex derivative products beginning 
generally with interest rate swap transactions in the mid 1980s.\50\ 
The availability of such a variety of financing options has led to an 
increasing reliance on external advisors by municipal entities that 
issue municipal securities to assist them in deciding among the 
multiplying array of structural choices for their debt and to help them 
negotiate with the multiplying number of intermediaries.\51\
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    \47\ Although it is helpful to think of municipal securities as 
either (1) general obligation bonds backed by the ``full faith and 
credit'' or an unlimited taxing power of the issuing entity or (2) 
revenue bonds, these general categories mask a broad range of 
diversity and complexity in the underlying security for municipal 
bonds. See Gary Gray and Patrick Cusatis, Municipal Derivative 
Securities--Uses and Valuation 21 (1995) (discussion of revenue 
bonds). See also Disclosure of Bond Counsel, supra note 18, at 54-55 
(discussion of conduit bonds).
    \48\ See Gray and Cusatis, supra note 47, at 30-31. The 
Commission notes that although the use of letters of credit and bond 
insurance have declined since 2008, these forms of credit 
enhancement remain an option for municipal entities to consider when 
issuing municipal securities.
    \49\ See id. at 41.
    \50\ See id. at 49. Municipal market derivatives must often be 
structured in accordance with the provisions of the tax code and 
other laws that apply to the issuance of tax-exempt financings. See 
David L. Taub, Understanding Municipal Derivatives, August 2005, 
Government Finance Review 21. Therefore, the most common use for 
derivatives in the municipal securities market is the execution of 
interest rate swaps to hedge issuers' interest rate exposure for 
new, anticipated, or outstanding debt. See id.
    \51\ See Vijayakumar and Daniels, supra note 7, at 43-44.
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b. Municipal Advisors
    As discussed above, many market professionals are involved in 
issuing municipal securities and advising municipal entities with 
respect to municipal financial products. Historically, however, 
municipal advisors have been largely unregulated. For example, 
Commission staff has taken the position that financial advisors that 
limit their advisory activities to advising municipal issuers as to the 
structuring of their financings rather than providing advice for 
compensation regarding the investment of assets may not need to 
register as investment advisers.\52\ Also, while dealers who act as 
municipal financial advisors are subject to regulation,\53\ those 
regulations apply primarily to their business as dealers rather than 
their activities as municipal financial advisors.\54\ Only in limited 
circumstances do those rules also apply to their municipal advisory 
activities.\55\
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    \52\ See Division of Investment Management: Staff Legal Bulletin 
No. 11, Applicability of the Advisers Act to Financial Advisors of 
Municipal Securities Issuers (Sep. 19, 2000), available at http://www.sec.gov/interps/legal/slbim11.htm (explaining the staff's views 
as to the circumstances under which financial advisors (a) may be 
investment advisers, and (b) may give advice to issuers of municipal 
securities regarding the investment of offering proceeds without 
being deemed to be investment advisers).
    \53\ See supra notes 43-46, and accompanying text.
    \54\ See, e.g., 17 CFR 240.15Ba2-2.
    \55\ For example, MSRB rule G-37 currently prohibits a broker, 
dealer or municipal securities dealer from engaging in ``municipal 
securities business with an issuer within two years after any 
contribution to an official of such issuer * * *'' MSRB rule G-37. 
The rule further defines ``municipal securities business'' to 
include, among other things, underwriting and the provision of 
financial advisory services. See id.
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    Additionally, approximately fifteen states, as well as a number of 
municipalities, have rules relating to the conduct of some municipal 
advisors (generally, financial advisors and swap advisors). For 
example, these governmental entities have enacted pay-to-play 
prohibitions that range from broad proscriptions relating to all state 
and local contracts to narrowly defined rules that only apply to 
specific situations.\56\ Some state and local entities also require 
certain types of municipal advisors to disclose actual or apparent 
conflicts of interest.\57\
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    \56\ See MSRB study, supra note 8.
    \57\ See id.
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    As discussed in more detail below, the Dodd-Frank Act amended the 
Exchange Act to require municipal advisors to register with the 
Commission.\58\ In addition, the Exchange Act, as amended by the Dodd-
Frank Act, grants the MSRB regulatory authority over municipal 
advisors,\59\ and imposes a fiduciary duty on municipal advisors when 
advising municipal entities.\60\
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    \58\ See Section 975(a)(1)(B) of the Dodd-Frank Act; 15 U.S.C. 
78o-4(a)(1)(B).
    \59\ See 15 U.S.C. 78o-4(b).
    \60\ See 15 U.S.C. 78o-4(c). Specifically, Exchange Act Section 
15B(c)(1) provides that: ``A municipal advisor and any person 
associated with such municipal advisor shall be deemed to have a 
fiduciary duty to any municipal entity for whom such municipal 
advisor acts as a municipal advisor, and no municipal advisor may 
engage in any act, practice, or course of business which is not 
consistent with a municipal advisor's fiduciary duty or that is in 
contravention of any rule of the Board.'' 15 U.S.C. 78o-4(c)(1).

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[[Page 828]]

B. Interim Final Temporary Rule 15Ba2-6T and Form MA-T

    The registration requirement for municipal advisors became 
effective on October 1, 2010.\61\ Consequently, municipal advisors must 
now be registered in order to continue their municipal advisory 
activities. To enable municipal advisors to temporarily satisfy the 
registration requirement, and to make relevant information available to 
the public and municipal entities, the Commission adopted interim final 
temporary rule 15Ba2-6T \62\ under the Exchange Act on September 1, 
2010.\63\ Pursuant to rule 15Ba2-6T, a municipal advisor must 
temporarily satisfy the statutory registration requirement by 
submitting certain information electronically through the Commission's 
public Web site on Form MA-T.\64\
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    \61\ See Section 975(i) of the Dodd-Frank Act.
    \62\ 17 CFR 240.15Ba2-6T.
    \63\ See Securities Exchange Act Release No. 62824 (September 1, 
2010), 75 FR 54465 (September 8, 2010) (``Temporary Registration 
Rule Release'').
    \64\ 17 CFR 249.1300T. A municipal advisor that completes the 
temporary registration form and receives confirmation from the 
Commission that the form was filed is temporarily registered for 
purposes of Section 15B. Approximately 800 firms and individuals 
have registered on Form MA-T as municipal advisors.
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    Form MA-T requires a municipal advisor to indicate the purpose for 
which it is submitting the form (i.e., initial application, amendment 
or withdrawal), provide certain basic identifying and contact 
information concerning its business, indicate the nature of its 
activities, and supply information about its disciplinary history and 
the disciplinary history of its associated municipal advisor 
professionals.\65\
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    \65\ See Temporary Registration Rule Release, supra note 63, for 
a full description of the requirements of Form MA-T.
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    The interim final temporary rule provides that, unless rescinded, a 
municipal advisor's temporary registration by means of Form MA-T will 
expire on the earlier of (1) the date that the municipal advisor's 
registration is approved or disapproved by the Commission pursuant to a 
final rule establishing a permanent registration regime; (2) the date 
on which the municipal advisor's temporary registration is rescinded by 
the Commission; or (3) December 31, 2011.\66\ The temporary 
registration procedure was developed as a transitional step toward the 
implementation of a permanent registration regime for municipal 
advisors. Accordingly, as discussed in more detail below, the 
Commission is proposing rules and forms that, if adopted, would 
establish a permanent registration regime for municipal advisors that 
would require registration by all persons meeting the definition of 
municipal advisor, including those persons currently registered on Form 
MA-T. In discussing the proposed permanent registration regime, the 
Commission addresses issues, concerns, and suggestions relevant to this 
proposal raised by commenters in response to the interim final 
temporary rule.\67\
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    \66\ See 17 CFR 240.15Ba2-6T(e).
    \67\ The Commission received seven comment letters in response 
to the interim final temporary rule. The comment letters are 
available on the Commission's Internet Web site at http://www.sec.gov/comments/s7-19-10/s71910.shtml. The Commission also 
received one comment letter in response to SEC regulatory 
initiatives under the Dodd-Frank Act that discussed municipal 
advisors in connection with pay-to-play rules and, therefore, is 
outside the scope of this release relating to the registration of 
municipal advisors. This comment letter is available on the 
Commission's Internet Web site at http://www.sec.gov/comments/df-title-ix/municipal-securities-municipal-advisors/municipal-securities-municipal-advisors.shtml.
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II. Discussion

    Section 15B(a)(1) of the Exchange Act, as amended by the Dodd-Frank 
Act, makes it unlawful for a municipal advisor \68\ to provide advice 
to or on behalf of a municipal entity or obligated person with respect 
to municipal financial products or the issuance of municipal 
securities, or to undertake a solicitation of a municipal entity or 
obligated person, unless the municipal advisor is registered with the 
Commission.\69\ Section 15B(a)(2) of the Exchange Act, as amended by 
the Dodd-Frank Act, provides that a municipal advisor may be registered 
by filing with the Commission an application for registration in such 
form and containing such information and documents concerning the 
municipal advisor and any person associated with the municipal advisor 
as the Commission, by rule, may prescribe as necessary or appropriate 
in the public interest or for the protection of investors.\70\
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    \68\ See infra Section II.A.1. (discussing the term ``municipal 
advisor'').
    \69\ See 15 U.S.C. 78o-4(a)(1)(B). For a discussion of the terms 
``municipal entity,'' ``obligated person,'' ``municipal financial 
product,'' and ``solicitation of a municipal entity or obligated 
person,'' see infra Section II.A.1.b.
    \70\ See 15 U.S.C. 78o-4(a)(2).
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    Consistent with the requirements of the Dodd-Frank Act, as 
discussed in detail below, the Commission is proposing new rules and 
forms that, if adopted, would establish a permanent Commission 
registration regime for municipal advisors. The Commission believes 
that the information disclosed pursuant to the proposed rules and forms 
would provide significant value to the Commission in its oversight of 
municipal advisors and their activities in the municipal securities 
markets. The information provided pursuant to these rules and forms 
would also aid municipal entities and obligated persons in choosing 
municipal advisors, engaging in transactions with municipal advisors, 
or participating in municipal securities transactions in which a 
municipal advisor is also engaged.

A. Proposed Rules for the Permanent Registration of Municipal Advisors

1. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor'' and 
Related Terms
a. Statutory Definition of ``Municipal Advisor''
    Section 15B(e)(4)(A) of the Exchange Act,\71\ as amended by the 
Dodd-Frank Act, defines the term ``municipal advisor'' to mean a person 
(who is not a municipal entity \72\ or an employee of a municipal 
entity) (i) that provides advice to or on behalf of a municipal entity 
or obligated person \73\ with respect to municipal financial products 
\74\ or the issuance of municipal securities, including advice with 
respect to the structure, timing, terms, and other similar matters 
concerning such financial products or issues, or (ii) that undertakes a 
solicitation of a municipal entity.\75\
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    \71\ 15 U.S.C. 78o-4(e)(4)(A).
    \72\ See infra note 82, and accompanying text (discussing the 
term ``municipal entity'').
    \73\ See infra note 86, and accompanying text (discussing the 
term ``obligated person'').
    \74\ See infra note 93, and accompanying text (discussing the 
term ``municipal financial products'').
    \75\ See infra note 103, and accompanying text (discussing the 
term ``solicitation of a municipal entity or obligated person'').
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    The statutory definition of a ``municipal advisor'' is broad and 
includes persons that traditionally have not been considered to be 
municipal financial advisors. Specifically, the definition of a 
``municipal advisor'' includes ``financial advisors, guaranteed 
investment contract brokers, third-party marketers, placement agents, 
solicitors, finders, and swap advisors'' that engage in municipal 
advisory activities.\76\ These persons are included if they provide 
advice to or on behalf of a municipal entity or obligated person with 
respect to municipal financial products or the issuance of municipal

[[Page 829]]

securities (including advice with respect to the structure, timing, 
terms and other similar matters concerning such financial products or 
issues) or undertake a solicitation of a municipal entity or obligated 
person (i.e., ``municipal advisory activities'').\77\
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    \76\ See 15 U.S.C. 78o-4(e)(4).
    \77\ The proposed definition of ``municipal advisory 
activities'' has the same meaning as the definition of ``municipal 
advisory services'' in connection with rule 15Ba2-6T. Thus, in 
proposed rule 15Ba1-1 the Commission is proposing to define 
``municipal advisory activities'' to mean ``advice to or on behalf 
of a municipal entity (as defined in Section 15B(e)(8) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-4(e)(8)) or obligated 
person (as defined in Section 15B(e)(10) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o-4(e)(10)) with respect to municipal 
financial products or the issuance of municipal securities, 
including advice with respect to the structure, timing, terms, and 
other similar matters concerning such financial products or issues; 
or a solicitation of a municipal entity or obligated person.'' 
Proposed rule 15Ba1-1(e).
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    The definition of ``municipal advisor'' explicitly excludes ``a 
broker, dealer, or municipal securities dealer serving as an 
underwriter,'' \78\ as well as attorneys offering legal advice or 
providing services that are of a traditional legal nature and engineers 
providing engineering advice.\79\ Further, the definition of 
``municipal advisor'' excludes ``any investment adviser registered 
under the Investment Advisers Act of 1940, or persons associated with 
such investment advisers who are providing investment advice'' and 
``any commodity trading advisor registered under the Commodity Exchange 
Act or persons associated with a commodity trading advisor who are 
providing advice related to swaps.'' \80\
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    \78\ See infra note 105 (defining the term ``underwriter'').
    \79\ See 15 U.S.C. 78o-4(e)(4)(C).
    \80\ See id.
---------------------------------------------------------------------------

    Consequently, the statutory definition of ``municipal advisor'' 
includes distinct groups of professionals that offer different services 
and compete in distinct markets. The three principal types of municipal 
advisors are: (1) Financial advisors, including, but not limited to, 
broker-dealers already registered with the Commission, that provide 
advice to municipal entities with respect to their issuance of 
municipal securities and their use of municipal financial products; (2) 
investment advisers that advise municipal pension funds and other 
municipal entities on the investment of funds held by or on behalf of 
municipal entities (subject to certain exclusions from the definition 
of a ``municipal advisor''); and (3) third-party marketers and 
solicitors.
b. Interpretation of the Term ``Municipal Advisor''; Definition of 
Related Terms
    As noted above, Section 15B(e)(4) defines the term ``municipal 
advisor'' to mean, in part, a person (who is not a municipal entity or 
an employee of a municipal entity) that (i) provides advice to or on 
behalf of a municipal entity or obligated person with respect to 
municipal financial products or the issuance of municipal securities, 
or (ii) undertakes a solicitation of a municipal entity or obligated 
person.\81\ The Commission discusses below the terms ``municipal 
entity,'' ``obligated person,'' ``municipal financial products,'' and 
``solicitation of a municipal entity or obligated person'' as well as 
other terms relating to the definition of ``municipal advisor.''
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    \81\ See 15 U.S.C. 78o-4(e)(4).
---------------------------------------------------------------------------

    The registration requirement for municipal advisors under Section 
15B of the Exchange Act applies to every person, including every 
natural person, who provides the types of advice described in the 
definition of ``municipal advisor''--whether that person is an 
organized entity, sole proprietor, employee of a municipal advisory 
firm, or otherwise. For clarity, the Commission refers to each 
organized entity that is a municipal advisor, including sole 
proprietors, as a ``municipal advisory firm,'' and each municipal 
advisor that is a natural person, including sole proprietors, as a 
``natural person municipal advisor.''
Municipal Entity
    Exchange Act Section 15B(e)(8) provides that the term ``municipal 
entity'' means ``any State, political subdivision of a State, or 
municipal corporate instrumentality of a State, including--(A) any 
agency, authority, or instrumentality of the State, political 
subdivision, or municipal corporate instrumentality; (B) any plan, 
program, or pool of assets sponsored or established by the State, 
political subdivision, or municipal corporate instrumentality or any 
agency, authority, or instrumentality thereof; and (C) any other issuer 
of municipal securities.'' \82\ To provide additional clarification 
with respect to clause (B) of the definition of ``municipal entity,'' 
the Commission notes that the definition includes, but is not limited 
to, public pension funds, local government investment pools and other 
state and local governmental entities or funds, as well as participant-
directed investment programs or plans such as 529, 403(b), and 457 
plans.
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 78o-4(e)(8).
---------------------------------------------------------------------------

    One commenter asked whether ``small issuers such as individual 
charter schools (that are deemed public schools by the state with 
individual charters)'' would be included in the definition of 
``municipal entity.'' \83\ Charter schools are considered to be public 
schools and generally derive their charter from a political subdivision 
of a state (for example, local school boards, state universities, 
community colleges or state boards of education) \84\ and, therefore, 
would fall under the definition of municipal entity.\85\
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    \83\ See letter from Brad R. Jacobsen, dated September 7, 2010 
(``Jacobsen Letter'').
    \84\ See, e.g., US Charter Schools, Answers to Frequently Asked 
Questions, available at http://www.uscharterschools.org/pub/uscs_docs/o/faq.html (last visited November 2, 2010).
    \85\ 15 U.S.C. 78o-4(e)(8). Charter schools, or persons that 
operate charter schools such as charter school management 
organizations that are organized as non-profit corporations, may 
issue municipal securities through a municipal entity for capital 
needs such as facilities that are not provided for by state funding 
or other reasons. See, e.g., US Charter Schools, Charter School 
Facilities: A Resource Guide on Development and Financing, available 
at http://www.uscharterschools.org/gb/dev_fin/financing.htm (last 
visited November 23, 2010). In that instance, the charter school or 
charter school management organization would be an obligated person 
with respect to the issuance of municipal securities and any related 
municipal financial products.
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Obligated Person
    Exchange Act Section 15B(e)(10) provides that the term ``obligated 
person'' means ``any person, including an issuer of municipal 
securities, who is either generally or through an enterprise, fund, or 
account of such person, committed by contract or other arrangement to 
support the payment of all or part of the obligations on the municipal 
securities to be sold in an offering of municipal securities.'' \86\ 
One commenter stated that this definition in Exchange Act Section 
15B(e)(10) is ``potentially very broad'' and asked for clarification 
regarding the definition.\87\ In particular, the commenter encouraged 
the Commission to interpret the definition of ``obligated person'' for 
purposes of the definition of ``municipal advisor'' consistently with 
the definition of ``obligated person'' for purposes of rule 15c2-
12.\88\
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    \86\ 15 U.S.C. 78o-4(e)(10). Obligated persons can include 
entities acting as conduit borrowers such as private universities, 
non-profit hospitals, and private corporations.
    \87\ See letter from John J. Wagner, Kutak Rock LLP, to 
Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 
dated September 28, 2010 (``Kutak Rock Letter'').
    \88\ See id. Rule 15c2-12 relates to municipal securities 
disclosures. See 17 CFR 240.15c2-12.
---------------------------------------------------------------------------

    The Commission believes that the definition of ``obligated person'' 
for purposes of the definition of ``municipal advisor'' should be 
consistent with the

[[Page 830]]

definition of ``obligated person'' for purposes of rule 15c2-12. Rule 
15c2-12 defines the term ``obligated person'' to mean ``any person, 
including an issuer of municipal securities, who is either generally or 
through an enterprise, fund, or account of such person committed by 
contract or other arrangement to support payment of all, or part of the 
obligations on the municipal securities to be sold in the Offering 
(other than providers of municipal bond insurance, letters of credit, 
or other liquidity facilities).'' \89\ Thus, pursuant to the exemptive 
authority granted in Section 15B(a)(4) of the Exchange Act, the 
Commission proposes to exempt from the definition of ``obligated 
person'' providers of municipal bond insurance, letters of credit, or 
other liquidity facilities. Specifically, proposed rule 15Ba1-1(i) 
provides that the term ``obligated person'' shall not include providers 
of municipal bond insurance, letters of credit, or other liquidity 
facilities.\90\ The Commission believes that this interpretation does 
not conflict with the goals of the Dodd-Frank Act to provide further 
protections for certain entities that participate in borrowings in the 
municipal securities market and would help ensure uniformity among 
rules relating to such market. Providers of municipal bond insurance, 
letters of credit, or other liquidity facilities are generally non-
governmental providers of credit enhancements.\91\ As providers of 
credit enhancement, these entities are not borrowing funds through a 
municipal entity and, therefore, the Commission believes they do not 
require the type of protection that should be applicable with respect 
to those who borrow funds through municipal entities in municipal 
securities transactions. In addition, the Commission notes that this 
interpretation would further uniformity among rules relating to the 
definition of obligated persons in the municipal securities market.\92\
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    \89\ See 17 CFR 240.15c2-12(f)(10). ``Offering'' as used in this 
definition is defined in rule 15c2-12(a). See 17 CFR 240.15c2-12(a).
    \90\ See proposed rule 15Ba1-1(i). See also Securities Exchange 
Act Release No. 34961 (November 10, 1994), 59 FR 59590 (November 17, 
1994).
    \91\ The Commission notes that a municipal entity that provides 
credit enhancement could be an obligated person for purposes of the 
proposed rule.
    \92\ See Kutak Rock Letter.
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Municipal Financial Products; Investment Strategies
    Section 15B(e)(5) provides that the term ``municipal financial 
product'' means ``municipal derivatives, guaranteed investment 
contracts, and investment strategies.'' \93\ Exchange Act Section 
15B(e)(3) provides that ``the term `investment strategies' includes 
plans or programs for the investment of the proceeds of municipal 
securities that are not municipal derivatives, guaranteed investment 
contracts, and the recommendation of and brokerage of municipal escrow 
investments.'' \94\ One commenter requested that the Commission clarify 
the term ``investment strategies'' for purposes of the definition of 
``municipal financial products.'' \95\ The Commission notes that the 
definition of ``investment strategies'' provides that it ``includes'' 
plans or programs for the investment of the proceeds of municipal 
securities and, therefore, the Commission interprets the definition to 
mean that it includes, without limitation, the investment of the 
proceeds of municipal securities. Further, the Commission interprets 
this definition to include plans, programs, or pools of assets that 
invest funds held by or on behalf of a municipal entity, and, 
therefore, any person that provides advice with respect to such funds 
must register as a municipal advisor unless it is covered by one of the 
exclusions discussed below. Consistent with this interpretation, 
proposed rule 15Ba1-1(b) provides that the term ``investment 
strategies'' includes ``plans, programs or pools of assets that invest 
funds held by or on behalf of a municipal entity.'' \96\ In proposing 
this interpretation of the term ``investment strategies,'' the 
Commission considered the statutory definitions of ``municipal 
advisor'' and ``municipal entity.'' Specifically, the Commission noted 
that the definition of a ``municipal entity'' includes ``any plan, 
program, or pool of assets sponsored or established by the State, 
political subdivision, or municipal corporate instrumentality or any 
agency, authority, or instrumentality thereof.'' \97\ Based on these 
definitions, the Commission believes it was Congress's intent to 
include in the definition of ``municipal advisor'' persons that provide 
advice with respect to plans, programs or pools of assets that invest 
funds held by, or on behalf of, a municipal entity, such as a 529 
college savings plan, LGIP or public pension plan. Such plans, 
programs, and pools of assets are generally funded from sources other 
than proceeds of municipal securities, such as families who wish to 
save for a child's college expenses, general monies of state and local 
governments being temporarily invested prior to their budgeted 
expenditure, and pension contributions from employees and state and 
local government employers. As a result, the Commission does not 
believe that it was Congress's intent to limit the requirement to 
register as a municipal advisor only to those persons that provide 
advice with respect to plans or programs for the investment of proceeds 
from municipal securities. Also, because every bank account of a 
municipal entity is comprised of funds ``held by or on behalf of a 
municipal entity,'' money managers providing advice to municipal 
entities with respect to their bank accounts could be municipal 
advisors. The Commission notes, however, that to the extent a person is 
providing advice to a pooled investment vehicle in which a municipal 
entity has invested funds along with other investors that are not 
municipal entities, the pooled investment vehicle would not be 
considered funds ``held by or on behalf of a municipal entity'' and, 
therefore, the person providing advice to the pooled investment vehicle 
would not have to register as a municipal advisor.\98\
---------------------------------------------------------------------------

    \93\ 15 U.S.C. 78o-4(e)(5).
    \94\ 15 U.S.C. 78o-4(e)(3).
    \95\ See letter from Carolyn Walsh, Vice President and Senior 
Counsel, Center for Securities, Trust and Investments, American 
Bankers Association (``ABA''), and Deputy General Counsel, ABA 
Securities Association, to Elizabeth M. Murphy, Secretary, 
Commission, dated October 13, 2010 (``ABA Letter''). See also letter 
from Leslie M. Norwood, Managing Director and Associate General 
Counsel, Securities Industry and Financial Markets Association 
(``SIFMA''), to Martha Haines, Assistant Director and Chief, Office 
of Municipal Securities, Commission, dated November 15, 2010 
(``SIFMA Letter'') (suggesting interpretations of the term 
``investment strategies'').
    \96\ Proposed rule 15Ba1-1(b).
    \97\ 15 U.S.C. 78o-4(e)(8)(B).
    \98\ To the extent that the pooled investment vehicle is a LGIP, 
the pooled investment vehicle would be considered to be funds ``held 
by or on behalf of'' a municipal entity and, therefore, a person 
providing advice with respect to a LGIP would have to register as a 
municipal advisor. See also supra note 36 (discussing LGIPs).
---------------------------------------------------------------------------

    One commenter that asked for clarification regarding the definition 
of the term ``investment strategies'' stated that it assumes that 
``once the proceeds of a municipal securities offering are commingled 
with other operating funds or the general funds of the municipal entity 
that they lose their characteristic as `proceeds' under the statute, 
and the provision of advice by a bank to the municipal entity with 
respect to the investment of such operating or general funds would not 
make the bank a `municipal advisor' under the statute.'' \99\ Further, 
this commenter stated that it assumes that ``the proceeds of a 
municipal securities offering that are used to fund a municipal pension

[[Page 831]]

plan, once deposited in the plan and commingled with other funds, would 
likewise lose their characteristic as proceeds under the statute; and 
the provision of advice by a bank to the municipal entity with respect 
to the investment of plan assets would not make the bank a `municipal 
advisor' under the statute.'' \100\
---------------------------------------------------------------------------

    \99\ See ABA Letter. See also SIFMA Letter (suggesting that 
moneys in a commingled account would not be considered proceeds 
unless the municipal entity specifically communicates that such 
investment is being made with proceeds of an issue of municipal 
securities).
    \100\ See ABA Letter.
---------------------------------------------------------------------------

    As noted above, the Commission is proposing to interpret the term 
``investment strategies'' to include plans, programs or pools of assets 
that invest funds held by or on behalf of a municipal entity, as well 
as plans or programs for the investment of the proceeds of municipal 
securities that are not municipal derivatives or guaranteed investment 
contracts, or the recommendation of or brokerage of municipal escrow 
investments. Municipal entities utilizing the services of advisors with 
respect to plans, programs or pools of assets that invest funds are 
subject to the same risks regardless of whether those funds are the 
proceeds of municipal securities. The Commission does not have any 
evidence that the competency of the advisors or quality of advice 
needed by municipal entities with respect to the proceeds of municipal 
securities and municipal escrow investments is any different than with 
respect to the investment of other public funds--which may exceed the 
amount of proceeds of municipal securities or municipal escrow 
investments. Furthermore, this approach avoids any need to trace the 
investment of proceeds of municipal securities commingled with other 
public funds and eliminates the potential for abuse from the artificial 
commingling of the proceeds of municipal securities with other public 
funds solely to avoid registration as a municipal advisor and 
compliance with any rules or regulations relating to such advisors.
Municipal Derivatives
    The term ``municipal derivatives'' is not defined in Section 15B of 
the Exchange Act. Accordingly, the Commission is proposing, in rule 
15Ba1-1(f), that the term ``municipal derivatives'' means ``any swap 
(as defined in Section 1a(47) of the Commodity Exchange Act (7 U.S.C. 
1a(47)) and Section 3(a)(69) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(69)), including any rules and regulations thereunder) or 
security-based swap (as defined in Section 3(a)(68) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(68)), including any rules and 
regulations thereunder) to which a municipal entity is a counterparty, 
or to which an obligated person, acting in its capacity as an obligated 
person, is a counterparty.'' \101\ Thus, the Commission is including in 
the definition of ``municipal derivatives'' the definitions of ``swap'' 
and ``security-based swap,'' as those terms are defined by statute (and 
any rules or regulations thereunder). The Commission believes it is 
appropriate to use such definitions for purposes of defining the term 
``municipal derivatives'' where the counterparty is a municipal entity 
or obligated person.
---------------------------------------------------------------------------

    \101\ See proposed rule 15Ba1-1(f).
---------------------------------------------------------------------------

Solicitation of a Municipal Entity or Obligated Person
    The definition of ``municipal advisor'' in Exchange Act Section 
15B(e)(4) includes a person that undertakes a solicitation of a 
municipal entity or obligated person.\102\ Exchange Act Section 
15B(e)(9) provides that the term ``solicitation of a municipal entity 
or obligated person'' means ``a direct or indirect communication with a 
municipal entity or obligated person made by a person, for direct or 
indirect compensation, on behalf of a broker, dealer, municipal 
securities dealer, municipal advisor, or investment adviser (as defined 
in section 202 of the Investment Advisers Act of 1940 [15 U.S.C. 80b-
2]) that does not control, is not controlled by, or is not under common 
control with the person undertaking such solicitation for the purpose 
of obtaining or retaining an engagement by a municipal entity or 
obligated person of a broker, dealer, municipal securities dealer, or 
municipal advisor for or in connection with municipal financial 
products, the issuance of municipal securities, or of an investment 
adviser to provide investment advisory services to or on behalf of a 
municipal entity.'' \103\ As a result of this definition, the 
Commission notes that, unless an exclusion applies, any third-party 
solicitor that seeks business on behalf of a broker, dealer, municipal 
securities dealer, municipal advisor or investment adviser from a 
municipal entity must register as a ``municipal advisor.'' For example, 
a third-party solicitor that seeks business on behalf of an investment 
adviser from a municipal pension fund or a local government investment 
pool must register as a ``municipal advisor.'' In addition, the 
determination regarding whether a solicitation of a municipal entity 
requires a person to register as a municipal advisor is not based on 
the number, or size, of investments that are solicited. Thus, the 
Commission would consider a solicitation of a single investment of any 
amount in a municipal entity to require the person soliciting the 
municipal entity to register as a municipal advisor.
---------------------------------------------------------------------------

    \102\ See 15 U.S.C. 78o-4(e)(4)(A)(ii). The Commission notes 
that the definition of ``municipal advisor'' under Section 
15B(e)(4)(A) means, in part, a person that ``undertakes a 
solicitation of a municipal entity.'' Id. In defining the phrase 
``solicitation of a municipal entity,'' Section 15B includes within 
that phrase, the words ``or obligated person.'' See 15 U.S.C. 78o-
4(e)(9). Section 15B(a)(1)(B) also includes solicitations of 
obligated persons. Thus, the Commission interprets the definition of 
``municipal advisor'' to include the solicitation of a municipal 
entity or obligated person.
    \103\ 15 U.S.C. 78o-4(e)(9).
---------------------------------------------------------------------------

    As noted above, the definition of ``solicitation of municipal 
entity or obligated person'' applies to solicitations on behalf of a 
broker, dealer, municipal securities dealer, municipal advisor, or 
investment adviser that does not control, is not controlled by, or is 
not under common control with the person undertaking such solicitation. 
Accordingly, persons soliciting on behalf of affiliated entities would 
not fall within the definition of municipal advisor and would not be 
required to register pursuant to Section 15B of the Exchange Act. The 
statute would not, however, preclude such persons from registering as 
municipal advisors and being subject to the rules and regulations 
applicable to registered municipal advisors. For example, a person that 
makes a direct or indirect communication with a municipal entity or 
obligated person on behalf of a broker, dealer, municipal securities 
dealer, municipal advisor, or investment adviser that controls, is 
controlled by, or is under common control with the person undertaking 
such communication, where the communication is for the purpose of 
obtaining or retaining an engagement by a municipal entity or obligated 
person of a broker, dealer, municipal securities dealer, or municipal 
advisor for or in connection with municipal financial products, the 
issuance of municipal securities, or of an investment adviser to 
provide investment advisory services to or on behalf of a municipal 
entity, may voluntarily file Form MA or MA-I, as applicable, and apply 
to register as a municipal advisor. By registering as a municipal 
advisor, such person must comply with all Federal securities laws and 
rules or regulations promulgated thereunder relating to registered 
municipal advisors, including the

[[Page 832]]

obligation to comply with MSRB rules that apply to municipal 
advisors.\104\
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    \104\ Recently proposed amendments to the Investment Advisers 
Act seek to permit investment advisers to pay any ``regulated 
municipal advisor'' to solicit government entities on its behalf. 
See Investment Advisers Act Release No. IA-3110 at 69 (November 19, 
2010). Such solicitors may include affiliated entities of the 
investment adviser. As part of its deliberations with respect to the 
Dodd-Frank Act, Congress expressed its intent that municipal 
advisors be permitted to solicit government clients and be subject 
to regulation as municipal advisors. See id. at n. 217. Allowing 
entities to register as municipal advisors and subject themselves to 
the regulatory regime for municipal advisors as a condition to being 
paid as solicitors on behalf of affiliated investment advisers does 
not contravene this Congressional intent.
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c. Exclusions From the Definition of ``Municipal Advisor''
Broker, Dealer, or Municipal Securities Dealer Serving as an 
Underwriter
    The definition of ``municipal advisor'' in proposed rule 15Ba1-1(d) 
would clarify that the exclusion from the definition for a broker, 
dealer, or municipal securities dealer serving as an underwriter \105\ 
does not apply when such persons are acting in a capacity other than as 
an underwriter on behalf of a municipal entity or obligated 
person.\106\ The Commission interprets the exclusion to apply solely to 
a broker, dealer, or municipal securities dealer serving as an 
underwriter on behalf of a municipal entity or obligated person in 
connection with the issuance of municipal securities.\107\ Thus, a 
broker, dealer or municipal securities dealer would not be excluded 
from the definition of a ``municipal advisor'' if the broker, dealer or 
municipal securities dealer engages in municipal advisory activities 
when acting in a capacity other than as an underwriter on behalf of a 
municipal entity or obligated person. For example, a broker-dealer 
advising a municipal entity with respect to the investment of bond 
proceeds or the advisability of a municipal derivative, would be a 
municipal advisor with respect to those activities. In addition, a 
broker-dealer acting as a placement agent for a private equity fund 
that solicits a municipal entity or obligated person to invest in the 
private equity fund would be a municipal advisor with respect to that 
activity. The Commission notes that including such activities within 
the scope of municipal advisory activities is consistent with the 
Exchange Act.\108\
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    \105\ The term ``underwriter'' is defined in Section 2(a)(11) of 
the Securities Act of 1933. See 15 U.S.C. 77b(a)(11).
    \106\ See 15 U.S.C. 78o-4(e)(4)(C) (providing that the 
definition of ``municipal advisor'' does not include a broker, 
dealer, or municipal securities dealer serving as an underwriter (as 
defined in section 2(a)(11) of the Securities Act of 1933)).
    \107\ See Temporary Registration Rule Release, supra note 63, at 
54467, n.19. See also S. Rep. No. 176, 111th Cong., 2d. Sess. 148 
(2010) (``Senate Report'') (noting the need to subject activities 
such as solicitation of a municipal entity to engage an investment 
adviser to MSRB regulation). The Commission believes that Congress 
excluded a broker, dealer or municipal securities dealer acting as 
an underwriter on behalf of a municipal entity or obligated person 
in connection with the issuance of municipal securities because such 
activity is already subject to MSRB rules.
    \108\ See Exchange Act Section 15B(e)(4)(A) and (B) (including 
placement agents and solicitors that undertake a solicitation of a 
municipal entity in the definition of municipal advisor); Senate 
Report; Letter from Senator Christopher J. Dodd, U.S. Senate 
Committee on Banking, Housing and Urban Affairs, to Elizabeth M. 
Murphy, Secretary, Commission, dated February 2, 2010.
---------------------------------------------------------------------------

    One commenter asked for clarification regarding whether a broker-
dealer or another entity that provides advice or assistance to a 
municipal entity on an informal non-contractual (and non-compensated) 
basis would have to register as a municipal advisor.\109\ This 
commenter believes that such persons should not have to register as 
municipal advisors.\110\ Another commenter, however, stated that 
``[a]ny advisor who provides `free' service will be compensated at some 
point for this service. The services being rendered are the trigger for 
registration and the corresponding fiduciary duty, not the title of the 
relationship, the terms of the contract, or the compensation received. 
Such advisor should not be permitted to avoid registration and 
fiduciary responsibilities.'' \111\ Similarly, another commenter stated 
that individuals that offer ```free' or `voluntary' Municipal 
Securities Advisory Services should not be exempt from registration.'' 
\112\
---------------------------------------------------------------------------

    \109\ See Kutak Rock Letter. See also letter from Amy Natterson 
Kroll and W. Hardy Callcott, Bingham McCutchen LLP, to Elizabeth M. 
Murphy, Secretary, Commission, dated October 13, 2010 (``Bingham 
Letter'') (stating that it urges ``the Commission to clarify that 
providing uncompensated introductions to potential underwriters or 
other potential financing participants does not constitute a 
`solicitation' that would trigger registration as a municipal 
advisor'').
    \110\ See Kutak Rock Letter.
    \111\ See letter from Steve Apfelbacher, President, National 
Association of Independent Public Finance Advisors, to Commission, 
dated October 8, 2010 (``NAIPFA Letter''). See also Bingham Letter 
(acknowledging that ``clean energy services companies ultimately do 
receive compensation for their projects--but they do not get paid 
separately (either by municipal entities, or by the firms providing 
financing) for making introductions'').
    \112\ See letter from Joy A. Howard, Principal, WM Financial 
Strategies, to Commission, dated October 5, 2010 (``Howard 
Letter'').
---------------------------------------------------------------------------

    In defining the term ``municipal advisor'' in Exchange Act Section 
15B(e)(4), Congress did not distinguish between those municipal 
advisors who are compensated for providing advice and those who are not 
compensated for providing advice. Thus, consistent with Congress's 
definition of the term ``municipal advisor,'' the Commission does not 
believe the issue of whether a municipal advisor is compensated for 
providing municipal advice should factor into the determination of 
whether the municipal advisor must register with the Commission.\113\
---------------------------------------------------------------------------

    \113\ The Commission notes that in defining the term 
``solicitation of a municipal entity or obligated person'' Congress 
included language that such solicitation means, in part, ``a direct 
or indirect communication with a municipal entity or obligated 
person made by a person, for direct or indirect compensation.'' 
``Indirect compensation'' has been interpreted by other regulatory 
agencies to include non-monetary compensation. For example, the 
Commodity Futures Trading Commission (``CFTC'') has interpreted the 
term ``indirect compensation,'' in the context of the registration 
requirements and procedures for introducing brokers, to include, 
among other things, soft compensation such as research. See CFTC 
Release on Introducing Brokers and Associated Persons of Introducing 
Brokers, Commodity Trading Advisors and Commodity Pool Operators; 
Registration and Other Regulatory Requirements, 48 FR 35248, 35251 
(August 3, 1983) (the CFTC's definition of ``introducing broker'' 
excludes those persons who are not compensated, directly or 
indirectly, for their activities as introducing brokers).
---------------------------------------------------------------------------

Registered Investment Advisers
    Proposed rule 15Ba1-1(d)(2)(ii) would clarify the exclusion from 
the definition of ``municipal advisor'' in Exchange Act Section 
15B(e)(4)(C) for Commission-registered investment advisers.\114\ 
Specifically, consistent with the Commission's interpretation in 
connection with rule 15Ba2-6T, proposed rule 15Ba1-1(d)(2)(ii) would 
provide that the term ``municipal advisor'' shall not include: ``An 
investment adviser registered under the Investment Advisers Act of 1940 
(15 U.S.C. 80b-1 et seq.) or a person associated with such registered 
investment adviser, unless the registered investment adviser or person 
associated with the investment adviser engages in municipal advisory 
activities other than providing investment advice that would subject 
such adviser or person associated with such adviser to the Investment 
Advisers Act of 1940.'' \115\
---------------------------------------------------------------------------

    \114\ See proposed rule 15Ba1-1(d)(2)(ii).
    \115\ See id. See also Temporary Registration Rule Release, 
supra note 63, at 54467.
---------------------------------------------------------------------------

    Thus, the Commission interprets the exclusion from the definition 
of ``municipal advisor'' in Exchange Act Section 15B(4)(C) for 
registered investment advisers and their associated persons who are 
providing investment advice, to mean that a registered investment 
adviser or an associated person of a registered investment adviser 
would not have to register as a ``municipal advisor'' with respect to 
the provision of any investment advice subject to the Investment 
Advisers

[[Page 833]]

Act.\116\ A registered investment adviser or an associated person of a 
registered investment adviser must register with the Commission as a 
municipal advisor if the adviser or associated person engages in any 
municipal advisory activities that would not be investment advice 
subject to the Investment Advisers Act.\117\ For example, a Commission-
registered investment adviser that provides advice with respect to how 
a municipal entity should structure or issue municipal securities would 
be required to register as a municipal advisor.\118\ A Commission-
registered investment adviser that solicits a municipal entity on 
behalf of a municipal advisor would also be required to register as a 
municipal advisor. The Commission believes that this interpretation is 
in furtherance of the goals of the Dodd-Frank Act to regulate persons 
that engage in municipal advisory activities.
---------------------------------------------------------------------------

    \116\ See id. The staff interprets broadly the term ``advice'' 
with respect to the Investment Advisers Act. See supra note 52 
(noting the Division of Investment Management: Staff Legal Bulletin 
No. 11). For purposes of the Commission's interpretation under 
proposed rule 15Ba1-1(d)(2)(ii), the Commission interprets 
``advice'' to include any activity that constitutes ``advice'' 
subject to the Investment Advisers Act.
    \117\ Similarly, a municipal advisor registered under Section 
15B of the Exchange Act may be required to register as an investment 
adviser if its business includes providing investment advice that is 
subject to the Investment Advisers Act. Commission staff has 
provided guidance with respect to circumstances under which a 
municipal advisor may be required to register as an investment 
adviser. See Staff Legal Bulletin No. 11, supra note 52.
    \118\ The Commission notes that a person that provides advice as 
to whether and how a municipal entity should issue municipal 
securities would not have to register with the Commission as an 
investment adviser. See id. (stating ``[w]e would not consider a 
financial advisor to be an investment adviser if it limits its 
activities to providing advice as to whether and how a municipality 
should issue debt securities'').
---------------------------------------------------------------------------

Commodity Trading Advisors
    Consistent with the Commission's interpretation in connection with 
rule 15Ba2-6T, the Commission interprets the exclusion in the Dodd-
Frank Act for registered commodity trading advisors and their related 
persons providing advice related to swaps to apply only to such persons 
when they are providing advice related to swaps, as that term is 
defined in Section 1a(47) of the Commodity Exchange Act and Section 
3(a)(69) of the Exchange Act,\119\ and any rules or regulations 
promulgated thereunder.\120\ Accordingly, proposed rule 15Ba1-
1(d)(2)(iii) would provide that the exclusion from the definition of 
``municipal advisor'' in Exchange Act Section 15B(e)(4)(C) for 
registered commodity trading advisors, or any person associated with a 
registered commodity trading advisor, is only available to a commodity 
trading advisor or person associated with a commodity trading advisor, 
to the extent such commodity trading advisor or associated person of 
the commodity trading advisor is providing advice related to swaps. The 
exclusion would not apply to the commodity trading advisor or 
associated person of the commodity trading advisor to the extent he or 
she engages in municipal advisory activities other than the provision 
of advice related to swaps.\121\ A commodity trading advisor, or an 
associated person of a commodity trading advisor, must register with 
the Commission as a municipal advisor if the commodity trading advisor, 
or an associated person of a commodity trading advisor, engages in any 
municipal advisory activities that do not include advice related to 
swaps.\122\ For example, if an advisor is providing advice to a 
municipal entity with respect to engaging in a swap transaction and 
provides advice to the municipal entity with respect to the structure 
of a municipal securities offering, the advisor would have to register 
with the Commission as a municipal advisor and would be subject to 
regulation by the MSRB as a municipal advisor. In addition, a commodity 
trading advisor must register with the Commission if the advisor 
provides advice with respect to swaps on behalf of a municipal entity 
or obligated person, but is not registered as a commodity trading 
advisor.
---------------------------------------------------------------------------

    \119\ 7 U.S.C. 1a(47) and 15 U.S.C. 78c(a)(69). The exclusion 
would not apply when such persons are providing advice with respect 
to security-based swaps.
    \120\ See Temporary Registration Rule Release, supra note 63, at 
54467.
    \121\ See proposed rule 15a1-1(d)(2)(iii).
    \122\ See id.
---------------------------------------------------------------------------

Attorneys, Engineers and Other Professionals
    The definition of municipal advisor in Exchange Act Section 
15B(e)(4) excludes professionals such as attorneys offering legal 
advice and engineers providing engineering advice.\123\ One commenter 
noted that the definition of ``municipal advisor'' does not contemplate 
a specific exclusion for accountants offering ``traditional accounting 
advice.'' \124\ In discussing what is ``traditional accounting 
advice,'' the commenter noted the engagement of accountants by 
municipal entities in connection with the issuance of municipal 
securities for the purpose of consenting to the use of accountant 
prepared or audited financial statements and/or providing bring down or 
comfort letters \125\ relating to such financial statements.\126\
---------------------------------------------------------------------------

    \123\ See 15 U.S.C. 78o-4(e)(4)(C).
    \124\ See Kutak Rock Letter.
    \125\ In auditing literature, bring down and comfort letters are 
referred to as ``letters for underwriters.'' See AU Sec. 634, 
Letters for Underwriters. Thus, the Commission is proposing to use 
the term ``letters for underwriters'' for this purpose.
    \126\ See Kutak Rock Letter.
---------------------------------------------------------------------------

    Because accountants may provide advice to municipal entities that 
includes advice about the structure, timing, terms, and other similar 
matters concerning the issuance of municipal securities, the Commission 
does not believe it is appropriate to exclude these professionals from 
the definition of municipal advisor entirely. Accountants may also be 
engaged by municipal entities to provide other services, such as 
conducting feasibility studies or preparing financial projections.\127\ 
In addition, as noted by this commenter, in defining ``municipal 
advisor'' in Exchange Act Section 15B(e)(4), Congress only excluded 
attorneys offering legal advice or services of a traditional legal 
nature, or engineers providing engineering advice.\128\ At this time, 
the Commission believes that it is not necessary or appropriate to 
exclude all accountants from the definition of ``municipal advisor.''
---------------------------------------------------------------------------

    \127\ See id. See also Howard Letter (stating that certified 
public accountants that provide advice on bond issues ``clearly meet 
the definition of `Municipal Advisor' under the Act and should be 
subject to registration'').
    \128\ See Kutak Rock Letter. See also 15 U.S.C. 78o-4(e)(4)(C).
---------------------------------------------------------------------------

    The Commission believes, however, that the preparation or audit of 
financial statements, or the issuance of letters for underwriters \129\ 
by accountants would not constitute the provision of advice within the 
meaning of Exchange Act Section 15B(e)(4)(A)(i).\130\ Accordingly, in 
proposed rule 15Ba1-1(d)(2)(vi), the Commission proposes to exclude 
from the definition of a ``municipal advisor'' accountants preparing 
financial statements, auditing financial statements, or issuing letters 
for underwriters for, or on behalf of, a municipal entity or obligated 
person.\131\
---------------------------------------------------------------------------

    \129\ See supra note 125.
    \130\ See 15 U.S.C. 78o-4(e)(4)(A)(i).
    \131\ See proposed rule 15Ba1-1(d)(2)(vi).
---------------------------------------------------------------------------

    In addition, with respect to the exclusion from the definition of 
``municipal advisor'' for attorneys offering legal advice or services 
of a traditional legal nature, the Commission interprets this exclusion 
to apply only when the legal services are to a client of the attorney 
that is a municipal entity or obligated person. Accordingly, proposed 
rule 15Ba1-1(d)(2)(iv) provides that the

[[Page 834]]

term ``municipal advisor'' shall not include any attorney unless the 
attorney engages in municipal advisory activities other than offering 
legal advice or providing services that are of a traditional legal 
nature to a client of the attorney that is a municipal entity or 
obligated person.\132\ Generally, the Commission interprets advice 
provided by a lawyer to its client with respect to the structure, 
timing, terms and other similar matters concerning municipal financial 
products or the issuance of municipal securities to be services of a 
traditional legal nature if such advice is provided within a lawyer-
client relationship specifically related to such products in 
conjunction with related legal advice. Thus, for example, advice 
comparing the structures, terms, or associated costs of issuance of 
different types of securities or financial instruments (such as fixed 
rate bonds or variable rate demand obligations) given by an attorney 
hired to advise a municipal entity client embarking on a bond offering, 
would be considered to be services of a traditional legal nature, as 
would advice concerning the tax consequences of alternative financing 
structures or advice recommending a particular financing structure due 
to legal considerations such as the limitations included in existing 
contracts and indentures to which the issuer is a party. However, 
advice which is primarily financial in nature, such as advice 
concerning the financial feasibility of a project or financing, advice 
estimating or comparing the relative cost to maturity of an issuance 
depending on various interest rate assumptions or advice recommending a 
particular structure as being financially advantageous under prevailing 
market conditions, would be primarily financial advice and not services 
of a traditional legal nature.
---------------------------------------------------------------------------

    \132\ See proposed rule 15Ba1-1(d)(2)(iv).
---------------------------------------------------------------------------

    With respect to the exclusion from the definition of ``municipal 
advisor'' for engineers providing engineering advice, one commenter 
requested that the Commission include in this exclusion ``activity 
which is incidental to engineering services.'' \133\ In addition, this 
commenter urged the Commission to ``distinguish purely informational 
and educational activities which do not rise to the level of advice 
from individualized advice about the appropriate investment for a 
particular state or local government entity.'' \134\ Moreover, this 
commenter stated that ``a clean energy services company should not also 
be required to register as a municipal advisor simply because it 
provides cash-flow modeling and other similar information that is 
inextricably linked to the engineering analysis, even if that modeling 
is individualized to the municipal entity.'' \135\ In addition, the 
commenter urged the Commission to define ``advice'' to ``exclude 
feasibility studies that are a necessary part of any engineering 
projects, including clean energy services projects.'' \136\
---------------------------------------------------------------------------

    \133\ See Bingham Letter.
    \134\ Id.
    \135\ Id.
    \136\ Id.
---------------------------------------------------------------------------

    As discussed above and below, the exclusions from the definition of 
``municipal advisor'' included by Congress in Section 15B(e)(4) of the 
Exchange Act were limited.\137\ With respect to engineers, the 
exclusion applies to engineers providing ``engineering advice.'' For 
example, costing out engineering alternatives would not subject an 
engineer to registration as a municipal advisor because such activity 
would be considered engineering advice. The exclusion does not include 
circumstances in which the engineer is engaging in municipal advisory 
activities, including cash-flow modeling or the provision of 
information and education relating to municipal financial products or 
the issuance of municipal securities, even if those activities are 
incidental to the provision of engineering advice. In addition, the 
exclusion does not include circumstances in which the engineer is 
preparing feasibility studies concerning municipal financial products 
or the issuance of municipal securities that include analysis beyond 
the engineering aspects of the project and, therefore, an engineer 
preparing such studies would be subject to registration as a municipal 
advisor.\138\
---------------------------------------------------------------------------

    \137\ See 15 U.S.C. 78o-4(e)(4)(C).
    \138\ A ``feasibility study'' is a report detailing the economic 
practicality of and the need for a proposed capital program. It 
frequently analyzes demand for the product or service being sold and 
forecasts financial statements or other operating statistics. The 
feasibility study may include a user or other rate analysis to 
provide an estimate of revenues that will be generated for the 
purpose of substantiating that debt service can be met from pledged 
revenues. In addition, the feasibility study may provide details of 
the physical, operating, economic or engineering aspects of the 
proposed project, including estimates of construction costs, 
completion dates and drawdown schedules. See MSRB Glossary of 
Municipal Securities Terms, available at http://www.msrb.org/msrb1/glossary/glossary_db.asp?sel=f.
---------------------------------------------------------------------------

Employees of a Municipal Entity
    Exchange Act Section 15B(e)(4)(A) provides that the term 
``municipal advisor'' excludes employees of a municipal entity.\139\ 
One commenter suggested that the Commission clarify that this exclusion 
from the definition of ``municipal advisor'' would include any person 
serving as an appointed or elected member of the governing body of a 
municipal entity, such as a board member, county commissioner or city 
councilman.\140\ This commenter stated that because these persons are 
not technically ``employees'' of the municipal entity (but rather are 
``unpaid volunteers''), these persons would not fall within the 
exclusion from the definition of ``municipal advisor'' for ``employees 
of a municipal entity'' and, therefore, may have to register as 
municipal advisors.\141\
---------------------------------------------------------------------------

    \139\ 15 U.S.C. 78o-4(e)(4)(A).
    \140\ See Kutak Rock Letter.
    \141\ See id. See also 15 U.S.C. 78o-4(e)(4)(A).
---------------------------------------------------------------------------

    The Commission believes that the exclusion from the definition of a 
``municipal advisor'' for ``employees of a municipal entity'' should 
include any person serving as an elected member of the governing body 
of the municipal entity to the extent that person is acting within the 
scope of his or her role as an elected member of the governing body of 
the municipal entity. ``Employees of a municipal entity'' should also 
include appointed members of a governing body to the extent such 
appointed members are ex officio members of the governing body by 
virtue of holding an elective office.\142\ The Commission does not 
believe that appointed members of a governing body of a municipal 
entity that are not elected ex officio members should be excluded from 
the definition of a ``municipal advisor.'' The Commission believes that 
this interpretation is appropriate because employees and elected 
members are accountable to the municipal entity for their actions. In 
addition, the Commission is concerned that appointed members, unlike 
elected officials and elected ex officio members, are not directly 
accountable for their performance to the citizens of the municipal 
entity.
---------------------------------------------------------------------------

    \142\ This would include persons appointed to fill the remainder 
of the term for an elective office.
---------------------------------------------------------------------------

Banks
    Another commenter stated that the Commission should exempt from the 
definition of a ``municipal advisor'' banks providing ``traditional 
banking services'' and banks and trust companies that provide 
``investment advisory services.'' \143\ As support, this

[[Page 835]]

commenter stated that banks are currently well-regulated and banks that 
offer trustee services are subject to rigorous and frequent 
examination, as well as extensive regulation by the various Federal or 
State banking regulators.\144\ The Commission notes that Congress 
included in the statutory definition of ``municipal advisor'' a limited 
number of exclusions from the definition, and such exclusions did not 
include banks in any capacity. As discussed below, under ``Request for 
Comment,'' among other things, the Commission is seeking comment on 
whether the definition of a ``municipal advisor'' should exclude banks 
providing advice to a municipal entity or obligated person concerning 
transactions that involve a ``deposit,'' as defined in Section 3(l) of 
the Federal Deposit Insurance Act,\145\ at an ``insured depository 
institution,'' as defined in Section 3(c)(2) of the Federal Deposit 
Insurance Act.\146\ Such an exclusion, if adopted, would result in 
excluding banks from the definition of a ``municipal advisor'' to the 
extent that the bank is providing advice to a municipal entity or 
obligated person with respect to such traditional banking products as 
insured checking and savings accounts and certificates of deposit, 
while not excluding from the definition of a ``municipal advisor'' a 
bank that is providing advice to a municipal entity or obligated person 
concerning other municipal advisory activities. The Commission notes 
that, similarly, banks are not excluded from the requirement to 
register as municipal securities dealers.
---------------------------------------------------------------------------

    \143\ See ABA Letter. In providing examples of the types of 
activities in which banks and trust companies engage, this commenter 
stated that: ``[o]n the commercial side of the bank, these services 
and products include direct loans, checking accounts, and CDs. Banks 
of all sizes also frequently are asked to respond to RFP requests 
from municipal entities regarding investment products offered by the 
banking entity, such as interest-bearing bank deposits, money market 
mutual funds, or other exempt securities. Banks also are significant 
investors in the securities issued by municipalities and provide 
credit or, through their affiliates, underwriting services to 
municipalities when the city or township wants to buy a fire truck 
or build a new school or other similar facility. Furthermore, for 
over one hundred and fifty years, banks and trust companies have 
provided fiduciary services to municipal entities in the United 
States. In this capacity banks often manage investment accounts for 
local towns and act as trustees with respect to bond proceeds, 
escrow accounts, governmental pension plans and other similar 
capacities.'' Id.
    \144\ See id.
    \145\ 12 U.S.C. 1813(l).
    \146\ 12 U.S.C. 1813(c)(2).
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comments generally on its proposals 
discussed above and also requests comment on the following specific 
issues:
    <bullet> In light of our understanding of Congressional objectives 
and intent, are the Commission's interpretations under the definition 
of ``municipal advisor'' and related terms, and the exclusions from the 
definition of ``municipal advisor'' appropriate? Should any of these 
interpretations be modified or clarified in any way?
    <bullet> The Commission notes that the definition of ``municipal 
entity'' includes, but is not limited to, public pension funds, local 
government investment pools and other state and local governmental 
entities or funds as well as participant-directed investment programs 
or plans such as 529, 403(b), and 457 plans. Is the Commission's 
interpretation of ``municipal entity'' for purposes of the proposed 
definition of ``municipal advisor'' appropriate? Is additional 
clarification necessary? If so, how should the Commission further 
clarify this interpretation?
    <bullet> In what circumstances with respect to municipal financial 
products or the issuance of municipal securities should charter schools 
be considered municipal entities? In what circumstances with respect to 
municipal financial products or the issuance of municipal securities 
should charter schools be considered obligated persons? To what extent 
do state laws vary in their treatment of charter schools in ways that 
would affect their classification as municipal entities or obligated 
persons?
    <bullet> The Commission proposes to exempt from the definition of 
``obligated person'' providers of municipal bond insurance, letters of 
credit, or other liquidity facilities so that the definition of 
``obligated person'' for purposes of the proposed rules is consistent 
with the definition of ``obligated person'' in rule 15c2-12 under the 
Exchange Act. Should the proposed definition be modified or clarified 
in any way? Should the term ``obligated person'' for purposes of 
municipal advisor registration be consistent with the definition of 
``obligated person'' for purposes of rule 15c2-12? If so, why? If not, 
why not? Should the Commission include additional exemptions from the 
definition of ``obligated person''? If so, please explain and provide 
specific examples.
    <bullet> The Commission proposes to interpret the term ``investment 
strategies'' to include plans or programs for the investment of the 
proceeds of municipal securities (other than municipal derivatives and 
guaranteed investment contracts), plans, programs or pools of assets 
that invest funds held by or on behalf of a municipal entity, or the 
recommendation of or brokerage of municipal escrow investments. Should 
the Commission modify or clarify this interpretation in any way? If so, 
why? If not, why not? Please provide any suggested alternative 
language. Should the Commission exclude plans, programs or pools of 
assets that invest funds held by or on behalf of a municipal entity 
that are not proceeds of the issuance of municipal securities from the 
definition of investment strategies? If so, why? If not, why not? If 
the Commission were to limit investment strategies to ``plans or 
programs for the investment of the proceeds of municipal securities 
(other than municipal derivatives and guaranteed investment contracts) 
or the recommendation of or brokerage of municipal escrow 
investments,'' how should the Commission determine when funds should no 
longer be considered ``proceeds of municipal securities?'' What 
obligations should parties other than the municipal entity have in 
determining whether funds held by or on behalf of a municipal entity 
are proceeds of municipal securities?
    <bullet> As noted above, to the extent a person is providing advice 
to a pooled investment vehicle in which one or more municipal entities 
are investors along with other investors that are not municipal 
entities, the pooled investment vehicle would not be considered funds 
``held by or on behalf of a municipal entity'' and, therefore, a person 
providing advice to the pooled investment vehicle would not be required 
to register as a municipal advisor. Should the Commission modify or 
clarify this interpretation in any way? If so, why? If not, why not? 
Please provide any suggested alternative language. Should the 
Commission provide that such interpretation should apply only if the 
investors that are not municipal entities are the primary investors in 
the pooled investment vehicle? If so, how, and above what level, should 
the Commission determine that investors that are not municipal entities 
are the primary investors in the pooled investment vehicle? Should such 
a determination be based on a dollar amount or a percentage of the 
pooled investment vehicle's assets? Should the Commission provide that 
this pooled investment vehicle interpretation would no longer apply if 
the municipal entity (or municipal entities) investing in the pooled 
investment vehicle becomes the primary investor in the pooled 
investment vehicle subsequent to the initial investment? If so, above 
what level of investment should a municipal entity (or municipal 
entities) be considered to be the primary investor in the pooled 
investment vehicle? Should such a determination be based on a dollar 
amount or a percentage of the pooled investment vehicle's assets?
    <bullet> As discussed above, the Commission is proposing to 
interpret the term ``investment strategies'' to include plans, programs 
or pools of

[[Page 836]]

assets that invest funds held by or on behalf of a municipal entity. 
Thus, commingled proceeds, regardless of when they lose their 
characteristic as proceeds, would still constitute ``funds held by or 
on behalf of a municipal entity'' and, therefore, any advice with 
respect to such funds would be municipal advice, unless subject to an 
exclusion. Is this interpretation too broad? Please explain and include 
a discussion of concerns, if any, such an interpretation could raise.
    <bullet> In interpreting the term ``solicitation of a municipal 
entity or obligated person,'' the Commission notes that, unless an 
exclusion applies, any third-party solicitor that seeks business on 
behalf of an investment adviser from a municipal entity or obligated 
person, such as a municipal pension fund or a local government 
investment pool, must register as a municipal advisor. In addition, the 
Commission notes that the determination regarding whether a 
solicitation of a municipal entity or obligated person requires a 
person to register as a municipal advisor is not based on the number, 
or the size, of investments that are solicited. Thus, the Commission 
would consider a solicitation of a single investment by a municipal 
entity or obligated person in any amount to require the person 
soliciting the municipal entity or obligated person to register as a 
municipal advisor. Do these interpretations require further 
clarification? If so, how? Should these interpretations be modified in 
any way? Please explain and provide suggested alternative language, as 
appropriate. Is there a de minimis number or size of investments that 
should be allowed to be solicited before a person is required to 
register as a municipal advisor? If so, what should this de minimis 
amount be? Please explain the rationale for providing for a de minimis 
exception.
    <bullet> Should the Commission, as proposed, permit the voluntary 
registration by persons that solicit a municipal entity or obligated 
person on behalf of a broker, dealer, municipal securities dealer, 
municipal advisor, or investment adviser that controls, is controlled 
by, or is under common control with the person undertaking such 
solicitation? If not, why not? Should the Commission permit voluntary 
registration by any other group of persons? If so, which persons and 
why?
    <bullet> In interpreting the term ``solicitation of a municipal 
entity or obligated person,'' the Commission also notes that such 
solicitation must be ``for the purpose of obtaining or retaining an 
engagement * * * in connection with municipal financial products [or] 
the issuance of municipal securities.'' Are there types of obligated 
persons to which this definition should not apply in connection with 
the issuance of municipal securities? If so, please identify the types 
of obligated persons to which the definition should not apply and 
explain why. Are there types of municipal financial products (such as 
municipal derivatives which include swaps or security-based swaps where 
an obligated person is the counterparty) to which this definition 
should not apply? If so, please identify the types of municipal 
financial products to which the definition should not apply and explain 
why.
    <bullet> Proposed rule 15Ba1-1(f) would define the term ``municipal 
derivatives'' to mean ``any swap (as defined in Section 1a(47) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)) and Section 3(a)(69) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(69)), including any 
rules and regulations thereunder) or security-based swap (as defined in 
Section 3a(68) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(68)), including any rules and regulations thereunder) to which a 
municipal entity is a counterparty, or to which an obligated person, 
acting in its capacity as an obligated person, is a counterparty.'' 
Should this definition be clarified or modified in any way? If so, how? 
Should the definition of municipal derivatives specifically include 
other financial products? For example, should the definition 
specifically include options, forwards or futures? If so, which 
products and why? Should this definition include a financial product 
that is composed of multiple components where one or more of such 
components is derivative in nature, such as a structured note or 
convertible bond? \147\ Should this definition include financial 
products, in addition to swaps and security-based swaps, that are based 
on municipal securities that are exempted securities under the Exchange 
Act or are exempt from registration under the Securities Act? Should it 
include an over-the-counter option contract with a municipal entity? If 
so, which additional financial products should be included in the 
definition and why?
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    \147\ See SIFMA Letter.
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    <bullet> Is our interpretation of the exclusion from the definition 
of a ``municipal advisor'' for a broker, dealer, or municipal 
securities dealer serving as an underwriter appropriate? Specifically, 
the Commission interprets this exclusion to mean that a broker-dealer 
acting as an underwriter or placement agent that solicits a municipal 
entity to invest in a security, or a broker-dealer acting as an 
underwriter that also advises a municipal entity with respect to the 
investment of proceeds of municipal securities or the advisability of a 
municipal derivative would be a municipal advisor. Should these 
interpretations be modified in any way, or further clarified? If so, 
how?
    <bullet> Consistent with Congress's definition of the term 
``municipal advisor,'' the Commission does not believe that whether a 
municipal advisor is compensated for providing municipal advice should 
factor into the determination regarding whether the municipal advisor 
must register with the Commission. Are there any persons who engage in 
uncompensated municipal advisory activities, or municipal advisory 
activities for indirect compensation, that the Commission should 
exclude from the definition of ``municipal advisor''? Please explain.
    <bullet> The Commission would interpret the exclusion from the 
definition of ``municipal advisor'' in Exchange Act Section 15B(4)(C) 
for Commission-registered investment advisers and their associated 
persons who are providing investment advice, to mean that a Commission-
registered investment adviser or an associated person of a Commission-
registered investment adviser would not have to register as a 
``municipal advisor'' with respect to the provision of any advice that 
would subject the adviser (or associated person) to the Investment 
Advisers Act. Should this interpretation be modified or clarified in 
any way? If so, how?
    <bullet> As a result of the changes in the threshold for 
registration as an investment adviser,\148\ fewer entities will be 
required to register as investment advisers under the Federal 
securities laws and will instead be subject to state registration 
requirements. Investment advisers that are not registered with the 
Commission would not be exempt from registration as municipal advisors 
to the extent that they are engaging in municipal advisory activities. 
Should state-registered investment advisers be exempt from the 
definition of ``municipal advisor'' to the extent they are providing 
advice that otherwise would be subject to the Investment Advisers Act, 
but for the operation of a prohibition to, or exemption from, 
Commission registration?
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    \148\ See 15 U.S.C. 80b-3a(a).

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[[Page 837]]

    <bullet> Should the Commission's interpretation of the exclusion 
from the definition of a ``municipal advisor'' for registered commodity 
trading advisors and their associated persons providing advice related 
to swaps be modified in any way, or further clarified? If so, how?
    <bullet> The Commission proposes to exclude from the definition of 
a ``municipal advisor'' persons preparing financial statements, 
auditing financial statements, or issuing letters for underwriters for, 
or on behalf of, a municipal entity or obligated person. Should persons 
providing these accounting services be excluded from the definition of 
``municipal advisor''? Are there additional types of services that an 
accountant provides that should not require the registration of an 
accountant as a municipal advisor? If so, what additional types of 
accounting services should qualify an accountant for an exclusion from 
the definition of ``municipal advisor''? Are there activities that are 
incidental to the provision of accounting services or inextricably 
linked to accounting services that can only reasonably be performed by 
an accountant that might otherwise constitute advice with respect to 
the issuance of municipal securities or municipal financial products?
    <bullet> Should the Commission expand the exclusion from the 
definition of ``municipal advisor'' beyond engineers providing 
engineering advice? If so, why and how should such exclusion be 
expanded? If not, why not? How should the Commission interpret the term 
``engineering advice''? Are there activities that are ``incidental to 
the provision of engineering advice'' or ``inextricably linked to 
engineering advice'' that can only reasonably be performed by an 
engineer that might otherwise constitute advice with respect to the 
issuance of municipal securities or municipal financial products? As 
discussed above, the Commission does not interpret the exclusion of 
engineers providing engineering advice to include circumstances in 
which the engineer is preparing feasibility studies concerning 
municipal financial products or the issuance of municipal securities 
that include analysis beyond the engineering aspects of the project 
and, therefore, an engineer preparing such studies would be subject to 
registration as a municipal advisor. Is this an appropriate 
interpretation? Please explain.
    <bullet> The Commission proposes to exclude from the definition of 
municipal advisor attorneys offering legal advice or services of a 
traditional legal nature. As discussed above, the Commission interprets 
this exclusion to apply only when the legal services are to a client of 
the attorney that is a municipal entity or obligated person. Is this an 
appropriate interpretation? Please explain. Should the Commission 
provide an exclusion for all activities of an attorney as long as that 
attorney has an attorney-client relationship with the municipal entity 
or obligated person? Why or why not? Should the scope of the exclusion 
for attorneys be different for attorneys for obligated persons? Why or 
why not? Neither the Dodd-Frank Act nor the proposed rule defines the 
term ``services of a traditional legal nature.'' Is the meaning of the 
term sufficiently clear? If not, should the Commission provide 
additional interpretive guidance? How should the Commission interpret 
the term?
    <bullet> Are there other types of professional activities that 
should be excluded from the definition of a ``municipal advisor''? 
Please explain.
    <bullet> The Commission is proposing to exclude from the definition 
of ``municipal entity'' elected members of a governing body of a 
municipal entity, but to include appointed members of a municipal 
entity's governing body unless such appointed members are ex officio 
members of the governing body by virtue of holding an elective office. 
Are these distinctions appropriate? Please explain. Are there other 
persons associated with a municipal entity who might not be 
``employees'' of a municipal entity that the Commission should exclude 
from the definition of a ``municipal advisor''?
    <bullet> Should employees of obligated persons be excluded from the 
definition of ``municipal advisor'' to the extent they are providing 
advice to the obligated person, acting in its capacity as an obligated 
person, in connection with municipal financial products or the issuance 
of municipal securities? One commenter \149\ expressed concern that 
volunteers at entities such as charter schools could be required to 
register as municipal advisors. Are there types of persons other than 
employees of obligated persons that should be excluded from the 
definition of ``municipal advisor?'' If yes, please provide examples of 
the specific types of persons and the specific circumstances under 
which they should be excluded.
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    \149\ See Jacobsen Letter.
---------------------------------------------------------------------------

    <bullet> Should the Commission exclude from the definition of a 
``municipal advisor'' banks providing advice to a municipal entity or 
obligated person concerning transactions that involve a ``deposit,'' as 
defined in Section 3(l) of the Federal Deposit Insurance Act \150\ at 
an ``insured depository institution,'' as defined in Section 3(c)(2) of 
the Federal Deposit Insurance Act,\151\ such as insured checking and 
savings accounts and certificates of deposit? Should the Commission 
exclude from the definition of a ``municipal advisor'' banks that 
respond to requests for proposals (``RFPs'') from municipal entities 
regarding other investment products offered by the banking entity, such 
as money market mutual funds or other exempt securities? Should the 
Commission exclude from the definition of ``municipal advisor'' a bank 
that provides to a municipal entity a listing of the options available 
from the bank for the short-term investment of excess cash (for 
example, interest-bearing bank accounts and overnight or other periodic 
investment sweeps) and negotiates the terms of an investment with the 
municipal entity? \152\ Should the Commission exclude from the 
definition of ``municipal advisor'' a bank that provides to a municipal 
entity the terms upon which the bank would purchase for the bank's own 
account (to be held to maturity) securities issued by the municipal 
entity, such as bond anticipation notes, tax anticipation notes, or 
revenue anticipation notes? \153\ Should the Commission exclude from 
the definition of ``municipal advisor'' a bank that directs or executes 
purchases and sales of securities or other instruments with respect to 
funds in a trust account or other fiduciary account in accordance with 
predetermined investment criteria or guidelines, including on a 
discretionary basis? \154\ Should the Commission exclude from the 
definition of a ``municipal advisor'' banks and trust companies that 
provide other fiduciary services to municipal entities, such as acting 
as trustees with respect to governmental pension plans and other 
similar capacities? Should banks and trust companies be exempt from the 
definition of ``municipal advisor'' to the extent they are providing 
advice that otherwise would subject them to registration under the 
Investment Advisers Act, but for the operation of a prohibition to or 
exemption from registration? Please explain any response to these 
questions and to the extent that an exemption is recommended, please 
provide suggested exemptive language.
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    \150\ See supra note 145.
    \151\ See supra note 146.
    \152\ See SIFMA Letter.
    \153\ See id.
    \154\ See id.
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    <bullet> Should the Commission exclude from the definition of 
``municipal advisor'' a broker-dealer that provides a municipal entity 
with price quotations

[[Page 838]]

with respect to particular securities (or securities having particular 
characteristics) which the broker-dealer would be prepared to sell as 
principal or acquire for the municipal entity? \155\ Should the 
Commission exclude from the definition of ``municipal advisor'' a 
broker-dealer that provides to a municipal entity a list of securities 
meeting specified criteria that are readily available in the 
marketplace, but without making a recommendation as to the merits of 
any investment particularized to the municipal entity's specific 
circumstances or investment objectives? \156\
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    \155\ See id.
    \156\ See id.
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    <bullet> Should the Commission exclude from the definition of 
``municipal advisor'' an entity that provides to clients investment 
advice, such as research information and generic trade ideas or 
commentary that does not purport to meet the needs or objectives of 
specific clients, and is provided to a municipal entity as part of its 
ongoing ordinary communications? \157\
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    \157\ See id.
---------------------------------------------------------------------------

    <bullet> Should the Commission permit registration of only 
separately identifiable departments or divisions of a bank (``SIDs'')? 
Please explain. Would the following suggested rule text, based on MSRB 
rule G-1 relating to SIDs engaged in municipal securities dealer 
activitites, provide appropriate conditions for determining whether and 
when a SID engaged in municipal advisory activities may register as a 
municipal advisor: ``(a) A separately identifiable department or 
division of a bank, as such term is used in Section 3(a)(30) of the 
Securities Exchange Act of 1934, is that unit of the bank which 
conducts all of the municipal advisory activities of the bank, provided 
that: (1) Such unit is under the direct supervision of an officer or 
officers designated by the board of directors of the bank as 
responsible for the day-to-day conduct of the bank's municipal advisory 
activities, including the supervision of all bank employees engaged in 
the performance of such activities; and (2) There are separately 
maintained in or separately extractable from such unit's own facilities 
or the facilities of the bank, all of the records relating to the 
bank's municipal advisory activities, and further provided that such 
records are so maintained or otherwise accessible as to permit 
independent examination thereof and enforcement of applicable 
provisions of the Exchange Act, the rules and regulations thereunder 
and the rules of the MSRB relating to municipal advisors; (b) The fact 
that directors and senior officers of the bank may from time to time 
set broad policy guidelines affecting the bank as a whole and which are 
not directly related to the day-to-day conduct of the bank's municipal 
advisory activities, shall not disqualify the unit hereinbefore 
described as a separately identifiable department or division of the 
bank or require that such directors or officers be considered as part 
of such unit; and (c) The fact that the bank's municipal advisory 
activities are conducted in more than one geographic organizational or 
operational unit of the bank shall not preclude a finding that the bank 
has a separately identifiable department or division for purposes of 
this rule, provided, however, that all such units are identifiable and 
that the requirements of paragraphs (1) and (2) of section (a) of this 
rule are met with respect to each such unit. All such geographic, 
organizational or operational units of the bank shall be considered in 
the aggregate as the separately identifiable department or division of 
the bank for purposes of this rule.''? Should this language be 
clarified or modified in any way? Please provide suggested alternative 
language, as appropriate. Are there reasons that the language of MSRB 
rule G-1, as modified, should not be used for SIDs engaging in 
municipal advisory activities? Please explain.
    <bullet> Are there other exclusions from the definition of 
``municipal advisor'' that the Commission should consider? Please 
explain.
2. Proposed Rule 15Ba1-2
a. Application for Municipal Advisor Registration
    As discussed above, the registration requirement for municipal 
advisors under Section 15B of the Exchange Act applies to every person, 
including every natural person, who provides the types of advice 
described in the definition of a ``municipal advisor''--whether that 
person is an organized entity, sole proprietor, employee of a municipal 
advisory firm, or otherwise.\158\ The information that is appropriate 
to seek from a firm before it can be allowed to register may be 
different from the information that is appropriate to seek from an 
individual. Thus, as described in detail below, the Commission is 
proposing the submission of Form MA by municipal advisory firms and the 
submission of Form MA-I by natural person municipal advisors. A sole 
proprietor is included in the definition of ``municipal advisory firm'' 
and ``natural person municipal advisor.'' As a result, a sole 
proprietor would have to complete both Form MA and Form MA-I.
---------------------------------------------------------------------------

    \158\ See supra Section II.A.1. (discussing the definition of 
the term ``municipal advisor'').
---------------------------------------------------------------------------

    The Commission is proposing rule 15Ba1-2, which would establish the 
procedures by which a municipal advisor may apply to the Commission for 
registration. The proposed rule provides that an application for the 
registration of a municipal advisor must be filed electronically with 
the Commission on proposed new Form MA or Form MA-I, in accordance with 
the instructions to Forms MA or MA-I, as applicable.\159\
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    \159\ If the Commission adopts the registration rule as 
proposed, municipal advisors may be required to file the forms 
required by the proposed rule in paper until such time as an 
electronic filing system is operational and capable of receiving the 
forms. Municipal advisors would be notified as soon as the 
electronic system can accept filing of the forms. At such time, the 
Commission may require each municipal advisor to promptly re-file 
electronically the applicable forms.
---------------------------------------------------------------------------

    Proposed rule 15Ba1-2(a) would require a municipal advisory firm, 
including those currently registered on Form MA-T, to apply for 
registration with the Commission as a municipal advisor by completing 
Form MA in accordance with the instructions to the form, and filing 
Form MA electronically with the Commission. Proposed rule 15Ba1-2(b) 
would require a natural person municipal advisor, which would include 
an individual employee of a firm who meets the definition of municipal 
advisor, to apply for registration with the Commission as a municipal 
advisor by completing Form MA-I in accordance with the instructions to 
the form and electronically filing the form with the Commission.\160\
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    \160\ See infra note 233.
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    Each Form MA and MA-I would be considered filed upon acceptance by 
the Commission. As noted above, proposed rule 15Ba1-2 would require 
Forms MA and MA-I to be filed electronically with the Commission.\161\ 
Similarly, the Commission's registration forms for broker-dealers and 
investment advisers--Forms BD and ADV--are currently filed 
electronically through

[[Page 839]]

the Central Registration Depositary (``CRD'') system operated by FINRA 
and the Investment Adviser Registration Depository (``IARD'') system 
operated by FINRA, respectively. The Commission is considering whether 
forms for the permanent registration as a municipal advisor should be 
submitted through the Commission's Electronic Data Gathering, Analysis, 
and Retrieval System (``EDGAR''), or otherwise.\162\ Filings required 
to be made on a day that the Commission's electronic filing system is 
closed would be considered timely filed, if filed electronically no 
later than the following business day.\163\ Information required by the 
forms would be made publicly available unless otherwise noted below. In 
addition, Forms MA and MA-I would constitute ``reports'' for purposes 
of Sections 15B(c), 17(a), 18(a), 32(a) (15 U.S.C. 78o-4(c), 78q(a), 
78r(a), 78ff(a)) and other applicable provisions of the Exchange 
Act.\164\ As a consequence, it would be unlawful for a municipal 
advisor to willfully make or cause to be made, a false or misleading 
statement of a material fact or omit to state a material fact in Form 
MA or Form MA-I.
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    \161\ The Commission is also proposing that Forms MA-W (relating 
to withdrawals from registration) and MA-NR (relating to 
appointments of agent for service of process by non-resident 
municipal advisors and non-resident general partners and managing 
agents of municipal advisors) be filed electronically. Form MA-W 
would also constitute a ``report'' for purposes of Sections 15B(c), 
17(a), 18(a), 32(a) (15 U.S.C. 78o-4(c), 78q(a), 78r(a), 78ff(a)) 
and other applicable provisions of the Exchange Act. See proposed 
rule 15Ba1-3(d). As a consequence, it would also be unlawful for a 
municipal advisor to willfully make or cause to be made, a false or 
misleading statement of a material fact or omit to state a material 
fact in Form MA-W.
    \162\ If the registration forms are required to be submitted 
through EDGAR, the electronic filing requirements of Regulation S-T 
would apply. See generally 17 CFR 232 (governing the electronic 
submission of documents filed with the Commission). In addition, the 
Commission is considering whether a fee would be charged for filing 
Forms MA, MA-I, MA-NR or MA-W. For example, the MSRB, in conjunction 
with or on behalf of the Commission, has the authority to charge 
reasonable fees for the submission of information to information 
systems developed for the purpose of serving as a repository of 
information from municipal market participants. See Section 
15B(b)(3) of the Exchange Act (15 U.S.C. 78o-4(b)(3)).
    \163\ See proposed rule 15Ba1-2(c).
    \164\ See proposed rule 15Ba1-2(d).
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Request for Comment
    The Commission requests comments generally on the proposed 
registration procedures and also requests comment on the following 
specific issues:
    <bullet> Forms MA and MA-I would have to be filed electronically 
for purposes of registering with the Commission. Should the proposed 
rule include an option for the forms to be filed in paper rather than 
electronically? If so, please explain under what circumstances it would 
be appropriate for allowing paper filings of the forms.
    <bullet> Are there any other issues concerning the filing of forms 
electronically about which the Commission should be made aware? If so, 
what are they?
    <bullet> Are there specific capabilities that the Commission should 
consider in developing an electronic registration system? For example, 
should the system have the capability to cross-check other electronic 
registration systems, such as IARD and CRD? If so, which systems and 
why?
    <bullet> Is EDGAR the best vehicle for filing of the required forms 
with the Commission? If not, what vehicle would be superior and why? 
Should the Commission allow the filing of documents in electronic media 
other than EDGAR? If so, please make specific recommendations.
    <bullet> Would requiring the filing of the forms on EDGAR be an 
appropriate way to make the requested information publicly available? 
Should the Commission require Web site posting of the information 
instead or in addition? What advantages, if any, would Web site posting 
have over requiring that the information be filed, and made publicly 
available, on EDGAR?
    <bullet> Does the method for submitting documents in electronic 
format as opposed to paper format create any issues or hardships for 
any group of potentially affected firms?
b. Instructions and Glossary
    The Commission is proposing a set of instructions 
(``Instructions''), which include general instructions for proper 
completion and submission of each of the proposed Forms MA, MA-I, MA-W 
and MA-NR (``General Instructions''), specific instructions for the 
completion of Form MA and Form MA-I (``Instructions to Form MA'' and 
``Instructions to Form MA-I'', respectively), and a glossary of terms 
(``Glossary'') intended to help municipal advisors complete the forms 
for registration. These Instructions and Glossary are attached to this 
release, together with proposed Forms MA, MA-I, MA-W and MA-NR.\165\ 
The instructions are intended to answer basic questions concerning 
completion of the forms. Generally, the definitions in the Glossary are 
derived from Form ADV,\166\ the terms in Exchange Act Section 
15B(e),\167\ and the definitions in proposed rule 15Ba1-1.\168\ For 
ease of reference, we are proposing one Glossary that would apply to 
all of the proposed forms. All terms in the forms that appear in 
italics are defined or described in the Glossary.\169\
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    \165\ Proposed Form MA-W would be used for withdrawal from 
registration as a municipal advisor, and proposed Form MA-NR would 
be used for the appointment of an agent for service of process by a 
non-resident municipal advisor or a non-resident general partner or 
managing agent of a municipal advisor. See infra Sections II.A.3.b. 
and II.A.5. (discussing Forms MA-W and MA-NR, respectively).
    \166\ See 17 CFR 279.1.
    \167\ See 15 U.S.C. 78o-4(e).
    \168\ See proposed rule 15Ba1-1.
    \169\ There are a number of terms in the Glossary. In addition 
to those described elsewhere in this release, the Glossary also 
includes definitions or descriptions of the following terms: 
charged, Chief Compliance Officer, contingent fees, discretionary 
authority, enjoined, Federal banking agency, felony, foreign 
financial regulatory authority, found, investigation, investment-
related, involved, minor rule violation, misdemeanor, order, person, 
proceeding, resign, and supervised person.
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    General Instruction 1 would direct an applicant looking for more 
information about the Commission's rules with respect to municipal 
advisors and the Exchange Act to the Commission's Web site. General 
Instruction 2 explains who should file Forms MA, MA-I, MA-NR and MA-W, 
including who may voluntarily register as a municipal advisor. General 
Instruction 3 would instruct an applicant with respect to the 
organization of Form MA (for example, that Form MA also includes 
Schedules A, B, C, and D, as well as Criminal Action, Regulatory 
Action, and Civil Judicial Action Disclosure Pages, as described 
further below), and would require that an applicant complete all items 
in Form MA. General Instruction 4 would provide comparable instructions 
as to the organization and completion of Form MA-I and the schedules 
and disclosure pages required by that form. General Instruction 5 would 
instruct that domestic municipal advisors would be required to execute 
the Domestic Execution Page to Form MA, while non-resident municipal 
advisors would be required to execute the Non-Resident Municipal 
Advisor Execution Page. General Instruction 6 would provide that with 
respect to Form MA-I, a municipal advisor would sign Item 7 of that 
form. General Instruction 7 would set forth the applicable person to 
sign Form MA or MA-I on behalf of the applicant, and that such person 
would be the sole proprietor (in the case of a sole proprietorship), a 
general partner (in the case of a partnership), an authorized principal 
(in the case of a corporation), and for all others, an authorized 
individual who participates in managing or directing the municipal 
advisor's affairs, or in the case of a natural person, the natural 
person filing the form on its own behalf, and that in all cases the 
signature should be a typed name. General Instructions 8 and 9 discuss 
when to update Forms MA and MA-I respectively, as discussed further 
herein.\170\ General Instruction 10 would provide that an applicant 
would complete and file all of the forms electronically, and would 
provide the Web site for the electronic filing system once the 
appropriate web address has

[[Page 840]]

been confirmed. General Instruction 11 would provide the instructions 
for electronic filing with the Commission. General Instructions 12 and 
13 would provide instructions for how and when an applicant would 
complete a self-certification as to its qualifications as a municipal 
advisor and ability to comply with Federal securities laws. General 
Instruction 14 would discuss the requirement for a non-resident 
municipal advisor to attach a legal opinion to its Non-Resident 
Municipal Advisor Execution Page to Form MA.
---------------------------------------------------------------------------

    \170\ See infra Section II.A.4.
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    The General Instructions would also inform an applicant that the 
Commission collects information for regulatory purposes, that filing 
the Form MA or MA-I is mandatory for municipal advisors that are 
required to register with the Commission, that the Commission will not 
accept forms that do not include the required information, and that the 
Commission will maintain and make publicly available the information 
submitted on the forms.
    The Instructions also would provide some instructions specific to 
each of Form MA and Form MA-I. Instruction 1 to Form MA would explain 
that a municipal advisor that has taken over the business of another 
municipal advisor or has changed its structure or legal status would be 
a new organization with registration obligations under the Exchange 
Act. A municipal advisor that is acquiring or assuming substantially 
all of the assets and liabilities of the advisory business of a 
registered municipal advisor would file a new application for 
registration on Form MA within 30 calendar days of the succession, and 
once the new registration is effective, Form MA-W (as described below) 
must be filed to withdraw the registration of the acquired municipal 
advisor. If a new municipal advisor is formed solely as a result of a 
change in form of organization, a reorganization, or a change in the 
composition of a partnership, and there has been no practical change in 
control or management, the applicant may amend the existing 
registration to reflect the changes by filing an amendment within 30 
calendar days after the change or reorganization. Instruction 2 to Form 
MA would explain that the response to Item 4 of Form MA (described 
below) should reflect the applicant's current municipal advisory 
activities, except with respect to its responses regarding the types of 
compensation the applicant expects to accept, or the types of municipal 
advisory activities in which the applicant expects to engage, during 
the next year. Instruction 3 to Form MA would explain that Schedule D 
is to be completed if any response to Form MA requires further 
explanation, or if the applicant wishes to provide additional 
information.
    Instruction 1 to Form MA-I would explain that the applicant must 
enter its CRD number (if assigned), his or her social security 
number,\171\ and the addresses of all offices at which he or she will 
be physically located or supervised, in Item 1 of the form. Instruction 
2 to Form MA-I would clarify that for purposes of completing Item 2 to 
Form MA-I, the applicant must enter all the other names that the 
applicant is using, has used, is known, or has been known, other than 
the applicant's legal name, since the age of 18, which would include 
nicknames, aliases, and names used before and after marriage. 
Instruction 3 to Form MA-I would make clear that for purposes of Item 
3, with respect to the applicant's residential history for the past 5 
years, post office boxes may not be used to complete the response and 
the applicant may not leave any gaps in residential history greater 
than 3 months. Instruction 4 to Form MA-I would provide that with 
respect to Item 4 of Form MA-I, the applicant's employment history for 
the past 10 years must be provided with no gaps greater than 3 months, 
and that the history should account for full-time and part-time 
employment, self-employment, military service and homemaking, and that 
unemployment, full-time education, extended travel, and other similar 
statuses should be included. Instruction 5 to Form MA-I for Item 5 of 
the form would explain that with respect to other businesses in which 
the applicant is engaged, the following information would be required: 
the name and address of the other business; nature of the business; 
position, title, or relationship with the other business, including 
duties; start date of the relationship with the other business; and the 
approximate number of hours per month devoted to the other business. 
Instruction 6 to Form MA-I for Item 6 would also make clear that 
responses to certain disclosure questions (discussed further below) 
could make the individual applicant subject to a statutory 
disqualification. As with Form MA, Instruction 7 to Form MA-I would 
indicate that the form would be signed (in Item 7 of Form MA-I) by 
typing a signature in the designated field, and would make clear that 
by typing a name, the signatory acknowledges and represents that the 
entry constitutes in every way, use, or aspect, his or her legally 
binding signature.
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    \171\ An applicant's social security number would not be made 
publicly available. This information is necessary in connection with 
the Commission's enforcement and examination functions pursuant to 
Section 15B(c) of the Exchange Act (15 U.S.C. 78o-4(c)).
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Request for Comment
    The Commission requests comment generally on the proposed 
Instructions and Glossary and also requests comment on the following 
specific issues:
    <bullet> Are the proposed General Instructions to Forms MA, MA-I, 
MA-W and MA-NR, and the specific Instructions to Forms MA and MA-I, 
sufficiently clear? If not, identify any instructions that should be 
clarified and, if possible, offer alternatives.
    <bullet> Are the proposed definitions in the Glossary appropriate 
and sufficiently clear? If not, why not and how should they be modified 
or clarified? Please suggest alternate language, as applicable.
    <bullet> Would it be useful if the Commission were to provide any 
additional instructions or define any additional terms in the Glossary? 
If so, what are they?
    <bullet> Are there alternatives to requiring applicants to provide 
their social security number that the Commission should consider? If 
so, what are they?
c. Information Requested in Form MA
    Proposed Form MA, which would be the form submitted by municipal 
advisors that are municipal advisory firms, is modeled primarily on 
Form ADV (Part 1) \172\ used for the registration of investment 
advisers with the Commission, with appropriate changes made to reflect 
the differences in the activities of municipal advisors and the markets 
that they serve. More specifically, applicants would be required to 
provide the information described below. The items are drafted broadly 
to apply to the different types of municipal advisors that may register 
with the Commission. If adopted, the contents of the proposed form 
(unless otherwise specified) would be publicly available.
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    \172\ See 17 CFR 279.1.
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    Form MA would ask for information about the municipal advisor and 
persons associated with the advisor. The Commission believes it is 
necessary to obtain the requested information to decide whether to 
grant or deny an application for registration, to manage the 
Commission's regulatory and examination programs, and to make such 
information available to the MSRB to better inform its regulation of 
municipal advisors. Specifically, the information would assist the

[[Page 841]]

Commission in identifying municipal advisors, their owners, and their 
business models, and in determining whether a municipal advisor might 
present sufficient concerns as to warrant the Commission's further 
attention in order to protect their clients. In addition, the 
information would assist the Commission in understanding the kinds of 
activities in which the applicant participates that form the basis for 
registration. The information would also be useful to the Commission in 
tailoring any requests for additional information that the Commission 
may send to a municipal advisor. Furthermore, the required information 
would assist the Commission in the preparation of the Commission's 
inspection and examination of municipal advisors and the MSRB in 
determining what regulations for municipal advisors may be necessary or 
appropriate and how such regulations might be best accomplished. In 
determining what information to propose to be disclosed, the Commission 
has also considered the broader public interest in the availability of 
information about municipal advisors to the public (including clients 
and prospective clients).
    Form MA would require the applicant to provide information 
describing itself and its business through a series of fill-in-the-
blank, multiple choice, and check-the-box questions. Form MA would 
first require a municipal advisor to indicate whether it is submitting 
the form for initial registration as a municipal advisor, submitting an 
annual update to a registration as a municipal advisor, or submitting 
an amendment (other than an annual update) to a registration as a 
municipal advisor.\173\
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    \173\ Amendments to Form MA are discussed further below. See 
infra Section II.A.4.
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Request for Comment
    The Commission requests comment generally on proposed Form MA and 
also requests comment on the following specific issues:
    <bullet> The Commission requests comment generally on the 
organization of the form and the clarity of the language it has used.
    <bullet> Is the use of Form MA for purposes of registration, 
submitting an annual update, and submitting an amendment (other than an 
annual update) appropriate? Would the use of the same form for multiple 
purposes be confusing for applicants? Would it be preferable to have a 
separate form for each of these purposes? Would these requirements be 
confusing or otherwise difficult for a municipal advisor to comply 
with?
    <bullet> Are there any issues concerning the public availability of 
information provided on Forms MA and MA-I about which the Commission 
should be made aware? If so, what are they and how might they be 
addressed?
Item 1: Identifying Information
    Proposed Form MA would require a municipal advisor to indicate the 
full legal name of the municipal advisor and, if different, the name 
under which it primarily conducts its municipal advisor-related 
business; the address of its principal office and place of business; 
\174\ the telephone and fax numbers at that location; and any Web site 
addresses.\175\ In addition, the municipal advisor would be required to 
supply the name of its Chief Compliance Officer, if any, and title of 
any other person whom the municipal advisor has authorized to receive 
information and respond to questions about the registration (the 
``contact person''), as well as the address, telephone number and fax 
number, if any, and e-mail address, if any, of the Chief Compliance 
Officer and any other contact person. Further, Item 1 of Form MA would 
require an applicant to list on Schedule D any additional names under 
which it conducts municipal advisor-related business and the offices at 
which such business is conducted. The Commission is requesting this 
identifying and contact information to assist the Commission and the 
staff in evaluating applications for registration and overseeing 
registered municipal advisors.
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    \174\ Proposed rule 15Ba1-1(j) would define principal office and 
place of business to mean: ``the executive office of the municipal 
advisor from which the officers, partners, or managers of the 
municipal advisor direct, control, and coordinate the activities of 
the municipal advisor.'' See also Glossary.
    In addition, the municipal advisor must supply its mailing 
address, if it is different from its principal office and place of 
business.
    \175\ If the applicant has more than one Web site, it would be 
required to list all its Web site addresses on Schedule D.
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    Form MA would also require a municipal advisor to provide its 
Employer Identification Number (used with respect to Internal Revenue 
Service matters), or, if a sole proprietor, a social security 
number.\176\ If the municipal advisor is also registered with the 
Commission as an investment adviser, broker, dealer, or municipal 
securities dealer, or if it has previously registered with the 
Commission as a municipal advisor on Form MA-T, it would be required to 
provide its related SEC file number or numbers. In addition, if the 
municipal advisor has a number (a ``CRD Number'') assigned to it either 
under the CRD system or the IARD system, it would be required to 
provide its CRD Number. If it is otherwise registered with the 
Commission, it would also be required to disclose its other SEC file 
numbers.\177\
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    \176\ We are proposing to ask for the social security number of 
sole proprietors to permit the electronic filing system to 
distinguish between persons who share the same name. This 
information is necessary in connection with the Commission's 
enforcement and examinations functions pursuant to Section 15B(c) of 
the Exchange Act (15 U.S.C. 78o-4(c)). To protect the privacy of 
these persons, the social security numbers would not be available on 
the public disclosure system. Similarly, the public disclosure 
system would not report the home address of a sole proprietor who 
reports its home address as its principal office and place of 
business.
    \177\ The Commission is also proposing that applicants would be 
required to disclose any state registration numbers.
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    This information would allow the Commission to more effectively 
cross-reference those entities applying for registration as municipal 
advisors to those who are registered as brokers, dealers, municipal 
securities dealers, investment advisers, or otherwise registered \178\ 
with the Commission. The ability to cross-reference would allow the 
Commission to assemble more complete information concerning a municipal 
advisor who is also registered as a broker, dealer, municipal 
securities dealer, investment adviser, or otherwise registered with the 
Commission to inform the Commission's decision as to whether to approve 
an application for registration as a municipal advisor. The ability to 
cross-reference would also permit the Commission to plan for and carry 
out efficient and effective examinations of registered municipal 
advisors that are also otherwise registered.\179\ In addition, by 
obtaining all of an applicant's regulatory file numbers, the Commission 
would be able to cross-reference disciplinary information that is 
submitted to the CRD or IARD systems with that submitted on Form MA, 
and would be able to gain a more complete understanding of a municipal 
advisor's structure and business.
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    \178\ For example, the Commission notes that pursuant to Section 
764 of the Dodd-Frank Act, security-based swap dealers will be 
required to register with the Commission. See Section 764(a) of the 
Dodd-Frank Act; 15 U.S.C. 78oF(a).
    \179\ See 15 U.S.C. 78o-4(c)(7) (providing that examinations 
shall be conducted by the Commission).
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    Item 1 of Form MA would also require the applicant to state whether 
it maintains, or intends to maintain some or all of its books and 
records required to be kept under MSRB or Commission rules somewhere 
other than at its principal office and place of business,

[[Page 842]]

and if so to provide (on Schedule D) information about the other 
location. Form MA would also require an applicant to disclose on 
Schedule D all of the entities with which it is affiliated, and whether 
it is affiliated with a business that is registered with a foreign 
financial regulatory authority, and if so to provide (on Schedule D) 
the name, in English, of each foreign financial regulatory authority 
and country with which the affiliated person is registered. This 
information would help inform the Commission as to the structure of the 
municipal advisor's business, which would help staff prepare for 
examinations of the municipal advisor.
Request for Comment
    The Commission requests comment generally on Item 1 of proposed 
Form MA and also requests comment on the following specific issues:
    <bullet> Is the identifying and contact information requested under 
Item 1 of Form MA appropriate? Should the Commission request disclosure 
of additional or different information?
    <bullet> Would any of the information required to be disclosed 
under Item 1 be difficult for a municipal advisor to provide?
    <bullet> Would the use of other identifying numbers be more useful 
or appropriate? Please explain.
    <bullet> Is there information requested under Item 1 that should 
not be publicly disclosed? Please explain.
    <bullet> Would information as to an applicant's affiliated entities 
be useful for gaining an understanding of a municipal advisor's 
relationship with other entities? Would it be useful to prospective 
municipal advisory clients? Is there different information that would 
provide a better understanding of a municipal advisor's relationship 
with other entities? If so, what information? Is providing the 
information requested overly burdensome? If so, why? Should the 
disclosure required by Item 1-K be limited to affiliates that engage in 
financial activities?
Item 2: Form of Organization
    Item 2 of proposed Form MA would require a municipal advisor to 
specify whether it is organized as a corporation, partnership, sole 
proprietorship, limited liability company, limited liability 
partnership, limited partnership, or other; the month of its annual 
fiscal year end; the date on which it was organized; and state where it 
was organized (either the U.S. state or the country outside the U.S.). 
This information would assist the Commission in evaluating the 
applications for registration and overseeing registered municipal 
advisors.
    Item 2 would also require an applicant to specify whether it is a 
public reporting company under Section 12 or 15(d) of the Exchange Act, 
and if so, provide its Commission assigned Central Index Key (``CIK'') 
number. This information would provide a signal that additional public 
information is available about the municipal advisor and/or its control 
persons.
Request for Comment
    The Commission requests comment generally on Item 2 of proposed 
Form MA and also requests comment on the following specific issues:
    <bullet> Would the information requested to be disclosed in Item 2 
be useful in evaluating a municipal advisor? Is there additional 
information under Item 2 that should be disclosed? Please explain.
    <bullet> Are the forms of organization listed under Item 2-A 
appropriate? Are there additional forms of organization that should be 
listed?
    <bullet> To what extent would it be beneficial to require 
disclosure of whether a municipal advisor is a public reporting 
company? If a municipal advisor is a public reporting company, is there 
additional information on Form MA that should be disclosed about the 
advisor?
    <bullet> In addition to providing a current CIK number, should 
municipal advisors be required to disclose all previously issued CIK 
numbers for that municipal advisor? Would such historical CIK numbers 
be helpful in accessing the information filed with regulators relating 
to a municipal advisor? Would SEC and CRD numbers be sufficient for 
tracking all regulatory filings by a municipal advisor? Please explain.
Item 3: Successions
    Item 3 of Form MA would require applicants to disclose whether they 
are succeeding to the business of a registered municipal advisor, the 
date of succession, and disclose on Schedule D the name of, and 
registration information for, the firm they are succeeding. As 
discussed below, depending on whether the succession is a result of a 
merger or acquisition, or a reorganization, the succeeding firm would 
be able to register by either submitting a new Form MA or amending the 
Form MA of its predecessor.\180\ This information would assist the 
Commission, among other things, in overseeing registered municipal 
advisors and in determining whether there has been a change in control 
of a municipal advisor.\181\
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    \180\ See infra Section II.A.6. (discussing proposed rule 15Ba1-
6 regarding registration of a successor to a municipal advisor).
    \181\ See id.
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Request for Comment
    The Commission requests comment generally on Item 3 of proposed 
Form MA and also requests comment on the following specific issues:
    <bullet> Would the information requested to be disclosed in Item 3 
provide information that would help inform an understanding of the 
relationship between a municipal advisor and its successor, and whether 
the succession involves a change of control or a change of corporate 
form? Is there additional information under Item 3 that should be 
disclosed? Please explain.
    <bullet> Is there additional information about a succession that 
would be useful to have disclosed on the Form MA? For example, should 
the applicant disclose the reason for the succession?
Item 4: Information About Applicant's Business
    Item 4 would require an applicant to provide information regarding 
the approximate number of employees it has, approximately how many of 
those employees engage in municipal advisory activities, approximately 
how many of those employees are registered representatives of a broker-
dealer or an investment adviser, approximately how many firms or other 
persons that are not employees or associated persons of the applicant 
solicit municipal advisory clients on the applicant's behalf (if the 
number entered includes firms, the names of such firms would be 
required to be disclosed on Schedule D), and approximately how many 
employees also do business independently on the applicant's behalf as 
affiliates of the applicant (the names of these employees would be 
required to be disclosed on Schedule D).\182\
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    \182\ Instruction 2 to Form MA would provide guidance to newly-
formed municipal advisors for completing Item 4.
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    Item 4 would also require the applicant to approximate the number 
of clients with whom it engaged in municipal advisory activities in the 
past fiscal year, and to specify by checking the appropriate box(es) 
whether its clients include: Municipal entities, non-profit 
organizations (e.g., 501(c)(3) organizations) who are obligated 
persons, corporations or other businesses not listed who are obligated 
persons, other types of entities, or whether the applicant only engages 
in solicitation and does not serve clients in the context of its 
municipal advisory

[[Page 843]]

activities. Applicants would also have to specify approximately the 
number of municipal entities or obligated persons that were solicited 
by the applicant on behalf of a third-party during its most recently 
completed fiscal year, including any clients that it both solicits and 
with which it engages in other municipal advisory activities; and 
whether it solicits public pension funds, 529 plans, local or state 
government investment pools, hospitals, colleges, or other types of 
municipal entities or obligated persons (and which other types of 
municipal entities or obligated persons), as well as whether the 
applicant only serves clients and does not engage in solicitation at 
all in the context of its municipal advisory activities.
    Applicants would also be required to disclose whether they are 
compensated by hourly charges, fixed fees (not contingent on the 
issuance of municipal securities), contingent fees, subscription fees 
(for a newsletter or other publications), or otherwise. If the 
applicant receives compensation from anyone other than clients, the 
applicant would be required to provide an explanation of such 
arrangement.
    Disclosure of information relating to the number of a municipal 
advisor's employees and compensation arrangements would provide the 
Commission with a clearer understanding of the business structure of 
registered municipal advisors, including the size of the advisors, the 
number of its employees that engage in municipal advisory activities, 
and in what capacity these employees engage in such activities. 
Information about compensation arrangements also would identify 
possible conflicts of interest that the municipal advisor may have with 
its clients.
    Item 4 would also require the municipal advisor to indicate the 
general types of municipal advisory activities in which it engages. The 
following eleven activities are listed: (1) Advice concerning the 
issuance of municipal securities (including, without limitation, advice 
concerning the structure, timing, terms and other similar matters, such 
as the preparation of feasibility studies, tax rate studies, appraisals 
and similar documents, related to an offering of municipal securities), 
(2) advice concerning the investment of the proceeds of municipal 
securities (including, without limitation, advice concerning the 
structure, timing, terms and other similar matters concerning such 
investments), (3) advice concerning municipal escrow investments 
(including, without limitation, advice concerning their structure, 
timing, terms and other similar matters), (4) advice concerning the 
investment of other funds of a municipal entity or obligated person 
(including, without limitation, advice concerning the structure, 
timing, terms and other similar matters concerning such investments), 
(5) advice concerning guaranteed investment contracts (including, 
without limitation, advice concerning their structure, timing, terms 
and other similar matters), (6) advice concerning the use of municipal 
derivatives (including, without limitation, advice concerning their 
structure, timing, terms and other similar matters), (7) solicitation 
of investment advisory business from a municipal entity or obligated 
person (including, without limitation, municipal pension plans) on 
behalf of an unaffiliated person or firm (e.g., third party marketers, 
placement agents, solicitors and finders), (8) solicitation of business 
other than investment advisory business from a municipal entity or 
obligated person on behalf of an unaffiliated broker, dealer, municipal 
securities dealer, municipal advisor or investment adviser (e.g., third 
party marketers, placement agents, solicitors and finders), (9) advice 
or recommendations concerning the selection of other municipal advisors 
or underwriters with respect to municipal financial products or the 
issuance of municipal securities, (10) brokerage of municipal escrow 
investments, or (11) other (specify). Applicants who check ``other'' 
activities would be required to provide a narrative description of such 
activities. The listed activities are those in which the Commission 
understands that municipal advisors engage, and are derived from the 
definition of municipal advisor in Exchange Act Section 15B(e)(4).\183\ 
This information would assist the Commission in understanding the scope 
of activities in which a municipal advisor engages, in identifying 
possible conflicts of interest, in preparing for on-site inspections 
and examinations, and would provide the Commission with data useful to 
making regulatory policy.
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    \183\ See 15 U.S.C. 78o-4(e)(4).
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Request for Comment
    The Commission requests comment generally on Item 4 of proposed 
Form MA and also requests comment on the following specific issues:
    <bullet> Is the information requested to be disclosed in Item 4 
information that would best help inform an understanding of the scope 
of a municipal advisor's business? Is there additional information 
under Item 4 that should be disclosed? Please explain. Is any of the 
requested information unnecessary or not useful? Please explain.
    <bullet> Is there other information that would be helpful to 
request regarding the structure of a municipal advisor, in addition to 
the number of employees, to help provide a clear understanding of the 
municipal advisor's business structure?
    <bullet> Are there other types of compensation arrangements for 
municipal advisors that should be listed under Item 4?
    <bullet> Are there additional types of municipal advisory 
activities that should be included in the list of activities provided 
to municipal entities and obligated persons under Item 4? Please 
explain, and provide suggested language, as appropriate.
Item 5: Other Business Activities
    Item 5 would require applicants to provide information about their 
other business activities. Specifically, an applicant would be asked 
whether it is actively engaged in business as a (1) broker-dealer, 
municipal securities dealer or government securities broker or dealer, 
(2) registered representative of a broker-dealer, (3) commodity pool 
operator (whether registered or exempt from registration), (4) 
commodity trading advisor (whether registered or exempt from 
registration), (5) futures commission merchant, (6) major swap 
participant,\184\ (7) major security-based swap participant,\185\ (8) 
swap dealer \186\ or security-based swap dealer,\187\ (9) trust 
company, (10) real estate broker, dealer, or agent, (11) insurance 
company, broker, or agent, (12) banking or thrift institution 
(including a separately identifiable department or division of a bank), 
(13) investment adviser (including financial planners), (14) lawyer or 
law firm,\188\ (15)

[[Page 844]]

accountant or accounting firm,\189\ (16) engineering firm,\190\ or (17) 
other financial product advisor and if so, to specify. An applicant 
would also be asked to state whether it is actively engaged in any 
other business, and if such other business is its primary business. If 
an applicant's primary business is not one of those enumerated above, 
it would be required to describe the other business on proposed 
Schedule D to Form MA. This information would assist the Commission, 
among other things, in identifying conflicts of interests for municipal 
advisors, preparing for inspections and examinations of municipal 
advisors, and would assist the Commission and the MSRB in understanding 
municipal advisors in the context of their activities for regulatory 
purposes.
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    \184\ See Exchange Act Rule 3(a)(66) (15 U.S.C. 78c(a)(66)), as 
amended by Section 761(a) of the Dodd-Frank Act, and the rules and 
regulations thereunder.
    \185\ See Exchange Act Rule 3(a)(67) (15 U.S.C. 78c(a)(67)), as 
amended by Section 761(a) of the Dodd-Frank Act, and the rules and 
regulations thereunder.
    \186\ See Exchange Act Rule 3(a)(76) (15 U.S.C. 78c(a)(76)), as 
amended by Section 761(a) of the Dodd-Frank Act, and the rules and 
regulations thereunder.
    \187\ See Exchange Act Rule 3(a)(71) (15 U.S.C. 78c(a)(71)), as 
amended by Section 761(a) of the Dodd-Frank Act, and the rules and 
regulations thereunder.
    \188\ See supra section II.A.1.c. (discussing the definition of 
``municipal advisor'' and under what circumstances attorneys would 
be excluded from such definition). Lawyer and law firm applicants 
would also be required to disclose the jurisdictions where licensed.
    \189\ See supra section II.A.1.c. (discussing the definition of 
``municipal advisor'' and under what circumstances accountants would 
be excluded from such definition). Accountant and accounting firm 
applicants would also be required to disclose the jurisdictions 
where licensed.
    \190\ See supra section II.A.1.c. (discussing the definition of 
``municipal advisor'' and under what circumstances engineers would 
be excluded from such definition).
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Request for Comment
    The Commission requests comment generally on proposed Item 5 of 
Form MA and also requests comment on the following specific issues:
    <bullet> Would the information requested to be disclosed in Item 5 
help inform an understanding of the other business activities in which 
a municipal advisor engages? Is there additional information under Item 
5 that should be disclosed? Please explain.
    <bullet> Are there additional categories of other business 
activities that should be listed under Item 5? Please explain, and 
provide examples, as appropriate. Is any of the requested information 
unnecessary or not useful? Please explain.
Item 6: Financial Industry Affiliations of Associated Persons
    Item 6 would require an applicant to provide information about its 
associated persons (i.e., any person associated with a municipal 
advisor) and the types of activities in which the associated persons 
are engaged.\191\ The proposed list of activities under Item 6 is 
broader than that in Item 5, which allows the Commission to elicit more 
complete information about the associated persons of a municipal 
advisor who are actually providing advice or are controlling the firm, 
which would inform the Commission's regulatory and examination 
programs. Specifically, under Item 6, a municipal advisor would have to 
disclose if an associated person is a (1) broker-dealer, municipal 
securities dealer, or government securities broker or dealer; (2) 
investment company (including mutual funds), (3) investment adviser 
(including financial planners), (4) swap dealer, (5) security-based 
swap dealer, (6) major swap participant, (7) major security-based swap 
participant, (8) commodity pool operator (whether registered or exempt 
from registration), (9) commodity trading advisor (whether registered 
or exempt from registration), (10) futures commission merchant, (11) 
banking or thrift institution, (12) trust company, (13) accountant or 
accounting firm, (14) lawyer or law firm, (15) insurance company or 
agency, (16) pension consultant, (17) real estate broker or dealer, 
(18) sponsor or syndicator of limited partnerships, (19) engineer or 
engineering firm, (20) other municipal advisor. Also, an applicant 
would need to disclose on Schedule D of proposed Form MA each 
associated person, including any foreign associated persons, that is a 
municipal advisor, broker-dealer, municipal securities dealer, 
government securities broker or dealer, investment adviser, registered 
swap dealer, banking or thrift institution, or trust company. For each 
associated person identified on Schedule D, the applicant would be 
required to provide information regarding the nature of the affiliation 
between the municipal advisor and the associated person, as well as any 
foreign registrations of the associated person. The information 
provided would assist the Commission in having a clearer understanding 
of the types of business activities in which associated persons are 
engaged and the possible conflicts of interest those activities may 
create.
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    \191\ Section 15B(e)(7) provides that the term ``person 
associated with a municipal advisor'' or ``associated person of an 
advisor'' means ``(A) any partner, officer, director, or branch 
manager of such municipal advisor (or any person occupying a similar 
status or performing similar functions); (B) any other employee of 
such municipal advisor who is engaged in the management, direction, 
supervision, or performance of any activities relating to the 
provision of advice to or on behalf of a municipal entity or 
obligated person with respect to municipal financial products or the 
issuance of municipal securities; and (C) any person directly or 
indirectly controlling, controlled by, or under common control with 
such municipal advisor.'' 15 U.S.C. 78o-4(e)(7). For purposes of 
Form MA, the Glossary would define ``associated person or associated 
person of a municipal advisor'' to have the same meaning as in 
Exchange Act Section 15B(e)(7) (15 U.S.C. 78o-4(e)(7)), but would 
exclude employees that are solely clerical or administrative.
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Request for Comment
    The Commission requests comment generally on Item 6 of proposed 
Form MA and also requests comment on the following specific issues:
    <bullet> Would the information requested to be disclosed in Item 6 
inform a meaningful understanding of the relationship between a 
municipal advisor and its associated persons and the kinds of 
activities in which they engage? If not, why not? Is there additional 
information under Item 6 that should be disclosed, such as additional 
categories of activities in which an associated person might be 
engaged? Please explain. Should any of the categories be deleted?
Item 7: Participation or Interest in Municipal Advisory Client 
Transactions
    Item 7 would require applicants to disclose information about 
participation and interest of the municipal advisor or its associated 
persons in the transactions of its municipal advisory clients. The 
purpose of Item 7 is to identify possible conflicts of interest that 
the municipal advisor and its associated persons may have with the 
municipal advisor's clients. For example, a municipal advisor that 
receives commissions or other payments for sales of securities to 
clients may have a conflict of interest with its clients. This type of 
practice gives the municipal advisor and its personnel an incentive to 
base investment recommendations on the amount of compensation they will 
receive rather than on the client's best interests.
    Specifically, Item 7 would require an applicant to disclose whether 
it, or any of its associated persons, have a proprietary interest in 
the securities or other investment or derivative product transactions 
of its clients, such as whether it buys securities or other investment 
or derivative products from, or sells them to, its clients. An 
applicant would also be asked to disclose whether it or its associated 
persons recommend purchases or sales of securities or other investment 
or derivative products to clients for which the municipal advisor or 
its associated persons serve as underwriter or purchaser 
representative, or have any other sales interest; whether it or its 
associated persons have certain discretionary authority over securities 
or other investment transactions for its clients; and whether it or its 
associated persons recommend brokers, dealers, or investment advisers 
to its clients, and if so, whether those brokers, dealers, or 
investment advisers are associated persons of the municipal advisor. 
Item 7 would also require the municipal

[[Page 845]]

advisor to disclose whether it or its associated persons give or 
receive compensation for municipal advisory client referrals.
Request for Comment
    The Commission requests comment generally on Item 7 of proposed 
Form MA and also requests comment on the following specific issues:
    <bullet> Would the information requested to be disclosed in Item 7 
be appropriate for identifying potential conflicts of interest between 
municipal advisors and/or associated persons and the municipal 
advisors' clients? Should any be deleted? Why?
    <bullet> Is there additional information under Item 7 that should 
be disclosed to provide a clearer understanding of potential conflicts 
of interest? Please explain.
Item 8: Control Persons
    In Item 8, applicants would be asked to identify on Schedules A and 
B every person that directly or indirectly controls the applicant, or 
that the applicant directly or indirectly controls.\192\ An initial 
applicant would be required to complete proposed Schedules A and B. 
Schedule A would require information about the applicant's executive 
officers and persons that directly own 5% or more of the applicant. 
Schedule B would request information about persons that indirectly own 
25% or more of the applicant. Schedule C would be used to amend 
information previously reported on Schedules A and B. Applicants would 
also be asked to identify, on Schedule D, any person that controls the 
applicant's management or policies if not otherwise identified. Further 
information would be requested with respect to control persons that are 
public reporting companies under Sections 12 or 15(d) of the Exchange 
Act.\193\ For control persons that do not have a CRD number, Schedules 
A, B, and C would require disclosure of their social security number 
and date of birth, IRS tax number or employer ID number.\194\ The 
proposed information that would be requested and the proposed 
definition of control are consistent with that requested and used by 
the Commission in other contexts.\195\ This information would help to 
inform the Commission's understanding of the ownership structure of the 
municipal advisor and in identifying who ultimately controls the 
municipal advisor, including its policies and procedures, which would 
provide useful information in preparing for examinations and also in 
identifying potential conflicts of interest. The information requested 
also would inform the Commission about changes in control of the 
municipal advisor.
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    \192\ The term ``control'' is defined in the Glossary to mean 
``the power, directly or indirectly, to direct the management or 
policies of a person, whether through ownership of securities, by 
contract, or otherwise.'' Further, the Glossary provides that: (a) 
Each of the municipal advisor's officers, partners, or directors 
exercising executive responsibility (or persons having similar 
status or functions) is presumed to control the municipal advisor; 
(b) a person is presumed to control a corporation if the person: (i) 
Directly or indirectly has the right to vote 25 percent or more of a 
class of the corporation's voting securities; or (ii) has the power 
to sell or direct the sale of 25 percent or more of a class of the 
corporation's voting securities; (c) a person is presumed to control 
a partnership if the person has the right to receive upon 
dissolution, or has contributed, 25 percent or more of the capital 
of the partnership; (d) a person is presumed to control a limited 
liability company (``LLC'') if the person: (i) Directly or 
indirectly has the right to vote 25 percent or more of a class of 
the interests of the LLC; (ii) has the right to receive upon 
dissolution, or has contributed, 25 percent or more of the capital 
of the LLC; or (iii) is an elected manager of the LLC; and (e) a 
person is presumed to control a trust if the person is a trustee or 
managing agent of the trust. See Glossary.
    \193\ Section 8-B of proposed Schedule D to Form MA would 
require the name and CIK number of each control person listed on 
Schedule A, B, C or Section 8-A of Schedule D.
    \194\ The Commission would not make this information publicly 
available.
    \195\ The proposed requested information and definition of 
``control'' are consistent with the information requested and 
definition used for investment advisers required to register on Form 
ADV. See 17 CFR 279.1.
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Request for Comment
    The Commission requests comment generally on Item 8 of proposed 
Form MA and also requests comment on the following specific issues:
    <bullet> Would the information requested to be disclosed in Item 8 
be appropriate for understanding the ownership structure of a municipal 
advisor and identifying possible conflicts of interest? Is there 
additional information under Item 8 that should be disclosed? Please 
explain. Should any be deleted? Why?
    <bullet> Is the proposed definition of ``control'' broad enough to 
elicit information that would provide an understanding of a municipal 
advisor's structure and its control persons? Should additional or 
different information be requested? If so, what information?
Item 9: Disclosure Information
    Section 975(c)(3) of the Dodd-Frank Act amended Section 15B of the 
Exchange Act to direct the Commission, by order, to censure, place 
limitations on the activities, functions, or operations, suspend for a 
period not exceeding twelve months, or revoke the registration of any 
municipal advisor, if it finds \196\ that such municipal advisor has 
committed or omitted any act, or is subject to an order or finding, 
enumerated in subparagraph (A),\197\ (D),\198\ (E),\199\ (G) \200\ or 
(H),\201\ of paragraph (4) of Section 15(b) of the Exchange Act; has 
been convicted of any offense specified in Section 15(b)(4)(B) \202\ of 
the Exchange Act within ten years of the commencement of the 
proceedings under Section 15B(c); or is enjoined from any action, 
conduct, or practice specified in Section 15(b)(4)(C) \203\ of the 
Exchange Act.\204\ Item 9 of Form MA includes questions intended to 
solicit information from a municipal advisor concerning certain of its 
activities or activities of its associated persons that could subject 
the municipal advisor to disciplinary actions by the Commission under 
such subparagraphs of Section 15(b)(4) of the Exchange Act.
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    \196\ Such findings must be on the record after notice and 
opportunity for hearing and include a finding that the particular 
disciplinary action is in the public interest. See 15 U.S.C. 78o-
4(c)(2).
    \197\ See 15 U.S.C. 78o(b)(4)(A) (e.g., making false or 
misleading statements of a material fact in a report filed with, or 
preceding before, the Commission).
    \198\ See 15 U.S.C. 78o(b)(4)(D) (e.g., violating or being 
unable to comply with the Securities Act, the Investment Advisers 
Act, the Investment Company Act, the Commodity Exchange Act, the 
Exchange Act, the rules or regulations under any of such statutes, 
or the rules of the MSRB).
    \199\ See 15 U.S.C. 78o(b)(4)(E) (e.g, aiding and abetting 
violations of, or failing to supervise to prevent violations of, the 
Securities Act, the Investment Advisers Act, the Investment Company 
Act, the Commodity Exchange Act, the Exchange Act, the rules or 
regulations under any of such statutes, or the rules of the MSRB).
    \200\ See 15 U.S.C. 78o(b)(4)(G) (e.g., being found by a foreign 
financial regulatory authority to have made false or misleading 
statements of material facts; violated or been unable to comply with 
foreign regulations; or aided and abetted violations of, or failed 
to supervise to prevent violations of, foreign regulations).
    \201\ See 15 U.S.C. 78o(b)(4)(H) (e.g., being subject to a final 
order of a State securities commission, an appropriate Federal 
banking agency, or the National Credit Union Administration that 
bars such person from associating with an entity regulated by such 
authority or agency, or prohibits such person from engaging in the 
business of securities, insurance, banking, savings association 
activities, or credit union activities).
    \202\ See 15 U.S.C. 78o(b)(4)(B) (e.g., being convicted within 
the ten years preceding application for registration of certain 
felonies or misdemeanors, including felonies and misdemeanors 
involving the purchase and sale of securities or arising out of the 
conduct of the business of a broker, dealer, municipal securities 
dealer, or municipal advisor).
    \203\ See 15 U.S.C. 78o(b)(4)(C) (e.g, being enjoined by order 
from acting as an investment adviser, underwriter, broker, dealer, 
municipal securities dealer or municipal advisor).
    \204\ The Commission has the same authority with respect to 
municipal securities dealers. See 15 U.S.C. 78o-4(c).
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    The information proposed to be required by Item 9 would be used to

[[Page 846]]

determine whether to grant the applicant's application for 
registration, institute proceedings to determine whether registration 
should be denied, place limitations on the applicant's activities as a 
municipal advisor, and to focus on-site examinations.\205\ Also, in 
addition to its value for the Commission's oversight of the municipal 
securities markets generally, the Commission proposes to seek this 
information because it may indicate that a municipal advisor could be 
statutorily disqualified from acting as a municipal advisor.\206\ In 
addition, the Commission would make this information available to 
municipal entities and obligated persons who engage municipal advisors, 
to investors who may purchase securities from offerings in which 
municipal advisors have participated, and to other regulators.
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    \205\ See also supra Section II.B. (discussing approval or 
denial of registration).
    \206\ See id.
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    The disciplinary information to be disclosed is substantially 
similar to the information required to be disclosed in Form BD \207\ 
for broker-dealers and in Form ADV \208\ for investment advisers. The 
requested information is also consistent with the disclosure 
requirements of Form MA-T.\209\ In addition to information with respect 
to investment-related activities, Form MA would additionally request 
parallel information for municipal advisory activities. Specifically, 
as discussed below, Form MA asks questions concerning the disciplinary 
history of the municipal advisor and of its associated persons.\210\
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    \207\ See 17 CFR 249.501.
    \208\ See 17 CFR 279.1.
    \209\ On Form MA-T, the disclosure required with respect to 
orders entered against the municipal advisor by regulatory 
authorities, and whether any court has enjoined the municipal 
advisor or associated person in connection with investment related 
activities are limited to the past 10 years. On Form MA, the 
Commission is not proposing any time limitation on this disclosure 
for the reasons discussed in this Section II.A.2.c.
    \210\ See supra note 191 (discussing the definition of ``person 
associated with a municipal advisor'' or ``associated person of a 
municipal advisor'').
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    In Form MA-T, the Commission limited the disciplinary history 
disclosure requirements to ``associated municipal advisor 
professionals.'' \211\ The Commission limited the disclosure 
requirements to this subgroup of associated persons to obtain 
information about those associated persons who are closely associated 
with an advisor's municipal advisory activities, i.e., those who are 
primarily engaged in an advisor's municipal advisory activities, have 
supervisory responsibilities over those primarily engaged in municipal 
advisory activities, are engaged in day-to-day management of the 
conduct of an advisor's municipal advisory activities, or are 
responsible for executive management of the advisor.\212\ Due to the 
short time-frame between the passage of the Dodd-Frank Act and the 
deadline for registration of municipal advisors on October 1, 2010, the 
Commission believed it was appropriate to limit the disclosure 
requirement to this subgroup of associated persons. In connection with 
the proposed permanent registration regime, however, the Commission 
believes it is appropriate to propose in Item 9 that a municipal 
advisor disclose the disciplinary history, as applicable, of all its 
associated persons, as that term is defined in Exchange Act Section 
15B(e)(7).\213\ Specifically, Item 9 would require disclosure with 
respect to any partner, officer, director or branch manager of a 
municipal advisor, and any other employee who is engaged in the 
management, direction, supervision, or performance of any municipal 
advisory activities relating to the provision of advice to or on behalf 
of a municipal entity or obligated person with respect to municipal 
financial products or the issuance of municipal securities; and any 
person that directly or indirectly controls, is controlled by, or under 
common control with the municipal advisor. As a result, Form MA would 
capture information with respect to employees that engage in municipal 
advisory activities, even if that is not their primary activity. Form 
MA also would require disclosure with respect to controlling persons 
and other affiliates of the municipal advisor.
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    \211\ The Commission defined the term ``associated municipal 
advisor professional'' in the glossary section of Form MA-T to mean: 
(A) Any associated person of a municipal advisor primarily engaged 
in municipal advisory activities; (B) any associated person of a 
municipal advisor who is engaged in the solicitation of municipal 
entities or obligated persons; (C) any associated person who is a 
supervisor of any persons described in subparagraphs (A) or (B); (D) 
any associated person who is a supervisor of any person described in 
subparagraph (C) up through and including, the Chief Executive 
Officer or similarly situated official designated as responsible for 
the day-to-day conduct of the municipal advisor's municipal advisory 
activities; and (E) any associated person who is a member of the 
executive or management committee of the municipal advisor or a 
similarly situated official, if any; and excludes any associated 
person whose functions are solely clerical or ministerial.
    \212\ See Temporary Registration Rule Release, supra note 63, at 
54469.
    \213\ See 15 U.S.C. 78o-4(e)(7).
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    The Commission believes that ``associated person'' as defined in 
Exchange Act Section 15B(e)(7) (15 U.S.C. 78o-4(e)(7)) (and as it is 
proposed to be defined) is an appropriate definition to use \214\ 
because it would allow the Commission to obtain, and municipal 
entities, obligated persons, investors and other regulators to have 
access to, information about the municipal advisor's supervisory and 
management personnel, employees engaged in the management, direction, 
supervision, or performance of activities relating to the provision of 
advice to or on behalf of a municipal entity or obligated person with 
respect to municipal financial products or the issuance of municipal 
securities, and control persons. This information would help provide a 
clear understanding regarding the persons associated with municipal 
advisors.
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    \214\ The definition of ``associated person of a municipal 
advisor'' in the Glossary would be consistent with the definition of 
``associated person'' in Exchange Act Section 15B(e)(7) (15 U.S.C. 
78o-4(e)(7)). The definition would exclude, however, employees who 
are solely clerical or administrative. This exclusion would be 
consistent with the comparable term on Form ADV, which also excludes 
employees who are solely clerical or administrative.
---------------------------------------------------------------------------

    In addition, the Commission notes that the time-period limits 
proposed for disclosure on Form MA are consistent with the disclosure 
reporting requirements on Form BD, adopted pursuant to Section 15(b)(1) 
of the Exchange Act. Specifically, with respect to felonies and 
misdemeanors involving municipal advisor-related business,\215\ 
investments or an investment-related business, Form MA would require 
disclosures of matters within the last ten years.\216\ With respect to 
all other matters proposed to be identified on Form MA (including 
Federal, state, and foreign regulatory actions and actions taken by 
SROs), no time limit is placed on disclosure. For example, a municipal 
advisor would be required to disclose whether the municipal advisor or 
any associated person was ever enjoined by any domestic or foreign 
court in connection with any municipal advisor-related or investment-
related activity. Disclosure would also be required concerning any 
orders entered against the municipal advisor or any associated person 
of the municipal advisor by any Federal or state regulatory agency 
other

[[Page 847]]

than the SEC and Commodity Futures Trading Commission (``CFTC'') or by 
any foreign financial regulatory authority. The Commission believes 
that, for purposes of the permanent registration regime, it is 
important to collect information about matters within these timeframes 
because, under the Exchange Act, the Commission could use such matters 
to form the basis for an action to suspend or revoke a municipal 
advisor's registration.\217\
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    \215\ The Commission proposes that the term ``municipal advisor-
related'' would mean ``[c]onduct that pertains to municipal advisory 
activities (including, but not limited to, acting as, or being an 
associated person of, a municipal advisor).'' Glossary.
    \216\ As is the case with respect to brokers and dealers 
pursuant to Section 15(b)(4) of the Exchange Act (15 U.S.C. 
78o(b)(4)), Section 15B(c)(2) of the Exchange Act (15 U.S.C. 78o-
4(c)(2)), as amended by the Dodd-Frank Act, limits the Commission's 
ability to impose sanctions on municipal advisors for conviction of 
felonies and misdemeanors to convictions occurring within ten years 
preceding the filing of any application for registration.
    \217\ See Section 15B(c)(2) of the Exchange Act.
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    The questions asked in Item 9 are generally consistent with the 
disciplinary disclosure questions asked on Form BD. Unlike on Form BD, 
Item 9 asks for information regarding actions relating to municipal 
advisor-related business, in addition to investment-related business. 
Specifically, Item 9 of the proposed form would ask for information 
regarding convictions, pleading and charges related to felonies and 
certain misdemeanors. It would ask for information regarding whether 
the SEC or the CFTC has ever: found the municipal advisor or any 
associated person to have made a false statement or omission; found the 
municipal advisor or any associated person to have been involved in a 
violation of its regulations or statutes; found the municipal advisor 
or any associated person to have been a cause of a municipal advisor- 
or investment-related business having its authorization to do business 
denied, suspended, revoked, or restricted; entered an order against the 
municipal advisor or any associated person in connection with municipal 
advisor- or investment-related activity; or, imposed a civil money 
penalty on the municipal advisor or any associated person, or ordered 
the municipal advisor or any associated person to cease and desist from 
any activity. Item 9 of the form would also ask for similar information 
with respect to other Federal regulatory agencies, any state regulatory 
agency, or any foreign financial regulatory authority. Item 9 would ask 
for information regarding whether any SRO or commodity exchange ever 
found the municipal advisor or any associated person to have made a 
false statement or omission; found the municipal advisor or any 
associated person to have been involved in a violation of its rules 
(other than a violation designated as a ``minor rule violation'' under 
a plan approved by the SEC); found the municipal advisor or any 
associated person to have been the cause of a municipal advisor- or 
investment-related business having its authorization to do business 
denied, suspended, revoked, or restricted, or disciplined the municipal 
advisor or any associated person by expelling or suspending it from 
membership, barring or suspending its association with other members, 
or otherwise restricting its activities. It would also ask whether the 
municipal advisor or its associated persons have had authorization to 
do business or to act as an advisor, attorney, or Federal contractor 
revoked or suspended. In addition, Item 9 would ask for information 
about pending regulatory proceedings; and civil proceedings related to 
municipal advisor- or investment-related activities, including pending 
proceedings.
    These questions are designed to elicit responses that would enable 
the Commission to institute proceedings against the municipal advisor, 
if appropriate, and also to make the information available to the 
public. Section 15B(c)(2) of the Exchange Act provides that the 
Commission shall censure, place limitations on the activities, 
functions and operations of, suspend, or revoke the registration of a 
municipal securities dealer or municipal advisor if it finds that doing 
so is in the public interest and that the municipal advisor has 
committed the kinds of acts, is subject to the kinds of orders or 
findings, has been convicted of the kinds of offenses, or is enjoined 
from the kinds of actions, conduct and practices enumerated in Section 
15(b)(4) of the Exchange Act.\218\ Section 15(b)(4) of the Exchange Act 
\219\ provides that the Commission shall censure, place limitations on 
the activities, functions and operations of, suspend, or revoke the 
registration of a broker or dealer if it finds that doing so is in the 
public interest and that the broker or dealer, or any person associated 
with the broker or dealer, has made false or misleading statements with 
respect to material facts in any registration or report filed with the 
Commission; has been convicted in the ten years preceding any 
application for registration or any time thereafter of any felony or 
misdemeanor or of a substantially equivalent crime by a foreign court 
of competent jurisdiction which the Commission finds involves or arises 
out of certain activities, including conduct of the business of a 
municipal advisor; or is permanently or temporarily enjoined by order, 
judgment, or decree of any court of competent jurisdiction from acting 
as, among other things, a municipal advisor, or from engaging in or 
continuing any conduct or practice in connection with any such 
activity, or in connection with the purchase or sale of any security. 
If a municipal advisor answers ``yes'' to any of the disciplinary 
history questions in Item 9, the municipal advisor would be required to 
complete a Disclosure Reporting Page (``DRP'') to Form MA.
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    \218\ See 15 U.S.C.78o-4(c)(2).
    \219\ See 15 U.S.C. 78o(b)(4).
---------------------------------------------------------------------------

    Proposed Form MA includes separate DRPs to report information 
relating to criminal, regulatory, and civil actions involving the 
municipal advisor or its associated persons. Each would require 
detailed information about the action, such as the entities or 
regulatory authorities involved, where the charges were filed and when, 
a description of the charge and the circumstances related to it, in the 
case of municipal advisor- and investment-related charges--the product 
type, and the status of the charge, including resolution details as 
appropriate. Consistent with the limitations set forth in Section 
15(b)(4)(B) \220\ of the Exchange Act, however, information on the 
criminal DRP would be limited to matters within the last ten years. If 
a municipal advisor or associated person that is registered through the 
investment adviser or broker-dealer registration systems (the ``IARD'' 
or ``CRD'', respectively) has submitted a DRP with Forms ADV, BD, or U4 
to the IARD or CRD, or a municipal advisor has previously submitted 
disclosure to the Commission with a prior registration on Form MA-T, 
for the matter that reports the information required by a DRP to Form 
MA, information included with respect to Forms MA-T, ADV, BD, or U4 as 
applicable, could be incorporated by reference (to the extent possible, 
depending on the technical capabilities of the electronic filing 
system).
---------------------------------------------------------------------------

    \220\ 15 U.S.C. 78o(b)(4)(B). See also 15 U.S.C. 78o-4(c)(2).
---------------------------------------------------------------------------

    The Commission believes that it is important to collect the 
information that would be required by the DRPs to assist it in deciding 
whether to grant or institute proceedings to deny an application for 
registration, to revoke a registration, to manage the Commission's 
regulatory and examination programs, and to make such information 
available to the MSRB to better inform its regulation of municipal 
advisors and the municipal securities market generally.
Request for Comment
    The Commission requests comment generally on Item 9 of proposed 
Form MA and also requests comment on the following specific issues:
    <bullet> How might the disclosures regarding associated persons 
whose actions are covered by Item 9 of Form MA be improved?

[[Page 848]]

    <bullet> Are the questions in Item 9 sufficient for providing 
information to investors, municipal entities, obligated persons, and 
regulators regarding the disciplinary history of municipal advisors and 
associated persons?
    <bullet> Should additional or other questions be included? Please 
provide examples of any additional questions that should be included.
    <bullet> Would the questions in Item 9 impose an excessive burden 
on municipal advisors to answer?
    <bullet> Does expanding the disciplinary history disclosure 
requirement in Item 9 of Form MA to associated persons of municipal 
advisors, rather than limiting it to associated municipal advisor 
professionals (as in Form MA-T), include persons whose disciplinary 
history is sufficiently relevant to a municipal advisor's activities to 
warrant disclosure?
    <bullet> Are the timeframes to the questions in Item 9 appropriate? 
Would the public and municipal entities find the full history of 
disciplinary information important and useful rather than putting time 
limitations on disclosure of criminal information? Are the timeframes 
too long, such that they would require disclosure of information that 
is no longer useful or relevant, or such that they would impose an 
undue burden on applicants for registration?
    <bullet> Would including the disciplinary questions in Form MA 
impose undue hardship on, or have other consequences for, small 
municipal advisors?
    <bullet> Would the ability to incorporate by reference to 
disciplinary disclosures on Form BD and Form ADV for registered broker-
dealers and investment advisers, respectively, or to disclosures made 
with a previous registration on Form MA-T, make it more difficult for 
municipal entities, obligated persons, investors and others to obtain 
this information than if it were included in Form MA itself?
    <bullet> Would the ability of municipal advisors to incorporate by 
reference such disclosures on Forms MA-T, BD, ADV, and U4 significantly 
reduce the burden on municipal advisors, and particularly small 
municipal advisors, to complete Form MA?
Item 10: Small Businesses
    As described further in Section VII below, the Commission is 
required by the Regulatory Flexibility Act (``RFA'') \221\ to consider 
the effect of its regulations on small entities. The Commission's rules 
do not define ``small business'' or ``small organization'' for purposes 
of municipal advisors. The Small Business Administration (``SBA'') 
defines small business for purposes of entities that provide financial 
investment and related activities as a business that had annual 
receipts of less than $7 million during the preceding fiscal year and 
is not affiliated with any person that is not a small business or small 
organization.\222\ The Commission is using the SBA's definition of 
small business to define municipal advisors that are small entities for 
purposes of the RFA.
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    \221\ 5 U.S.C. 601 et seq.
    \222\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    Item 10 of Form MA would enable the Commission to determine how 
many applicants meet the SBA's definition of ``small business'' or 
``small organization'' as applied to municipal advisors, by requiring 
each applicant to disclose whether it had annual receipts of less than 
$7 million during its most recent fiscal year (or the time it has been 
in business, if it has not completed its first fiscal year in 
business). The applicant would also be required to disclose whether any 
business or organization with which it is affiliated had annual 
receipts of more than $7 million in its most recent fiscal year (or the 
time it has been in business, if it has not completed its first fiscal 
year in business).
Request for Comment
    The Commission requests comment generally on Item 10 of proposed 
Form MA and also requests comment on the following specific issues: 
\223\
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    \223\ See also infra Section VII (discussing the impact of the 
proposed rules on municipal advisors that are small entities).
---------------------------------------------------------------------------

    <bullet> Are the questions asked in Item 10 sufficiently clear? If 
not, please explain.
    <bullet> Should the Commission request any other information to 
make its determination?
Execution and Self-Certification
    Proposed Form MA would include an execution page that must be 
signed and attached to any initial application for registration, as 
well as to any amendments to Form MA. The proposed execution page is 
similar in purpose to the execution page of Form ADV,\224\ but deletes 
references to state registration, bonding requirements and other 
inapplicable components, and would require a non-resident municipal 
advisor to execute a separate form (Form MA-NR) to designate agent for 
service of process.
---------------------------------------------------------------------------

    \224\ See 17 CFR 279.1.
---------------------------------------------------------------------------

    Form MA would be electronically ``signed'' by an authorized person 
of the advisor before the form could be electronically submitted. The 
authorized person would sign the form by typing his or her name and 
submitting the form on behalf of the advisor. An authorized person 
would sign one of two different execution pages, depending on whether 
the advisor is resident in the United States or a ``non-resident'' 
municipal advisor.\225\ By signing the domestic municipal advisor 
execution page, the authorized person would affirm that the information 
in Form MA is true and correct, and would appoint certain officials as 
agents for service of process in states where the advisor maintains its 
principal office or place of business. Specifically, a domestic 
municipal advisor would appoint an official in the state where it 
maintains its principal office and place of business. This appointment 
would allow private parties and the Commission to bring actions against 
the municipal advisor by delivering necessary papers to the appointed 
agent.\226\ The agent would be able to receive any process, pleadings, 
or other papers in any action that arises out of or relates to or 
concerns municipal advisory activities of the municipal advisor. As 
proposed, the agent also could receive service for investigation and 
administrative proceedings.
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    \225\ Proposed rule 15Ba1-1(h) defines a ``non-resident'' as: 
``(1) [I]n the case of an individual, one who resides in or has his 
principal office and place of business in any place not in the 
United States; (2) [i]n the case of a corporation, one incorporated 
in or having its principal office and place of business in any place 
not in the United States; and (3) [i]n the case of a partnership or 
other unincorporated organization or association, one having its 
principal office and place of business in any place not in the 
United States.'' This definition is consistent with the definition 
of ``non-resident broker-dealer'' in rule 15b1-5 under the Exchange 
Act. See 17 CFR 240.15b1-5. See also 17 CFR 275.0-2 (defining the 
term ``non-resident'' for purposes of serving non-residents in 
connection with Form ADV). In addition, non-resident municipal 
advisors and non-resident general partners and managing agents of 
municipal advisors would submit Form MA-NR. See infra Section 
II.A.5. (discussing proposed Form MA-NR).
    \226\ Appointment of agent for service of process for non-
resident municipal advisors is discussed further below. See infra 
Section II.A.5. (discussing proposed Form MA-NR).
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    The execution page for resident and non-resident municipal advisors 
would require certification that the books and records of the municipal 
advisor will be preserved and available for inspection and would 
authorize any person with custody of the books and records to make them 
available to Federal representatives. With respect to non-resident 
municipal advisors, the execution page also provides that by signing 
the Form MA, the non-resident municipal advisor agrees to provide, at 
its own expense, to the Commission, copies of all books and records 
that the

[[Page 849]]

municipal advisor is required to maintain by law. The Commission 
believes that before granting registration to a domestic or non-
resident municipal advisor, it is appropriate to obtain assurance that 
such person has taken the necessary steps to be in the position to 
provide the Commission with prompt access to its books and records and 
to be subject to inspection and examination by the Commission.
    The authorized person of a municipal advisor completing the 
execution pages and the municipal advisor would also be required to 
certify that the municipal advisor and every natural person associated 
with it has met, or within any applicable required timeframes will 
meet, such standards of training, experience, and competence, and such 
other qualifications, including testing, for a municipal advisor and 
natural persons associated with it, required by the Commission, the 
MSRB, or any other relevant SRO. The authorized person and municipal 
advisor would also be required to certify that the municipal advisor 
has conducted an initial or annual review, as applicable, of the 
municipal advisor's business and has reasonably determined that the 
municipal advisor: (1) Can carry out the activities described in the 
items that are checked in Item 4.K (Applicant's Business Relating to 
Municipal Securities) of Form MA; \227\ (2) can comply with all 
applicable regulatory obligations; and (3) has met such regulatory 
obligations during the last year (or such shorter period if the 
application is an initial application for registration). For these 
purposes, such applicable regulatory obligations are obligations under 
the Federal securities laws and rules promulgated thereunder and 
applicable rules promulgated by the MSRB, or any other relevant SRO. 
The authorized person and the municipal advisor would also be required 
to certify that the municipal advisor has documented this review 
process and will maintain all documents relating to such review in 
accordance with proposed rule 15Ba1-7 under the Exchange Act.\228\ 
Proposed rule 15Ba1-4(e) would require such certification in 
conjunction with filing of an initial application for registration as a 
municipal advisor and annually thereafter.\229\
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    \227\ Factors that should be considered in determining whether a 
municipal advisor can carry out the described activities would 
include, but not be limited to, whether the municipal advisor has, 
with respect to the described activities: The appropriate technology 
systems and equipment; the appropriate financial resources; adequate 
staffing with appropriate skill sets, training, and expertise; and 
adequate facilities, such as office space, as appropriate.
    \228\ Proposed rule 15Ba1-7(a)(8) would require a municipal 
advisory firm to make and keep true, accurate, and current, a record 
of the initial or annual review, as applicable, conducted by the 
municipal advisor of such municipal advisor's business in connection 
with its self-certification on Form MA.
    \229\ See proposed rule 15Ba1-4(e). The proposed rule would 
require the annual self-certification to be filed by municipal 
advisory firms within 90 days of the end of a municipal advisor's 
fiscal year, or of the end of the calendar year for municipal 
advisors that are sole proprietors.
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    Failure to make the certifications required by the execution pages 
would be a basis for the Commission to commence proceedings to deny an 
application for registration.\230\ In addition, if an applicant becomes 
unable to comply with the certifications, this would be a basis for the 
Commission to commence proceedings to revoke a municipal advisor's 
registration.\231\
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    \230\ See infra Section II.B. (discussing grounds for denial of 
registration of a municipal advisor's registration). The Commission 
also notes that if the execution page to Form MA is not completed, 
the Form MA would be incomplete and the electronic filing system 
would not permit the Form MA to be filed.
    \231\ See supra notes 218 and 219, and accompanying text 
(discussing grounds for revocation of registration of a municipal 
advisor's registration and other sanctions).
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    Additionally, proposed rule 15Ba1-5 would require a non-resident 
municipal advisor, other than a natural person, including non-resident 
sole proprietors (i.e., non-resident municipal advisory firms) to 
provide an opinion of counsel that the municipal advisor can, as a 
matter of law, provide the Commission with access to the books and 
records of the municipal advisor, as required by law, and that the 
municipal advisor can, as a matter of law, submit to onsite inspection 
and examination by the Commission. General Instruction 14 would provide 
that a non-resident municipal advisor filing Form MA must attach the 
opinion as an Exhibit to its execution page. Each jurisdiction may have 
a different legal framework with respect to its laws (e.g., privacy 
laws) that may limit or restrict the Commission's ability to receive 
information from a municipal advisor. Providing an opinion of counsel 
that a municipal advisor can provide access to its books and records 
and can be subject to onsite inspection and examination would allow the 
Commission to better evaluate a municipal advisor's ability to meet the 
requirements of registration and ongoing supervision. Failure to 
provide an opinion of counsel may be a basis for the Commission to deny 
an application for registration.
Request for Comment
    The Commission requests comment generally on the execution pages of 
proposed Form MA and also requests comment on the following specific 
issues:
    <bullet> Are the instructions relating to execution sufficiently 
clear? If not, please explain and suggest additional or alternative 
language.
    <bullet> Should there be additional or alternative representations 
required of a person who executes Form MA?
    <bullet> Are there alternative methods to obtain consent to service 
of process?
    <bullet> Are the requirements for domestic municipal advisors, as 
set forth on the execution page for domestic municipal advisors 
appropriate? Should these requirements be changed in any way? Please 
explain.
    <bullet> Are the requirements for non-resident municipal advisors, 
as set forth on the execution page for non-resident municipal advisors 
appropriate? Should these requirements be changed in any way? Please 
explain.
    <bullet> Should the Commission's definition of ``non-resident'' be 
modified in any way?
    <bullet> Does requiring a non-resident municipal advisor to certify 
that it will provide the Commission with access to the municipal 
advisor's books and records and submit to onsite inspection and 
examination by the Commission, ensure that the Commission can legally, 
under applicable foreign law, obtain prompt access to a non-resident 
municipal advisor's books and records and examine a non-resident 
municipal advisor onsite? Are there other factors or alternatives that 
are relevant to ensure that the Commission can legally, under 
applicable foreign law, obtain prompt access and examine a non-resident 
municipal advisor onsite?
    <bullet> Are there any factors that the Commission should take into 
consideration to ensure that a non-resident municipal advisor seeking 
to register as a municipal advisor can, in compliance with applicable 
foreign laws, provide the Commission with access to its books and 
records and can submit to inspection and examination by the Commission?
    <bullet> Should the Commission require non-resident municipal 
advisors seeking to register as municipal advisors to certify to 
anything else on the execution page for non-resident municipal 
advisors?
    <bullet> Should non-resident municipal advisors be required to 
provide any additional information or documents?
    <bullet> Is the proposed self-certification broad enough in scope 
or too broad? If

[[Page 850]]

not, what additional factors should be included or excluded and why? 
Should the self-certification be required more or less frequently? If 
so, how often and why? Are there other alternatives the Commission 
should consider? If so, what alternatives and why?
    <bullet> In connection with the proposed initial and annual review 
requirement for the self-certification, would municipal advisors 
undertake a meaningful review absent a minimum review standard?
    <bullet> Should the Commission instead mandate a minimum level of 
review that must be performed of a municipal advisor's business? If so, 
what level of review would be appropriate?
    <bullet> Is there a minimum level of review that would be 
appropriate without imposing impracticable burdens or costs on 
municipal advisors?
    <bullet> Should the self-certification requirement further specify 
the types of business activities that should be covered by the initial 
and annual review?
    <bullet> Should a municipal advisor be required to disclose 
publicly, such as on Form MA, the nature of its review and its findings 
and conclusions?
    <bullet> Should the Commission specify the types of review that 
should be performed? If so, what types of review would be appropriate 
for municipal advisors? Should the type of review differ depending on 
the type of municipal advisory activities in which the advisor engages 
and/or the size of the advisor? Please explain.
    <bullet> As an alternative to the proposed self-certification 
requirement, should the Commission require an independent third party 
review of the municipal advisor as part of, or prior to, the advisor's 
application for registration and then annually thereafter? Should the 
Commission require that the municipal advisor name any such third party 
reviewer on the Form MA? Should the findings and conclusions of the 
third party reviewer be made publicly available?
    <bullet> Is there any other party that a municipal advisor should 
be allowed to rely upon in order to satisfy an initial and annual 
review requirement? Please explain. Would an accountant or attorney be 
an appropriate third party reviewer?
    <bullet> If the Commission were to permit or require third party 
reviews, how would the Commission encourage the quality of third party 
reviews? Should a third party be required to be independent? If so, 
should the Commission define ``independence'' for this purpose? If so, 
how should ``independence'' be defined? Should the Commission require 
disclosure of affiliates related to third parties?
    <bullet> Should the Commission undertake a review of all municipal 
advisors as part of the registration and examination process? If so, 
what should be the scope and frequency of the examination process? 
Should the Commission provide municipal advisors a choice between 
independent third party review and Commission review, or a combination 
thereof? In order to make the most efficient use of the Commission's 
resources, should the Commission rely on an SRO or other third party to 
undertake such review?
    <bullet> Are there other factors that the Commission should 
consider, in addition to an opinion of counsel, that address whether 
the Commission can legally, under applicable foreign law, obtain the 
required access to a municipal advisor's books and records and conduct 
onsite inspection or examination of the municipal advisor?
d. Information Requested in Form MA-I
    The Commission is proposing to require natural person municipal 
advisors, which would include sole proprietors and certain individual 
employees of municipal advisory firms, to register on proposed Form MA-
I. As a result, individual employees who meet the definition of a 
``municipal advisor'' would be required to register independently, 
apart from the firm at which they are employed, on proposed Form MA-
I.\232\ Requirements for registration on proposed Form MA-I of 
individuals who are sole proprietors that meet the definition of 
``municipal advisor'' are also discussed below.
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    \232\ To date, in somewhat analogous registration contexts, the 
Commission has not required associated persons to register with the 
Commission. In the broker-dealer context, associated persons must 
register with FINRA. In the investment adviser context, associated 
persons of investment advisers generally must register with the 
states. For the reasons set forth below, in the context of municipal 
advisors, the Commission believes that registration of each natural 
person municipal advisor separately is the appropriate approach.
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    The Commission believes that the registration of natural person 
municipal advisors, including employees separately from their firms, 
would help the Commission better manage its regulatory and examination 
programs by assisting the Commission in identifying municipal advisors 
and better understanding their business structures. The required 
information also would assist the Commission in the preparation of its 
inspection and examination of municipal advisors, and in overseeing the 
municipal securities market and investigating instances of possible 
wrongdoing. In determining what information to propose to be disclosed, 
the Commission has also considered the broader public interest in 
availability of information about employees of municipal advisors to 
the public. The Commission believes that the required disclosures would 
provide municipal entities, obligated persons, investors, and other 
regulators with information that would inform them as to the relevant 
municipal advisory experience and history of such natural person 
municipal advisors. Moreover, a separate registration application form 
for natural person municipal advisors could enable municipal entities, 
investors, obligated persons, and regulators to obtain certain 
additional information regarding a natural person municipal advisor (as 
detailed below) directly from that individual, including the kind of 
information that would not be realistic or desirable to obtain through 
the firm's Form MA.\233\
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    \233\ Section 975(c)(5) of the Dodd-Frank Act provides the 
Commission with authority to censure or place limitations on the 
activities or functions of any person associated with a municipal 
advisor or to suspend or bar any such person from being associated 
with a municipal advisor, but it appears Congress made a technical 
error in drafting this provision. To address any ambiguity in 
Section 975(c), the Commission intends to recommend a technical 
amendment to Section 975(c)(5) of the Dodd-Frank Act.
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    For these reasons, the Commission is proposing to require natural 
person municipal advisors, including individual employees of firms, to 
register separately with the Commission, and is proposing new Form MA-I 
as the application form for such registration. As discussed above, a 
municipal advisory firm that registers by filing proposed Form MA must 
already provide information on that form concerning the disciplinary 
history (over specified time spans) for each of its associated 
persons--a term that includes employees who are ``engaged in the 
management, direction, supervision, or performance of any activities 
relating to the provision of advice to or on behalf of a municipal 
entity or obligated person with respect to municipal financial products 
or the issuance of municipal securities.'' \234\ Thus, some information 
that could be valuable to municipal entities, obligated persons, 
investors, and regulators regarding individual employees who provide 
advice on behalf of a firm (and are natural person municipal advisors) 
would already be available through the municipal advisory firm's Form 
MA. As detailed below, Form MA-I would, however, elicit additional 
information

[[Page 851]]

that would not be provided by the firm with which the natural person 
municipal advisor is employed.\235\ In addition, to obtain the same 
additional information from sole proprietors as obtained from natural 
person municipal advisors who are employees of firms, the Commission is 
proposing that sole proprietors, since they are also natural persons, 
be required to complete both Forms MA and MA-I. However, some 
information that a sole proprietor has already provided in his or her 
Form MA would not need to be provided a second time. Form MA-I would 
permit information required by a DRP to the form to be incorporated by 
reference, if the information has been previously disclosed on a DRP to 
his or her Form MA, ADV, BD, or U4, as applicable, or has been 
previously disclosed on his or her Form MA-T.\236\ Thus, the 
information required by Form MA-I, as proposed, would supplement, 
rather than duplicate, the information provided by a sole proprietor on 
Form MA.
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    \234\ See Section 15B(e)(7) of the Exchange Act. 15 U.S.C. 78o-
4(e)(7).
    \235\ Under the proposal, however, to the extent that the 
required information regarding an employee's disciplinary history 
has already been provided on Forms MA, MA-T, BD, ADV, or U4, the 
employee would be permitted to incorporate such information by 
reference in completing Form MA-I.
    \236\ If the sole proprietor is also registered through the IARD 
system or CRD system, registered with the SEC as a municipal advisor 
on Form MA, or previously registered with the SEC on Form MA-T, or 
is an associated person of a municipal advisor that is registered 
with the SEC on Form MA or that previously registered with the SEC 
on Form MA-T, and the applicant or municipal advisor with which it 
is associated previously submitted a DRP (with Form ADV, BD, or U4) 
to the IARD or CRD, or submitted to the SEC disclosure on Form MA-T 
or a DRP with Form MA, for the event that contains the information 
required by the comparable DRP to Form MA-I, such information may be 
incorporated by reference, to the extent applicable.
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    The Commission notes that the information requested on proposed 
Form MA-I is similar to information requested on FINRA's Form U4.\237\ 
Form U4 is used, among other things, to register associated persons of 
broker-dealers with FINRA, and associated persons of state-registered 
investment advisers with the states. Some questions on Form U4, 
however, have been adapted for purposes of proposed Form MA-I to relate 
specifically to municipal advisors, or have been omitted as not 
necessary or appropriate in the municipal advisor context.
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    \237\ See Form U4, Uniform Application for Securities Industry 
Registration or Transfer, available at: http://www.finra.org/web/groups/industry/@ip/@comp/@regis/documents/appsupportdocs/p015112.pdf.
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Request for Comment
    The Commission requests comment generally on proposed Form MA-I and 
also requests comment on the following specific issues:
    <bullet> What effects would a separate registration requirement 
have on natural persons and on firms from the standpoint of compliance? 
What would be the relative advantages and disadvantages for firms, 
municipal advisor employees, municipal entities, obligated persons, 
investors, and regulators, of requiring separate registration for 
natural person municipal advisors? How, if at all, does the moving of 
an employee from one firm to another bear on the issue of separate 
registration?
    <bullet> Would the existence of a separate registration requirement 
and registration form for natural person municipal advisors cause 
confusion among municipal advisors such as to outweigh its benefits? If 
the Commission were to only require registration of municipal advisory 
firms, would inclusion of information regarding the firm's employees on 
the firm's Form MA cause confusion for municipal entities, obligated 
persons, and investors?
    <bullet> What, if any, legal ramifications may result for firms 
and/or for natural persons based on a registration regime that allows 
natural person municipal advisors that are employees of a municipal 
advisory firm to be registered by their firms as opposed to separate 
registration? What, if any, interpretive issues are raised with respect 
to the application of the statutory registration requirements?
    <bullet> What would be the advantages and/or disadvantages of 
requiring a sole proprietor to complete two separate registration 
forms, and to keep both updated and to amend each form as the occasion 
arises? Should a separate form be adopted for the registration of sole 
proprietors?
Items 1 and 2: Identifying Information and Other Names
    In addition to requesting basic identifying information about a 
natural person municipal advisor, and in the case of a natural person 
municipal advisor that is an employee \238\ and the firm with which he 
or she currently is associated,\239\ Item 1 of Form MA-I, as proposed, 
would require each such individual to disclose additional identifying 
information that would not be contained in his or her firm's Form MA, 
including:
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    \238\ This would include, for example, the individual's full 
legal name.
    \239\ Such identifying information would include, if any, the 
CRD number assigned to the firm and any file number assigned to the 
firm by the Commission. The Commission believes that requiring 
individuals to provide these numbers would make it easier for 
municipal entities and investors to gather the information they 
need, would facilitate regulatory oversight and surveillance of 
municipal advisory activities, and would be valuable for 
investigative purposes.
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    <bullet> The individual's CRD number, if he or she has one;
    <bullet> The individual's social security number; \240\
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    \240\ This information would not be made publicly available. 
This information is necessary in connection with the Commission's 
enforcement and examination functions pursuant to Section 15B(c) of 
the Exchange Act (15 U.S.C. 78o-4(c)).
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    <bullet> The date of the individual's employment or contract with 
the firm;
    <bullet> Whether the individual has an independent contractor 
relationship with the firm;
    <bullet> The firm's registration status;
    <bullet> All the offices of the firm where the individual may be 
physically located and all the offices from which the individual will 
be supervised; and
    <bullet> Whether any of these offices are located in a private 
residence.
    Item 2 would require a natural person municipal advisor to disclose 
all other names that he or she is using or has been known by since the 
age of 18, such as nicknames, aliases, and names before and after 
marriage.
    The Commission believes that the information above would be useful 
to municipal entities and obligated persons in exploring the 
background, credentials, reliability, and trustworthiness of an 
individual in the course of making a decision whether to engage that 
natural person or his or her firm as a municipal advisor. The same 
information would be valuable to regulators in overseeing the market 
and investigating possible instances of wrongdoing.
Request for Comment
    The Commission requests comment generally on Items 1 and 2 of 
proposed Form MA-I and also requests comment on the following specific 
issues:
    <bullet> Do all these data elements serve the purposes of 
registration? Are all these facts helpful to municipal entities, 
obligated persons, and regulators in searching for information about 
municipal advisors? If not, which should be eliminated and why?
    <bullet> Is the additional identification information required of 
individuals registered as representatives of investment advisers and/or 
broker-dealers on FINRA's Form U4 a useful model for the disclosures 
that should be required of municipal advisors--i.e., are natural person 
municipal advisors

[[Page 852]]

distinguishable from representatives of investment advisers and/or 
broker-dealers in this regard? If so, how?
    <bullet> Are there any additional data elements that would be 
useful to municipal entities, obligated persons, and regulators that 
should be required to be provided? If so, what are they?
    <bullet> Are there other data elements that should not be made 
available to the public? If so, which should not be made available?
    <bullet> Would a requirement to provide any of the information 
described raise any privacy issues, even if not made available to the 
public?
Item 3: Residential History
    Form MA-I, as proposed, also would require a natural person 
municipal advisor to disclose each location where he or she has resided 
for the past five years, including the time period at each residence. 
Natural person municipal advisors would be required to report changes 
in residence (via an amendment) as they occur. In addition, the 
applicant must not leave any gaps greater than three months between 
addresses.
    The Commission believes that a natural person municipal advisor's 
residential history, like the additional identifying information the 
proposed Form MA-I would seek, would be useful for interested parties 
in exploring the background, credentials, reliability, and 
trustworthiness of an individual and be valuable to regulators in 
overseeing the market and investigating possible instances of 
wrongdoing. The Commission notes that the information proposed to be 
required regarding residential history is similar to the information 
requested on Form U4.\241\
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    \241\ The Commission does not intend to make the information 
required by Item 3 publicly available.
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Request for Comments
    The Commission requests comment generally on Item 3 of proposed 
Form MA-I and also requests comment on the following specific issues:
    <bullet> Would a list of all the locations at which a natural 
person municipal advisor has resided for the past five years be 
necessary or useful in searching for information about municipal 
advisors to the extent that municipal advisors must be required to 
reveal them? If not, which should be eliminated?
    <bullet> Are the disclosures concerning residential history 
required on FINRA's Form U4 a useful model for the disclosures that 
should be required of municipal advisors--i.e., are natural person 
municipal advisors distinguishable from individuals that are 
representatives of investment advisers and/or broker-dealers in this 
regard? If so, how?
    <bullet> Would five years be an appropriate time span for which to 
require residential history? If not, what time span, if any, would be 
appropriate?
Item 4: Employment History
    Form MA-I, as proposed, would require natural person municipal 
advisors to provide their complete employment history for the past ten 
years, including full and part-time employment, self-employment, 
military service, and homemaking. All statuses during the ten-year 
period, such as unemployed, full-time education, extended travel, and 
other similar circumstances would be required to be included. In 
addition, the applicant must not leave a gap longer than three months 
between entries. The information that the Commission proposes to be 
required is similar to the information requested on Form U4,\242\ and 
would help inform an understanding of an employee's business experience 
and provide useful information in preparing for regulatory 
examinations.
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    \242\ The Commission intends to make this information publicly 
available.
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Request for Comments
    The Commission requests comment generally on Item 4 of proposed 
Form MA-I and also requests comment on the following specific issues:
    <bullet> Would requiring a natural person to provide his or her 
employment history serve a purpose essential enough to be included in 
the disclosures required of a natural person in registering as a 
municipal advisor?
    <bullet> Is a list of all the places of employment and all the gaps 
in employment of a natural person municipal advisor over the past ten 
years necessary or useful for municipal entities, obligated persons, 
and regulators in searching for information about municipal advisors to 
the extent that municipal advisors must be required to reveal them? If 
not, should a less comprehensive employment history be required to be 
disclosed?
    <bullet> Would ten years be an appropriate time span for which to 
require employment history? If not, what time span, if any, would be 
appropriate?
    <bullet> If the employment history of a natural person municipal 
advisor is required for purposes of registration, should it be made 
available to the public? If so, why? If not, why not?
    <bullet> To the extent that the employment history of a natural 
person municipal advisor must be disclosed on Form MA-I, should it be 
limited to employment relating to securities, or, more narrowly, to 
municipal securities or investment advice?
Item 5: Other Business
    Form MA-I, as proposed, also would require a natural person 
municipal advisor to provide information about other business 
activities, if any, in which he or she is currently engaged--either as 
a proprietor, partner, officer, director, employee, trustee, agent or 
otherwise. The form would ask for the name of the other business, its 
address, whether it is municipal advisor-related, and, if not, the 
nature of the business in which it is engaged.
    The natural person filing Form MA-I would be required to provide 
his or her position, title, or relationship with the other business, 
the start date of the relationship, the approximate number of hours per 
month the applicant devotes to the other business, and a brief 
description of his or her duties relating to the other business. The 
information sought in this section of the form is similar to the 
information sought by the equivalent section in Form U4, and would help 
the Commission understand a natural person municipal advisor's business 
activities and would help staff prepare for examinations.
Request for Comments
    The Commission requests comment generally on Item 5 of proposed 
Form MA-I and also requests comment on the following specific issues:
    <bullet> Does extensive information about a natural person 
municipal advisor's other current business activities, or any 
information at all, serve a purpose essential enough to be included in 
the disclosures required of a natural person in registering as a 
municipal advisor?
    <bullet> Is information about a municipal advisor's other current 
business necessary or useful for municipal entities, obligated persons, 
and regulators searching for information about municipal advisors to 
the extent that municipal advisors must be required to reveal them?
    <bullet> Are any additional points of information about a natural 
person municipal advisor's other business activities relevant and, 
therefore, appropriate to require a natural person municipal advisor to 
disclose?
    <bullet> Should required information about other business 
activities be limited to current activities? If not, over how long a 
time span should other business activities be reported?

[[Page 853]]

    <bullet> If the history of other business activities of a natural 
person municipal advisor is required for purposes of registration, 
should it be made available to the public?
    <bullet> To the extent that the history of other business 
activities of a natural person municipal advisor must be disclosed, 
should it be limited to other business activities relating to 
securities, or, more narrowly, to municipal securities or investment 
advice?
Item 6: Criminal Action, Regulatory Action, and Civil Judicial History, 
Customer Complaint/Arbitration/Civil Litigation, Termination, and 
Financial Disclosure
    Proposed Form MA-I would include sections that require a natural 
person municipal advisor to provide the same general types of 
information regarding his or her criminal, regulatory, and civil 
judicial history, if any, as provided by municipal advisory firms, 
including sole proprietors, in corresponding sections in Form MA.\243\ 
As in Form MA, certain responses would require disclosure of complete 
details of all events or proceedings on the DRPs attached to the form. 
However, a natural person completing Form MA-I would need to make 
certain additional disclosures, as specified below, and the DRPs would 
require details relating to these additional disclosures of the natural 
person's history.
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    \243\ See supra Section II.A.2.c. As previously discussed, a 
sole proprietor who has already filed a Form MA, and an employee 
whose employer has already filed a Form MA including information 
relating to that employee, would be permitted to incorporate by 
reference certain information in the Form MA into his or her Form 
MA-I, to the extent that providing the information in Form MA-I 
would duplicate the information already provided in the Form MA. See 
supra notes 235 and 236 and accompanying text.
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    The Commission believes that these additional disclosures, which 
are also required of individuals associated with broker-dealers and 
investment advisers on Form U4, would be appropriate to require of 
municipal advisors, both to aid municipal entities, obligated persons, 
and other members of the public in researching the background of 
municipal advisors, and to aid regulators in enhancing their oversight 
of municipal advisors.
Criminal Action Disclosure
    With respect to felonies, Form MA-I, in contrast to the disclosures 
required by Item 9A of Form MA, would require disclosure of:
    <bullet> Any past conviction of, or plea of guilty or nolo 
contendere to, a felony by the natural person municipal advisor, rather 
than limiting the disclosure to the past ten years, as in a firm's or 
solo practitioner's Form MA.
    <bullet> Any charges of felony against the natural person municipal 
advisor in the past, rather than limiting disclosure to currently 
pending charges, as in a firm's or solo practitioner's Form MA.
    <bullet> Any convictions of, or plea of guilty or nolo contendere 
to, a felony by an organization based on activities that occurred when 
the natural person municipal advisor exercised control over the 
organization--a disclosure not required in Form MA.
    Similarly, with respect to misdemeanors, in instances where Form MA 
would require only disclosures of convictions and pleas concerning a 
natural person municipal advisor looking back ten years, and require 
only disclosures of charges against the natural person that are 
currently pending, Form MA-I would require disclosure of such 
convictions, pleas, and charges that occurred at anytime in the 
individual's past. Misdemeanors, convictions, pleas, and charges of 
misdemeanor against an organization based on activities while the 
individual exercised control over it would also be required to be 
disclosed.
    These additional disclosures would be consistent with the 
disclosure requirements on Form U4. In addition, these disclosures 
would provide additional information with respect to natural person 
municipal advisors that would be useful to the Commission's regulatory 
and examination programs, and may be useful to municipal entities and 
obligated persons who are clients or prospective clients of the 
municipal advisor.
    As would be required for firms with respect to proposed Form MA, 
the DRP for criminal disclosure on Form MA-I, as proposed, would 
similarly require a natural person municipal advisor to include certain 
details regarding events noted in the first section of the form. These 
additional disclosure details would include, among others: Status of 
the event; details of its disposition; and the date of amended charges, 
if any. The DRP for Form MA-I would also provide an option and space 
for the individual to comment with a brief summary of the circumstances 
leading to the charge(s) as well as the current status or final 
disposition of the charge(s).
Request for Comment
    The Commission requests comment generally on the criminal action 
disclosure requirements of proposed Form MA-I and also requests comment 
generally on the following specific issues:
    <bullet> In addition to the questions posed above regarding the 
appropriateness of the criminal history disclosures proposed in Form 
MA,\244\ the Commission seeks comment on whether the broadened scope of 
these disclosures required of natural person municipal advisors in 
proposed Form MA-I would be warranted. If so, why? If not, why not? 
Would additional disclosure to those outlined above be appropriate? To 
the extent that additional disclosure regarding the criminal action 
history for a natural person municipal advisor would be appropriate, 
please provide details regarding what those disclosures should require.
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    \244\ See supra Section II.A.2.c.
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Regulatory Actions Relating to the Individual
    With respect to regulatory actions, in addition to the disclosures 
required in Form MA, Form MA-I, similar to Form U4, would require a 
natural person municipal advisor to disclose whether the Commission or 
the CFTC has ever found the natural person to have:
    <bullet> Willfully violated, or been unable to comply with, any 
provision of the Federal securities laws, the Commodity Exchange Act, 
and the rules thereunder, and any rule of the MSRB;
    <bullet> Willfully aided, abetted, commanded, induced, or procured 
the violation by any other person of these laws and rules; and
    <bullet> Failed reasonably to supervise another person subject to 
his or her supervision with a view to preventing violation of these 
laws and rules.
    The disclosures that would be required by proposed Form MA-I with 
respect to findings and actions relating to the natural person 
municipal advisor by other Federal regulatory agencies, state 
regulatory agencies, and foreign financial regulatory authorities, 
would be the same as disclosures required on Form MA. Proposed Form MA-
I would also require a natural person municipal advisor to disclose 
whether he or she has ever been subject to a final order of a state 
securities commission or similar agency or office; state authority that 
supervises or examines banks, savings associations, or credit unions; 
state insurance commission; an appropriate Federal banking agency; or 
the National Credit Union Administration that: Bars the natural person 
municipal advisor from association with an entity regulated by such 
commission, agency, authority or office, or from engaging in the 
business of securities, insurance, banking, savings association 
activities, or credit union activities; or constitutes

[[Page 854]]

a final order based on violations of laws or regulations that prohibit 
fraudulent, manipulative, or deceptive conduct.
    With respect to SRO actions, in addition to the disclosures 
required of a municipal advisory firm, including sole proprietors, 
regarding its individual associated persons on Form MA, Form MA-I would 
require a natural person municipal advisor to disclose any finding by 
an SRO that the natural person municipal advisor:
    <bullet> Willfully violated, or is unable to comply with, any 
provision of the Federal securities laws, the Commodity Exchange Act 
and the rules thereunder, or the rules of the MSRB;
    <bullet> Willfully aided, abetted, counseled, commanded, induced, 
or procured the violation of any of these laws or rules; or
    <bullet> Failed reasonably to supervise another person subject to 
his or her supervision, with a view to preventing such violations.
    Like Form MA, Form MA-I would require a natural person municipal 
advisor to disclose whether he or she has ever had an authorization to 
act as an attorney, accountant or Federal contractor that was revoked 
or suspended. Also, as on Form MA, Form MA-I would also require a 
natural person municipal advisor to disclose whether he or she ever was 
notified, in writing, that he or she is currently the subject of any 
regulatory complaint or proceeding by a regulatory body relating to any 
occurrence of the kind that could trigger a disclosure requirement 
relating to regulatory history of the natural person municipal advisor 
with the Commission, the CFTC, other governmental regulators, or SROs 
as described above. Form MA-I would also require disclosure of whether 
the natural person municipal advisor was ever notified, in writing, 
that he or she is currently the subject of an investigation that could 
result in any occurrence of the kind that could trigger a disclosure 
requirement relating to the criminal or regulatory history of the 
natural person municipal advisor as described above.\245\ Form MA would 
not require such disclosure.
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    \245\ A related DRP would be required to disclose details of any 
pending investigation.
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    The Commission believes that the additional disclosure items 
described above would be helpful to municipal entities and obligated 
persons as clients or prospective clients of municipal advisors. The 
information could also serve as the basis for granting or instituting 
proceedings to deny a registration, or for revoking a registration or 
imposing other sanctions by the Commission with respect to a natural 
person municipal advisor.\246\
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    \246\ See supra note 218 (discussing grounds for revocation of a 
municipal advisor's registration).
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    The DRP for regulatory action disclosure in Form MA-I, as proposed, 
would require a natural person municipal advisor to include certain 
details regarding events noted in the main body of the form that are 
similar to the information that would be required in the corresponding 
DRP in a firm's Form MA, including: If requalification was a condition 
of any sanction reported, whether it was by exam, retraining, or other 
process; the length of time given to requalify; and whether the 
requalification condition was satisfied.
    The additional disclosures required by the DRP would also include 
details of any monetary sanction imposed, including amount; portion 
levied against the natural person municipal advisor; payment plan; 
whether such plan was current; date paid; and whether the sanction was 
a civil or administrative penalty or fine, a monetary penalty other 
than a fine, disgorgement, or restitution.
    Consistent with Form MA, Form MA-I would also include a DRP 
requiring a natural person municipal advisor to provide details of any 
investigation reported in the main body of the form, including the date 
the investigation was initiated, and indicate whether it was initiated 
by an SRO, a foreign financial regulatory authority (giving the 
specific jurisdiction), the Commission, or other Federal agency. Space 
would be provided for the natural person municipal advisor to briefly 
describe the nature of the investigation, if known; whether it was 
pending or resolved; and details of any resolution. A space for 
optional comment would also be provided for the natural person 
municipal advisor to present a brief summary of the circumstances 
leading to the investigation, and its current status or final 
disposition and/or findings.
Request for Comment
    The Commission requests comment generally on the regulatory action 
disclosure requirements of proposed Form MA-I, and also requests 
comment on the following specific issues:
    <bullet> In addition to the questions posed above regarding the 
disclosures with respect to regulatory history proposed in Form 
MA,\247\ the Commission seeks comment on whether the broadened scope of 
the disclosures required of natural person municipal advisors in 
proposed Form MA-I would elicit information that would be valuable to 
the public, and in particular municipal entities or obligated persons. 
If so, in what way? Is there information proposed to be requested that 
would not be useful? If so, why? Is there additional information that 
should be requested with respect to regulatory actions relating to 
natural person municipal advisors? If so, what information and why?
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    \247\ See supra Section II.A.2.c.
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Civil Judicial Action Disclosure
    The disclosures that would be required by proposed Form MA-I with 
respect to certain matters relating to a natural person municipal 
advisor's civil judicial history would be the same as disclosures 
required on Form MA. Thus, a natural person municipal advisor would be 
required to disclose on Form MA-I whether he or she was ever:
    <bullet> Enjoined by a domestic or foreign court in connection with 
any investment-related or municipal advisor-related activity;
    <bullet> Found by a domestic or foreign court to be involved in a 
violation of any investment-related or municipal advisor-related 
statute or regulation; or
    <bullet> Had an investment-related or municipal advisor-related 
civil action brought against him or her dismissed, pursuant to a 
settlement agreement, by a state or foreign financial regulatory 
authority; or
    <bullet> Named in any such pending action.
    A DRP would be required for affirmative responses to questions 
under this item. Specifically, the DRP would require, among other 
things, information regarding by whom the court action was initiated; 
the name of the party initiating the proceeding; information about the 
relief sought; the date on which the action was filed and notice or 
process was served; the types of financial products involved; a 
description of the allegations relating to the civil action; the 
current status, including whether the action is on appeal and details 
relating to any such appeal; sanction details; and if the disposition 
resulted in a fine, disgorgement, restitution or monetary compensation, 
or information relating thereto. The DRP would also provide the 
opportunity for an applicant to provide additional comment, including a 
summary of the circumstances leading to the action and current status. 
The Commission believes that it is appropriate to seek information from 
natural person municipal advisors regarding investment-related 
activities as well as municipal advisor-related activities due to the 
significant similarities that exist between the two

[[Page 855]]

advisory functions, and because such information could serve as a basis 
to institute proceedings to deny registration of a municipal advisor or 
to impose other sanctions on the municipal advisor's activities.
Request for Comment
    The Commission requests comment generally on the civil action 
disclosure requirements of proposed Form MA-I and also requests comment 
on the following specific issues:
    <bullet> Are these additional disclosure requirements for natural 
person municipal advisors regarding civil judicial history warranted?
    <bullet> Would it be useful to municipal entities and obligated 
persons to require natural persons registering as municipal advisors to 
provide information regarding past investment-related activities as 
well as past municipal advisor-related activities? If so, why? If not, 
why not?
Customer Complaints/Arbitration/Civil Litigation
    Form MA does not require a municipal advisory firm or a sole 
proprietor to disclose any customer complaints, arbitration matters, 
and civil litigation concerning natural person municipal advisors. Form 
MA-I, however, would require a natural person municipal advisor to 
disclose whether he or she has ever been:
    <bullet> The subject of a complaint initiated by a consumer, 
whether written or oral, regarding investment-related or municipal 
advisor-related matters, which alleged that he or she was involved in 
fraud, false statements, omissions, theft, embezzlement, wrongful 
taking of property, bribery, forgery, counterfeiting, extortion, and 
dishonest, unfair or unethical practices; or
    <bullet> The subject of an arbitration or civil litigation 
initiated by a consumer regarding investment-related or municipal 
advisor-related matters, which alleged that he or she was involved in 
fraud, false statements, omissions, theft, embezzlement, wrongful 
taking of property, bribery, forgery, counterfeiting, extortion, and 
dishonest, unfair or unethical practices.
    In the case of a complaint, the natural person municipal advisor 
would be required to indicate whether the complaint is still pending or 
was settled. In the case of arbitration or civil litigation, the 
natural person municipal advisor would be required to indicate whether 
the arbitration or litigation is still pending; resulted in an 
arbitration award or civil judgment against the natural person 
municipal advisor in any amount; or was settled.
    A DRP would be required for affirmative responses to questions 
under this item. Specifically, the related DRP would require the 
municipal advisor to disclose the customer's name; the customer's state 
of residence and other states of residence; the employing firm of the 
municipal advisor when the activities occurred that led to the 
complaint, arbitration, CFTC reparation or civil litigation; and the 
allegations and brief summary of events related to the allegations, 
including the dates when they occurred; the product type; and the 
alleged compensatory damage amount. For customer complaints, 
arbitration, CFTC reparation, or civil litigation in which the 
municipal advisor is not a named party, the DRP would require 
disclosure of whether the complaint is oral or written, or whether it 
is an arbitration, CFTC reparation or civil litigation (and the 
arbitration or reparation forum, docket or case number, and the filing 
date); whether the complaint, arbitration, CFTC reparation or civil 
litigations is pending, and if not, the status. The DRP would require 
disclosure of the status date, and the settlement award amount, 
including the municipal advisor's contribution amount. If the matter 
involves an arbitration or CFTC reparation in which the municipal 
advisor is a named respondent, the DRP would require disclosure of the 
entity with which the claim was filed; the docket or case number; the 
date process was served; whether the arbitration of CFTC reparation is 
pending, and if not pending the form of disposition; the disposition 
date; and the amount of the monetary award, settlement or reparation 
(including the municipal advisor's contribution). If the matter 
involves a civil litigation, the DRP would require disclosure of the 
court in which the case was filed; the location of the court; the 
docket or case number; the date the complaint was served on or received 
by the municipal advisor; whether the litigation is still pending; if 
not still pending the form of its disposition; the disposition date; 
the judgment, restitution or settlement amount, including the municipal 
advisor's contribution amount; whether the action is currently on 
appeal, and if so, the date the appeal was filed, the court in which 
the appeal was filed, the location of the court, and the docket or case 
number for the appeal. The DRP would also provide for optional 
additional comment, such as a summary of the circumstances leading to 
the complaint.
    These disclosures, too, would mirror similar disclosures in Form 
U4, and would provide additional information about natural person 
municipal advisors that may be useful to municipal entities or 
obligated persons as clients or prospective clients. The information 
would also help the Commission prepare for and plan examinations.
Request for Comment
    The Commission requests comment generally on the customer 
complaint/arbitration/civil litigation disclosure requirements of 
proposed Form MA-I and also requests comment on the following specific 
issues:
    <bullet> Would these additional disclosure requirements for natural 
person municipal advisors provide information that would be useful in 
the context of natural person municipal advisors but that would not be 
useful in the context of firms? If so, to whom would the information be 
useful, and why?
    <bullet> Would municipal entities and obligated persons find it 
useful for Form MA-I to require municipal advisors to disclose customer 
complaints, arbitration, and civil litigation with respect to 
investment-related matters, in addition to complaints, arbitration, and 
civil litigation with respect to municipal advisor-related matters? Is 
this information they would access and use if available? If so, how?
    <bullet> Should Form MA also require similar disclosure with 
respect to associated persons of municipal advisory firms? If so, which 
additional information would be useful and why?
Termination Disclosure
    Unlike in Form MA, Form MA-I would require disclosure regarding the 
termination of a natural person municipal advisor's employment. 
Specifically, consistent with Form U4, Form MA-I would ask the natural 
person municipal advisor to indicate whether he or she ever voluntarily 
resigned, or was discharged or permitted to resign after allegations 
were made that accused him or her of:
    <bullet> Violating investment-related or municipal advisor-related 
statutes, regulations, rules, or industry standards of conduct;
    <bullet> Fraud or the wrongful taking of property; or
    <bullet> Failure to supervise in connection with investment-related 
or municipal advisor-related statutes, regulations, rules or industry 
standards of conduct.
    An affirmative response to the disclosures described above would 
require the municipal advisor to disclose additional information on a 
related DRP. Specifically, the DRP

[[Page 856]]

would require the municipal advisor to disclose the name of the firm, 
the type of termination (whether discharged, permitted to resign, or 
voluntary resignation), the termination date, the allegations, and the 
product types. The DRP would also provide for optional additional 
comment, such as a summary of the circumstances leading to the 
termination. This disclosure would provide information that would be 
useful to the Commission in planning and preparing for inspections and 
examinations, and would be useful to the public generally (including 
municipal entities and obligated persons, as clients or prospective 
clients).
Request for Comment
    The Commission requests comment generally on the termination 
disclosure requirements of proposed Form MA-I and also requests comment 
on the following specific issues:
    <bullet> Would the requirement for the above-listed additional 
disclosures by natural person municipal advisors regarding their 
municipal advisory activities elicit information that would be useful 
to the public (including municipal entities and obligated persons, as 
clients or prospective clients) and that would be relevant in the 
context of natural person municipal advisors that is not relevant in 
the context of firms? If not, what additional information should be 
requested and why?
    <bullet> Would requiring municipal advisors to disclose violations 
of investment-related statutes, regulations, rules, and industry 
standards, in addition to violations of municipal advisor-related 
statutes, regulations, rules, and industry standards on Form MA-I 
elicit information that would be useful to the public (including 
municipal entities and obligated persons, as clients or prospective 
clients)?
Financial Disclosures
    Form MA-I also would require natural persons who are municipal 
advisors to make financial disclosures that are not required to be made 
by municipal advisory firms regarding their associated persons or by 
sole proprietors regarding themselves on Form MA. Specifically, the 
form would ask a natural person municipal advisor whether, within the 
past ten years:
    <bullet> He or she has made a compromise with creditors, filed a 
bankruptcy petition, or been the subject of an involuntary bankruptcy 
petition;
    <bullet> An organization controlled by the natural person municipal 
advisor has made a compromise with creditors, filed a bankruptcy 
petition, or been the subject of an involuntary bankruptcy petition 
based upon events that occurred while he or she exercised control over 
it; or
    <bullet> A broker or dealer controlled by the natural person 
municipal advisor has been the subject of an involuntary bankruptcy 
petition, had a trustee appointed, or had a direct payment procedure 
initiated under the Securities Investor Protection Act based upon 
events that occurred while he or she exercised control over it.
    In addition, a natural person who is a municipal advisor would be 
required to disclose whether:
    <bullet> A bonding company ever denied, paid out on, or revoked a 
bond for him or her; or
    <bullet> The natural person municipal advisor has any unsatisfied 
judgments or liens against him or her.
    An affirmative response to the disclosure items described above 
would require the municipal advisor to provide additional disclosure on 
a DRP. Specifically, the municipal advisor would be required to 
disclose the judgment or lien amount, the judgment or lien holder, the 
judgment or lien type (whether civil or tax), the date filed, the court 
in which the action was brought, the name of the court, the location of 
the court, the docket or case number (and whether the docket or case 
number is the municipal advisor's social security number, bank card 
number, or personal identification number), whether the judgment or 
lien is outstanding, and if the judgment or lien is not outstanding, 
the status date and how the matter was resolved. The DRP would also 
provide for optional comment, such as a brief summary of the 
circumstances leading to the action.
    The Commission believes that the information that would be 
required, which is consistent with that required by Form U4, would be 
useful for its regulatory purposes, including planning and preparing 
for inspections and examinations, and to the public generally 
(including municipal entities and obligated persons, as clients or 
prospective clients).
Request for Comment
    The Commission requests comment generally on the financial 
disclosure requirements of proposed Form MA-I and also requests comment 
on the following specific issues:
    <bullet> Would financial disclosure requirements be necessary, 
useful, or relevant in connection with natural person municipal 
advisors in a way that it would not be useful with respect to municipal 
advisors that are firms? If so, how? If not, why not?
Item 7: Execution and Self-Certification
    With respect to execution of Form MA-I, the natural person 
municipal advisor who signs the form would be required to represent 
that the information and statements made in Form MA-I are true and 
correct. The municipal advisor also would be required to consent to 
service of any civil action or notice of any proceeding before the 
Commission or an SRO regarding its municipal advisory activities via 
registered or certified mail. The proposed requirements for execution 
of Form MA-I would be consistent with and serve the same purposes as 
the execution provisions of proposed Form MA, with modifications to 
reflect that Form MA-I would apply to municipal advisors that are 
natural persons rather than firms and that, unlike municipal advisory 
firms, natural person municipal advisors would not be subject to the 
books and records requirements of proposed rule 15Ba1-7.
    A natural person municipal advisor would also be required to 
certify that he or she has: (1) Sufficient qualifications, training, 
experience, and competence to effectively carry out his or her 
designated functions; (2) met, or within any applicable required 
timeframes will meet, such standards of training, experience, and 
competence, and such other qualifications, including testing, for a 
municipal advisor, required by the Commission, the MSRB or any other 
relevant SRO; and (3) the necessary understanding of and ability to 
comply with, all applicable regulatory obligations. For these purposes, 
such applicable regulatory obligations are obligations under the 
Federal securities laws and rules promulgated thereunder and applicable 
rules promulgated by the MSRB, or any other relevant SRO. Proposed rule 
15Ba1-4(e) would require such certification at the time an initial 
application for registration as a municipal advisor is filed and 
annually thereafter.\248\
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    \248\ See proposed rule 15Ba1-4(e). The proposed rule would 
require the annual self-certification to be filed by natural person 
municipal advisors, including sole proprietors, within 90 days of 
the end of the calendar year. General Instruction 13 would require 
that a natural person municipal advisor filing an annual self-
certification on Form MA-I check the appropriate box to indicate as 
such and complete the certification included in Item 7.
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Request for Comment
    The Commission requests comment generally on the execution 
requirements of proposed Form MA-I and also requests comment on the 
following specific issues:

[[Page 857]]

    <bullet> Should there be additional or alternative representations 
to those proposed for Item 7 of Form MA-I? If so, what representations 
and why?
    <bullet> Would there be alternative methods to obtain consent to 
service of process or should such consent not be obtained?
    <bullet> Is the proposed self-certification broad enough in scope 
or too broad? If not, what additional factors should be included or 
excluded and why? Should the self-certification be required more or 
less frequently? If so, how often and why? Are there other alternatives 
the Commission should consider? If so, what alternatives and why?
    <bullet> Should the self-certification required of natural person 
municipal advisors include additional factors? If so, what would they 
be and why? Should the Commission require an independent third party 
review of the municipal advisor? What are examples of such a review? 
Should the Commission undertake a review of all municipal advisors as 
part of the registration and examination process? If so, what should be 
the scope and frequency of the examination process? Should the 
Commission provide municipal advisors a choice between independent 
third party review and Commission review, or a combination thereof?
3. Proposed Rule 15Ba1-3
a. Withdrawal From Municipal Advisor Registration
    Pursuant to proposed rule 15Ba1-3, all municipal advisors, whether 
registered on Form MA or MA-I, would be required to file Form MA-W to 
withdraw from registration with the Commission as a municipal 
advisor.\249\ As would be the case with Forms MA and MA-I, Form MA-W 
would be required to be filed electronically with the Commission.\250\
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    \249\ See proposed rule 15Ba1-3(a).
    \250\ See proposed rule 15Ba1-3(b).
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    A notice of withdrawal from registration would become effective on 
the 60th day after electronically filing the Form MA-W with the 
Commission, or within a longer time period if the municipal advisor 
consents, or the Commission by order determines as necessary or 
appropriate in the public interest, for the protection of investors, or 
within such shorter time as the Commission may determine.\251\ Under 
the proposed rule, if a municipal advisor electronically filed a notice 
of withdrawal from registration with the Commission at any time 
subsequent to the date of issuance of a Commission order instituting 
proceedings pursuant to Section 15B(c) of the Exchange Act \252\ to 
censure, place limitations on the activities, functions or operations 
of, or suspend or revoke the registration of the municipal advisor, or 
if the Commission institutes such a proceeding or a proceeding to 
impose terms and conditions upon the withdrawal, the notice of 
withdrawal would not become effective except at the time and upon the 
terms and conditions as deemed by the Commission as necessary or 
appropriate in the public interest or for the protection of investors.
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    \251\ See proposed rule 15Ba1-3(c).
    \252\ 15 U.S.C. 78o-4(c).
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b. Form MA-W
    Consistent with the requirements of withdrawal of a registration on 
Form ADV, Form MA-W would require a municipal advisor, whether a firm, 
sole proprietor, or associated person of a municipal advisor (that 
falls within the definition of a ``municipal advisor'') to provide 
identifying information keyed to the identifying information on, and 
the file number of, the municipal advisor's Form MA or Form MA-I. In 
the case of a firm, the municipal advisor would be required to provide 
on the form the name of an employee (or principal) of the firm who is 
authorized to receive information and respond to questions about the 
Form MA-W. Contact information for outside counsel for the firm would 
not suffice.
    A municipal advisor filing to withdraw registration would be 
required to indicate on Form MA-W whether it has received any pre-paid 
fees for municipal advisory services that have not been delivered, 
including subscription fees for publications, and to specify the 
amount. In addition, the withdrawing registrant would be required to 
indicate how much money, if any, it has borrowed from clients that it 
has not repaid. The municipal advisor that is filing to withdraw its 
registration also would be required to indicate whether there were any 
unsatisfied liens or judgments against it. If the filer responded 
affirmatively that it owed money or had any liens or judgments against 
it, it would be required to disclose on a schedule attached to Form MA-
W, Schedule W2, the nature and amount of its assets and liabilities and 
its net worth on the last day of the month prior to the filing of the 
form.
    The Commission believes that requiring such information from a 
municipal advisor that is withdrawing its registration is appropriate 
for the protection of investors and of those who do business with 
municipal advisors because it would put them on notice that the 
municipal advisor would no longer be registered and, therefore, would 
not be able to engage in municipal advisory activities without 
violating Federal securities laws. Such information would also alert 
clients and prospective clients as to the financial stability of the 
municipal advisor. In addition, the information would help 
investigative and enforcement efforts on the part of regulators. The 
Commission notes that an investment adviser that withdraws from 
registration must supply similar information on its Form ADV-W.\253\
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    \253\ See 17 CFR 279.2.
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    Because proposed rule 15Ba1-7(b) under the Exchange Act requires a 
municipal advisor withdrawing from registration to nonetheless preserve 
its books and records, a filer of Form MA-W would be required to list 
the name and address of each person who has, or will have, custody or 
possession of its books and records and the location at which such 
books and records will be kept. A withdrawing municipal advisor would 
be required to identify, in an additional schedule attached to Form MA-
W, Schedule W1, each person to which it has assigned any of its 
contracts. The Commission believes that such a requirement--which also 
exists for investment advisers--is important for the protection of 
participants in the municipal securities markets.
    The signatory to the Form MA-W would be required to certify, under 
penalty of perjury, that the information and statements made in the 
form, including any exhibits or other information provided, are true. 
If the form is being filed on behalf of a municipal advisory firm,\254\ 
the signature would constitute such certification by both the firm and 
the signatory. Similarly, the signatory (and the municipal advisory 
firm, if the municipal advisor is a firm) would be required to certify 
that the advisor's books and records will be preserved and available 
for inspection as required by law, and to authorize any person having 
custody or possession of these books and records to make them available 
to authorized regulatory representatives.
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    \254\ In the case of a firm, the signatory's certification 
includes a statement that he or she has signed on behalf of the firm 
and that he or she has the authority to do so.
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    The certification would include a statement that all information 
previously submitted on the municipal advisor's most recent Form MA, 
Form MA-I, or both, as applicable, was accurate and complete as of the 
date of the signing of the Form MA-W. It would also include an 
understanding by the

[[Page 858]]

signatory that if any information contained in items on the Form MA-W 
is different from the information contained on the most recent Form MA, 
MA-I, or both, as applicable, the information on the Form MA-W would 
replace the corresponding entry on the municipal advisor's Form MA or 
MA-I available through the Commission's electronic system.
    The Commission believes that the certification requirement should 
serve as an effective means to assure that the information supplied in 
Form MA-W is correct.
Request for Comment
    The Commission requests comment generally on proposed Form MA-W and 
also requests comment on the following specific issues:
    <bullet> Form MA-W would have to be filed electronically for 
purposes of withdrawing from registration with the Commission. Should 
the proposed rule include an option for the form to be filed in paper 
rather than electronically? If so, please explain under what 
circumstances it would be appropriate to allow paper filings of the 
form.
    <bullet> How much identifying information should be required of the 
municipal advisor filing to withdraw its registration? Is the 
information required in the proposed form too much or too little?
    <bullet> What are the relative benefits and disadvantages of 
requiring the contact person for a withdrawal of registration to be an 
employee or principal of the firm that is withdrawing? Considering 
these factors, should a firm be permitted to name outside counsel as 
the contact?
    <bullet> Do the proposed disclosures require more, or less, 
information than necessary from municipal advisors that are withdrawing 
from registration? To the extent additional disclosures should be 
required, please provide specific examples of the types of additional 
disclosures that would be valuable, to whom they would be valuable, and 
why.
4. Proposed Rule 15Ba1-4: Amendment to Application for Registration and 
Self-Certification
    Proposed rule 15Ba1-4 sets forth the timeframes within which a 
municipal advisor must amend its Forms MA and MA-I. Proposed rule 
15Ba1-4(a)(1) would require that a municipal advisor amend its Form MA 
at least annually, within 90 days of the end of the applicant's fiscal 
year in the case of applicants that are firms, or within 90 days of the 
end of the calendar year in the case of sole proprietors. In addition, 
proposed rule 15Ba1-4(a)(2) would require that a municipal advisor 
amend its Form MA more frequently than annually if required by the 
instructions to Form MA.\255\
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    \255\ See proposed rule 15Ba1-4(a)(2). See also General 
Instruction 8.
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    Consistent with the requirement of Form ADV, proposed rule 15Ba1-
4(a) would require a firm to amend its Form MA promptly if information 
provided in response to Item 1 (Identifying Information), 2 (Form of 
Organization), or 9 (Disclosure Information) becomes inaccurate in any 
way; or if information provided in response to Items 3 (Succession), 7 
(Participation or Interest of Applicant, or of Associated Persons of 
Applicant, in Municipal Advisory Client Transactions), or 8 (Control 
Persons) becomes materially inaccurate.\256\ Proposed rule 15Ba1-4(b) 
would require that a natural person municipal advisor promptly amend 
its Form MA-I if any information provided previously becomes 
inaccurate.\257\ This requirement for natural person municipal advisors 
would be consistent with the requirement for updating Form U4.
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    \256\ See proposed rule 15Ba1-4(a). See also General Instruction 
8.
    \257\ See proposed rule 15Ba1-4(b). See also General Instruction 
9.
---------------------------------------------------------------------------

    A non-resident municipal advisory firm would be required to file an 
amendment to Form MA promptly after any changes in the legal or 
regulatory framework that would impact its ability or the manner in 
which it provides the Commission with the required access to its books 
and records or impacts the Commission's ability to inspect to examine 
the municipal advisor onsite.\258\ The amendment should include a 
revised opinion of counsel describing how, as a matter of law, the 
municipal advisor will continue to meet its obligations to provide the 
Commission with the required access to the municipal advisor's books 
and records and to be subject to the Commission's onsite inspection and 
examination under the new regulatory regime. As noted in Section 
II.a.2.c. above, if a registered non-resident municipal advisory firm 
becomes unable to comply with this requirement, because of legal or 
regulatory changes, or otherwise, then this may be a basis for the 
Commission to revoke the municipal advisor's registration.
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    \258\ See General Instruction 8.
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    The Commission is not proposing to require natural person municipal 
advisors to annually update their Forms MA-I, as it is proposing to 
require municipal advisors registered on Form MA to do. In the case of 
firms, changes commonly occur over the course of a year, and a wide 
range of changes is possible--e.g., changes in control persons and 
personnel, number of employees, nature of services provided, types of 
clients, and compensation arrangements, among others, as well as new 
disclosures that may be necessary for all of the firm's associated 
persons, rather than just one natural person. Accordingly, the 
Commission believes it is appropriate to require a firm to confirm 
through an annual update that its registration is up-to-date. With 
respect to natural person municipal advisors, however, because an 
amendment to Form MA-I would be promptly required whenever information 
previously provided becomes inaccurate, the Commission believes that 
the gains to be had by requiring the extra confirmation of an annual 
update are outweighed by the burden such a requirement would impose on 
natural person municipal advisors that are employees of municipal 
advisory firms.
    All amendments to Form MA and Form MA-I would be required to be 
filed electronically with the Commission.\259\ In addition, amendments 
to Form MA and Form MA-I would be ``reports'' for purposes of Sections 
15B(c), 17(a), 18(a), 32(a) (15 U.S.C. 78oF(b), 78q(a), 78r(a), 
78ff(a)) and other applicable provisions of the Exchange Act.\260\
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    \259\ See proposed rule 15Ba1-4(c).
    \260\ See proposed rule 15Ba1-4(d). As a consequence, it would 
be unlawful for a municipal advisor to willfully make or cause to be 
made, a false or misleading statement of a material fact or omit to 
state a material fact in an amendment to Form MA or Form MA-I.
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    These proposed rules are consistent with the Commission's 
requirements for other registrants (e.g., national securities 
exchanges, SIPs, broker-dealers) to file updated and annual amendments 
with the Commission.\261\ The Commission believes that such amendments 
are important for obtaining updated information on each municipal 
advisor so that the Commission would be able to assess whether each 
municipal advisor continues to be in compliance with the Federal 
securities laws and the rules and regulations thereunder. Obtaining 
updated information would also assist the Commission in its inspection 
and examination of a municipal advisor, and better inform the MSRB's 
regulation of municipal advisors. In addition, the Commission believes 
it is important for municipal entities and obligated persons, as well

[[Page 859]]

as the public generally, to have access to current information 
regarding advisors registered with the Commission.
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    \261\ See e.g., rules 6a-2 and 15b3-1 under the Exchange Act. 17 
CFR 240.6a-2 and 240.15b3-1. See also 17 CFR 249.1001 (Form SIP, 
application for registration as a securities information processor 
or to amend such an application or registration).
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Request for Comment
    The Commission requests comment generally on the proposed 
requirement for amendments to Forms MA and MA-I, and also requests 
comment on the following specific issues:
    <bullet> Should the events triggering amendment of Form MA be 
reduced or expanded? If so, which events should be added or removed and 
why?
    <bullet> Is there any information that would be required by Form 
MA-I that should not trigger an amendment if it becomes inaccurate? If 
so, which information and why? Should the deadline by which a natural 
person municipal advisor must file an amendment to Form MA-I upon the 
occurrence of a material change be different from the deadline by which 
a firm must file an amendment to a Form MA? If so, what should be the 
deadline, and why?
    <bullet> Should the requirements for amending or updating Forms MA 
and MA-I be the same? If so, why? If not, why not?
5. Proposed Rule 15Ba1-5: General Procedures for Serving Non-Residents 
and Form MA-NR
    The Commission is proposing rule 15Ba1-5 to set forth the general 
procedures for serving non-residents under Form MA-NR. Proposed rule 
15Ba1-5 would require that non-resident municipal advisors and non-
resident general partners and managing agents \262\ of municipal 
advisors must furnish the Commission with a written irrevocable consent 
and power of attorney on Form MA-NR to appoint an agent in the United 
States, other than a Commission member, official, or employee, upon 
whom may be served any process, pleadings, or other papers in any 
action brought against the non-resident municipal advisor, general 
partner or managing agent that arises out of or relates to or concerns 
the municipal advisory activities of the municipal advisor.
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    \262\ Proposed rule 15Ba1-1(c) defines a ``managing agent'' as 
``any person, including a trustee, who directs or manages, or who 
participates in directing or managing, the affairs of any 
unincorporated organization or association other than a 
partnership.'' This definition is consistent with the definition of 
a ``managing agent'' as used in rule 15b1-5 under the Exchange Act 
relating to consent to service of process to be furnished by non-
resident brokers or dealers and by non-resident general partners or 
managing agents of brokers or dealers. See 17 CFR 240.15b1-5. See 
also 17 CFR 275.0-2 (discussing general procedures for serving non-
resident investment advisers in connection with Form ADV).
---------------------------------------------------------------------------

    This proposed requirement is designed to allow the Commission and 
others to provide service of process to a non-resident municipal 
advisor, general partner or managing agent to enforce the provisions of 
new Exchange Act Section 15B. Proposed rule 15Ba1-5 also would require 
that non-resident municipal advisors, general partners and managing 
agents update the information on the Form MA-NR if it becomes 
inaccurate. Further, the proposed rule would require that the non-
resident municipal advisor, general partner or managing agent appoint a 
successor agent and file an updated Form MA-NR if the non-resident 
municipal advisor, general partner or managing agent discharges its 
agent or if the agent becomes unwilling or unable to accept service on 
behalf of the municipal advisor, general partner or managing agent. 
Finally, proposed rule 15Ba1-1(h) would define the term ``non-
resident,'' to mean: ``(i) [i]n the case of an individual, one who 
resides in or has his principal office and place of business in any 
place not in the United States; (ii) [i]n the case of a corporation, 
one incorporated in or having its principal office and place of 
business in any place not in the United States; (iii) [i]n the case of 
a partnership or other unincorporated organization or association, one 
having its principal office and place of business in any place not in 
the United States.''Pursuant to proposed General Instruction 2, and 
consistent with the proposed rule, every non-resident municipal advisor 
and every non-resident general partner and managing agent of a 
municipal advisor, whether or not the municipal advisor is resident in 
the United States, must file Form MA-NR in connection with the 
municipal advisor's initial application.\263\
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    \263\ See General Instruction 2. Failure to file Form MA-NR 
promptly may delay SEC consideration of the initial application. 
Additionally, a municipal advisor or general partner or managing 
agent of an SEC-registered municipal advisor who becomes a non-
resident after the initial application has been submitted must file 
Form MA-NR within 30 days. Id.
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Request for Comments
    The Commission requests comment generally on the proposed general 
procedures for serving non-residents and proposed Form MA-NR, and also 
requests comment on the following specific issues:
    <bullet> Is the Commission's proposed rule regarding service of 
process on non-residents appropriate and sufficiently clear? If not, 
why not and what would be a better alternative?
    <bullet> Are there any factors that the Commission should take into 
consideration to ensure effective service of process on a non-resident 
municipal advisor or a non-resident general partner or managing agent?
    <bullet> Should the Commission require non-resident municipal 
advisors and non-resident managing agents and general partners to 
certify to anything else on Form MA-NR?
6. Proposed Rule 15Ba1-6: Registration of Successor to Municipal 
Advisor
    Proposed rule 15Ba1-6 would govern the registration of a successor 
to a registered municipal advisor. This proposed rule is substantially 
similar to rule 15b1-3 under the Exchange Act, which governs the 
registration of a successor to a registered broker-dealer.\264\
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    \264\ See 17 CFR 240.15b1-3. See also Registration of Successors 
to Broker-Dealers and Investment Advisers, Exchange Act Release No. 
31661 (December 28, 1992), 58 FR 7 (January 4, 1993) (providing 
interpretive guidance regarding amendments to rule 15b1-3).
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Succession by Application
    Specifically, proposed rule 15Ba1-6(a) provides that in the event 
that a municipal advisor succeeds to and continues the business of a 
municipal advisor registered pursuant to Exchange Act Section 15B(a), 
the registration of the predecessor shall be deemed to remain effective 
as the registration of the successor if the successor, within 30 days 
after such succession, files an application for registration on Form 
MA, and the predecessor files a notice of withdrawal from registration 
with the Commission on Form MA-W.
    This proposed rule further provides that the registration of the 
predecessor municipal advisor shall cease to be effective 45 days after 
the application for registration on Form MA is filed by the successor 
municipal advisor.\265\ In other words, the 45-day period would not 
begin to run until a complete Form MA has been filed by the successor 
with the Commission. This 45-day period is consistent with Exchange Act 
Section 15B(a)(2), pursuant to which the Commission has 45 days to 
grant a registration or institute proceedings to determine if a 
registration should be denied.\266\
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    \265\ See proposed rule 15Ba1-6(a).
    \266\ See 15 U.S.C. 78o-4(a)(2).
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Succession by Amendment
    Proposed rule 15Ba1-6(b) further provides that notwithstanding rule 
15Ba1-6(a), if a municipal advisor

[[Page 860]]

succeeds to and continues the business of a registered predecessor 
municipal advisor, and the succession is based solely on a change in 
the predecessor's date or state of incorporation, form of organization, 
or composition of a partnership, the successor may, within 30 days 
after the succession, amend the registration of the predecessor 
municipal advisor on Form MA to reflect these changes. Such amendment 
shall be deemed an application for registration filed by the 
predecessor and adopted by the successor. In all three types of 
successions that are specified in proposed rule 15Ba1-6(b) (change in 
the date or state of incorporation, change in form of organization, and 
change in composition of a partnership), the predecessor must cease 
operating as a municipal advisor. The Commission believes that it is 
appropriate to allow a successor to file an amendment to the 
predecessor's Form MA in these types of successions because such 
successions do not typically result in a change of control of the 
municipal advisor.
Scope and Applicability of Proposed Rule 15Ba1-6
    The purpose of proposed rule 15Ba1-6 is to enable a successor 
municipal advisor to operate without an interruption of business by 
relying for a limited period of time on the registration of the 
predecessor municipal advisor until the successor's own registration 
becomes effective. The proposed rule is intended to facilitate the 
legitimate transfer of business between two or more municipal advisors 
and to be used only where there is a direct and substantial business 
nexus between the predecessor and the successor municipal advisor. The 
proposed rule is not designed to allow a registered municipal advisor 
to sell its registration, eliminate substantial liabilities, spin off 
personnel, or facilitate the transfer of the registration of a 
``shell'' organization that does not conduct any business. No entity 
would be permitted to rely on proposed rule 15Ba1-6 unless it is 
acquiring or assuming substantially all of the assets and liabilities 
of the predecessor's municipal advisor business, or there has been no 
practical change of control.\267\
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    \267\ See Instruction 1 to Form MA.
---------------------------------------------------------------------------

    The Commission would not apply proposed rule 15Ba1-6 to a 
reorganization that involves only registered municipal advisors. In 
those situations, the registered municipal advisors need not rely on 
the proposed rule because they can continue to rely on their existing 
registrations. The proposed rule would also not apply to situations in 
which the predecessor intends to continue to engage in municipal 
advisory activities. Otherwise, confusion may result as to the 
identities and registration statuses of the parties.
Request for Comments
    The Commission requests comment generally on the proposed 
requirement for registration of a successor to a municipal advisor and 
also requests comment on the following specific issues:
    <bullet> Is the Commission's proposed successor rule sufficiently 
clear? If not, why not and what would be a better alternative?
    <bullet> Are the 30-day and 45-day timeframes in the proposed 
successor rule too short or too long? If so, what would be more 
appropriate timeframes and why?
    <bullet> Are there any other instances not specified in the 
proposed rule in which a successor should be permitted to file an 
amendment to the predecessor's Form MA for registration?
    <bullet> Are there any downsides to allowing a successor to rely on 
its predecessor's registration by filing an amendment to the 
predecessor's Form MA?

B. Approval or Denial of Registration

    Exchange Act Section 15B(a)(2) provides that within forty-five days 
of the filing of an application to register as a municipal 
advisor,\268\ the Commission must either: (a) By order grant 
registration, or (b) institute proceedings to determine whether 
registration should be denied. Such proceedings shall include notice of 
the grounds for denial under consideration and opportunity for hearing 
and shall be concluded within one hundred twenty days of the date of 
the filing of the application for registration. At the conclusion of 
such proceedings, the Commission, by order, shall grant or deny such 
registration. The Commission may extend the time for the conclusion of 
such proceedings for up to ninety days if it finds good cause for such 
extension and publishes its reasons for so finding or for such longer 
period as to which the applicant consents.
---------------------------------------------------------------------------

    \268\ The statute allows for a longer period if the applicant 
consents. See 15 U.S.C. 78o-4(a)(2).
---------------------------------------------------------------------------

    In accordance with Exchange Act Section 15B(a)(2), the Commission 
shall grant the registration of a municipal advisor if the Commission 
finds that the requirements of Section 15B of the Exchange Act are 
satisfied.\269\ The Commission shall deny the registration of a 
municipal advisor if the Commission does not make any such finding, or 
if it finds that if the applicant were registered, its registration 
would be subject to suspension or revocation under Section 15B(c) of 
the Exchange Act.\270\
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    \269\ See 15 U.S.C. 78o-4(a)(2).
    \270\ See id.
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    The information currently required by temporary Form MA-T is not 
reviewed by the Commission prior to registration, although the 
Commission retains full authority to review such information and 
examine any registered municipal advisor at any time. The Commission 
intends that the permanent registration process would entail a review 
of each Form MA and Form MA-I filed. In approving or denying an 
application for registration as a municipal advisor, the Commission 
would review the information provided on Form MA or Form MA-I as 
applicable. For example, the Commission may perform cross checks of 
applicants through the use of the applicant's other registration 
numbers, such as its CRD or other SEC registration numbers, to the 
extent available. Also, the Commission may review the disclosures 
required by Item 9 of Form MA and Item 6 of Form MA-I discussed above, 
including the disciplinary history of an applicant. In order to form a 
more complete and informed basis on which to determine whether to 
grant, institute proceedings to deny, or revoke a municipal advisor's 
registration, the Commission is also proposing to adopt a requirement 
that a municipal advisor file with the Commission an annual self-
certification relating to its ability to meet its regulatory 
obligations.
    The benefit of the proposed municipal advisor registration process 
is that it would allow the Commission and staff to ask questions and, 
as needed, to require amendments, before approving an application for 
registration. The procedural process for reviewing applications for 
registration as a municipal advisor would be substantially similar to 
the procedural process for reviewing applications of other registrants 
with the Commission (e.g., SIPs, broker-dealers, national securities 
exchanges, registered securities associations, clearing agencies, and 
investment advisers).\271\
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    \271\ See 15 U.S.C. 78k-1(b)(3), 78o(b), 78s(a), and 80b-3(c).
---------------------------------------------------------------------------

C. Proposed Rule 15Ba1-7: Books and Records To Be Made and Maintained 
by Municipal Advisors

    Section 17(a)(1) under the Exchange Act provides, in pertinent 
part, that all registered municipal advisors other than

[[Page 861]]

natural persons (i.e., municipal advisory firms, including sole 
proprietors) shall make and keep for prescribed periods such records, 
furnish such copies thereof, and make and disseminate such reports as 
the Commission, by rule, prescribes as necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act.\272\ The Commission is 
proposing rule 15Ba1-7 under the Exchange Act to specify books and 
records requirements applicable to municipal advisors.\273\ Proposed 
rule 15Ba1-7's requirements are discussed below.
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    \272\ See Exchange Act Section 17(a)(1). 15 U.S.C. 78q(a)(1).
    \273\ In addition, Section 15B(b)(2)(G) provides that the rules 
of the MSRB shall ``prescribe records to be made and kept by * * * 
municipal advisors and the periods for which such records shall be 
preserved.'' 15 U.S.C. 78o-4(b)(2)(G).
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Records to be Made by Municipal Advisors
    Proposed rule 15Ba1-7(a) would require municipal advisory firms to 
make and keep true, accurate, and current, certain books and records 
relating to its municipal advisory activities. These proposed books and 
records requirements are based generally on Exchange Act rules 17a-3 
and 17a-4, and Investment Advisers Act rule 204-2, which set forth 
books and records requirements with respect to broker-dealers and 
investment advisers, respectively, with appropriate revisions to 
reflect the activities of municipal advisors.\274\
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    \274\ See 17 CFR 240.17a-3 and 17a-4, and 17 CFR 275.204-2.
---------------------------------------------------------------------------

    Proposed rule 15Ba1-7(a) would require municipal advisory firms to 
make and keep current originals or copies of all communications 
received, and originals or copies of all communications sent, by such 
municipal advisor (including inter-office memoranda and communications) 
relating to municipal advisory activities, regardless of the format of 
the communications.\275\ Municipal advisory firms would also have to 
keep all check books, bank statements, cancelled checks and cash 
reconciliations; a copy of each version of the municipal advisor's 
policies and procedures, if any, in effect at any time within the last 
five years; and a copy of any document created by the municipal advisor 
that was material to making a recommendation to a municipal advisory 
client or that memorializes the basis for that recommendation. A 
municipal advisory firm would also be required to keep copies of all 
written agreements entered into by the municipal advisor with any 
municipal entity, employee of a municipal entity or an obligated person 
or otherwise relating to the business of the municipal advisor. A 
municipal advisory firm would also be required to keep a record of the 
names of persons who are, or have been in the past five years, 
associated persons of the municipal advisor; names, titles and 
addresses of persons associated with the municipal advisor; municipal 
entities or obligated persons with whom the municipal advisor has 
engaged in municipal advisory activities in the past five years; the 
names and business addresses of persons to whom the municipal advisor 
agrees to provide payment to solicit municipal entities on its behalf; 
and the names and business addresses of persons that agree to provide 
payment to the municipal advisor to make solicitations on their behalf. 
The purpose of these rules is to assist the Commission in its 
inspection and examination function. Based on the Commission's 
experience in conducting examinations of broker-dealers and investment 
advisers, the Commission believes that requiring municipal advisory 
firms to comply with these rules would facilitate the Commission's 
inspections and examinations of municipal advisors.
---------------------------------------------------------------------------

    \275\ Materials posted on a municipal advisor's Web site 
relating to municipal advisory activities would be written 
communications sent by the municipal advisor for purposes of this 
provision.
---------------------------------------------------------------------------

    Proposed rule 15Ba1-7(b)(1) would require municipal advisory firms 
to maintain and preserve all books and records required to be made 
under this proposed rule for a period of not less than five years, the 
first two years in an easily accessible place. Corporate governance 
documents, such as articles of incorporation and stock certificate 
books of the municipal advisor and including those of any predecessor, 
would be required to be maintained in the principal office of the 
municipal advisor and preserved for three years after termination of 
the business or withdrawal from registration as a municipal advisor.
    Proposed rule 15Ba1-7(d) is modeled on rule 204-2 under the 
Investment Advisers Act,\276\ and permits, and sets forth the 
requirements for, electronic storage of the records required to be 
maintained by this proposed rule. Also, proposed rule 15Ba1-7(e) 
provides that any book or record made, kept, maintained and preserved 
in compliance with rules 17a-3 and 17a-4 of the Exchange Act, rules of 
the MSRB, or rule 204-2 under the Investment Advisers Act, which is 
substantially the same as a book or record required to be made, kept, 
maintained and preserved under rule 15Ba1-7, would satisfy these 
proposed record-keeping requirements.\277\ Subparagraph (e) of proposed 
rule 15Ba1-7 is designed to minimize the record-keeping burden for 
municipal advisory firms that are otherwise subject to similar record-
keeping requirements.
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    \276\ See 17 CFR 275.204-2.
    \277\ See proposed rule 15Ba1-7(e).
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Record-keeping After a Municipal Advisor Ceases To Do Business
    Proposed rule 15Ba1-7(c) would require a municipal advisory firm, 
if it ceases doing business as a municipal advisor, to arrange for and 
be responsible for the continued preservation of the books and records 
required by the rule for the remainder of the period required by the 
rule, and would require the municipal advisor to notify the Commission 
of where such books and records will be maintained. This proposed 
requirement is necessary for the Commission to perform effective 
inspections and examinations of municipal advisory firms.
Requirements for Non-Residents
    Proposed rule 15Ba1-7(f), which is modeled on rule 204-2(j) under 
the Investment Advisers Act,\278\ sets forth the books and records 
requirements for non-resident municipal advisory firms, including 
requirements for making, keeping current, maintaining, and preserving 
copies of books and records required to be made, kept current, 
maintained, and preserved under any rule or regulation adopted under 
the Exchange Act, as well as the requirements for providing notice to 
the Commission regarding the location of such books and records.\279\ 
Specifically, proposed rule 15Ba1-7(f) would require non-resident 
municipal advisors, other than natural persons, including non-resident 
sole proprietors (i.e., non-resident municipal advisor firms) to 
maintain all such books and records in the United States,\280\ and 
provide notice to the Commission of such location within 30 days after 
the proposed rule becomes effective (in the case of municipal advisory 
firms that are already registered or in the process of applying for 
registration when, and if, the rule becomes effective), or when filing 
an application for registration (in the case of municipal advisory 
firms that have not yet applied for registration when, and if, the rule 
becomes

[[Page 862]]

effective).\281\ A non-resident municipal advisory firm would not be 
required to keep such books and records in the United States if the 
municipal advisor files with the Commission an undertaking to furnish 
the Commission, upon demand, copies of any or all of such books and 
records at the municipal advisor's expense to the Commission's 
principal or regional office (as specified by the Commission),\282\ 
provided the municipal advisor furnishes the requested books and 
records within 14 days of the Commission's written demand to the 
offices of the Commission specified in the written demand.\283\
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    \278\ 17 CFR 275.204-2(j).
    \279\ See proposed rule 15Ba1-7(f).
    \280\ See proposed rule 15Ba1-7(f)(2).
    \281\ See id.
    \282\ See proposed rule 15Ba1-7(f)(3)(i). The proposed rule sets 
forth the form of undertaking the municipal advisor would be 
required to file. See id.
    \283\ See proposed Rule 15Ba1-7(f)(3)(ii). The rule would 
require that any written demand would be forwarded by the Commission 
to the municipal advisor by registered mail at the municipal 
advisor's last address of record filed with the Commission. See id.
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    The proposed requirements for non-resident municipal advisory firms 
are designed to ensure that the Commission has access to the books and 
records of municipal advisors located outside of the United States to 
enable it to perform effective examinations and inspections. The 
proposed requirements would also serve to mitigate the time and cost 
burdens the Commission may otherwise face in attempting to gain access 
to books and records located outside of the United States, for example 
in the case of any jurisdictional dispute relating to such access.
Request for Comments
    The Commission requests comment generally on the proposed books and 
records requirements and also requests comment on the following 
specific issues:
    <bullet> What types of documents and data should be retained by 
municipal advisory firms pursuant to the proposed rules? What burdens 
or costs would the retention of such information entail?
    <bullet> Is it appropriate to base the books and records 
requirements for municipal advisory firms on the books and records 
requirements for broker-dealers and investment advisers? Are there 
books and records requirements for broker-dealers and investment 
advisers not included in proposed rule 15Ba1-7 that should be included? 
Please provide examples of any such requirements.
    <bullet> Should the proposed periods for maintaining and preserving 
books and records for municipal advisory firms be lengthened or 
shortened? If so, by how much and why?
    <bullet> Should the Commission impose other requirements that might 
be necessary or useful in protecting the records of a municipal 
advisory firm upon the failure of such entity?
    <bullet> What documents and data typically are kept by municipal 
advisory firms? In what format? How long are such records currently 
maintained by municipal advisors?
    <bullet> What are the technological or administrative burdens of 
maintaining the information specified in the proposed rules?
    <bullet> Is there an industry standard format for information and 
records regarding municipal advisory firms? Are there different 
standard formats depending on the type of municipal advisor? Please 
answer with specificity.
    <bullet> Should the Commission require records retained under this 
section to be retained electronically or furnished to the Commission 
electronically? If so, should any particular electronic format be 
mandated?
    <bullet> Are the proposed requirements for non-resident municipal 
advisory firms overly burdensome? Are they sufficient to ensure that 
the Commission would have adequate access to the municipal advisor's 
books and records in a timely manner?
    <bullet> Should the proposed books and records requirements include 
a requirement that municipal advisory firms must keep all bills or 
statements (or copies thereof), paid or unpaid, relating to the 
business of the municipal advisor? Would such a requirement be overly 
burdensome? If so, how should such a requirement be modified to make 
the information provided useful for examination, enforcement, or any 
other purpose? Please provide suggested alternatives for any such books 
and records requirement.

III. General Request for Comment

    The Commission is requesting comments from all members of the 
public. The Commission particularly requests comment from the point of 
view of persons who must register as municipal advisors, municipal 
entities, obligated persons, investors, and other regulators. The 
Commission seeks comments on all aspects of the proposed rules and 
forms. The Commission will carefully consider the comments that it 
receives. In addition, the Commission seeks comment on the following:
    <bullet> Should the Commission clarify or modify any of the 
definitions included in the proposed rules? If so, which definitions 
and what specific modifications would be appropriate or necessary?
    <bullet> Are the proposed rules sufficiently clear? Is additional 
guidance from the Commission necessary?
    <bullet> Are there additional disclosures that would be useful to 
require on Forms MA and MA-I?
    <bullet> Are the burdens of any of the requirements in the proposed 
rule greater than the benefits that would be attained by such 
requirement?
    <bullet> Exchange Act rule 15b1-4 provides that the registration of 
a broker or dealer shall be deemed to be the registration of any 
executor, administrator, guardian, conservator, assignee for the 
benefit of creditors, receiver, trustee in insolvency or bankruptcy, or 
other fiduciary, appointed or qualified by order, judgment, or decree 
of a court of competent jurisdiction to continue the business of such 
broker or dealer, provided that the fiduciary files with the 
Commission, within 30 days after entering upon the performance of his 
duties, a statement setting forth as to such fiduciary substantially 
the information required by Form BD.\284\ Should rules relating to the 
registration of municipal advisors similarly include a process through 
which an executor, administrator, guardian, conservator, assignee for 
the benefit of creditors, receiver, trustee in insolvency or 
bankruptcy, or other fiduciary, appointed or qualified by order, 
judgment, or decree of a court of competent jurisdiction could continue 
the business of a municipal advisor?
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    \284\ See 15 U.S.C. 240.15b1-4.
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    <bullet> Form ADV \285\ and related rules under the Investment 
Advisers Act require investment advisers registered with the Commission 
to provide new and prospective clients with a brochure and brochure 
supplements written in plain English and to send an updated brochure or 
a summary of material changes to existing clients at least annually. 
These brochures are intended to provide advisory clients with clearly 
written, meaningful, current disclosure of the business practices, 
conflicts of interest and background of the investment adviser and its 
advisory personnel.\286\ Would such a brochure delivery requirement be 
necessary or useful to municipal entities and obligated persons? If so, 
what information would it be helpful to include in such brochures? If 
the Commission were to adopt a brochure delivery requirement, should it 
be in substantially the same form as the brochure delivery requirement 
relating

[[Page 863]]

to investment advisers, including with respect to content, amendments 
to the content, and time periods for delivery? What aspects of the 
brochure delivery requirement for investment advisers would it be 
appropriate to apply to municipal advisors and what aspects of the 
brochure delivery requirement for investments advisers would it not be 
appropriate to apply to municipal advisors? Is there a category of 
municipal advisors that should be excluded from any such brochure 
delivery requirement, if the Commission were to adopt such a 
requirement? If so, how should such a category be described and what 
would be the reason for the exclusion? If such an exclusion were 
created, how would the Commission ensure that the clients of excluded 
advisors received adequate disclosures and protection? Is there a 
category of clients as to whom the brochure delivery requirement should 
not, or need not, apply? If so, how should such a category be described 
and what would be the reason for the exclusion? What would be the costs 
and benefits of any such brochure delivery requirement to municipal 
advisors? What would be the costs and benefits of any such brochure 
delivery requirement to the clients of municipal advisors?
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    \285\ See 17 CFR 279.1.
    \286\ See Investment Advisers Act Release No. IA-3060 (July 28, 
2010), 75 FR 49234 (August 12, 2010).
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    The Commission seeks comments generally concerning the requirement 
for a municipal advisor to supply information in Forms MA and MA-I 
concerning the general types of municipal advisory activities in which 
it engages. In particular, would it be confusing or otherwise difficult 
for a municipal advisor to provide this information? Are there 
considerations relating to the business of municipal advisors, or of 
some types of municipal advisors, that the Commission may not have 
taken into account in connection with the proposed information 
disclosure requirements of Forms MA and MA-I?
    In addition, the Commission seeks comments on the proposals as a 
whole, including their interaction with the other provisions of the 
Dodd-Frank Act. The Commission seeks comments on whether the proposals 
would help achieve the broader goals of increasing transparency and 
accountability in the municipal securities markets.
    The Commission requests comment generally on whether its proposed 
actions to govern the municipal advisor registration process are 
necessary or appropriate. If commenters do not believe one or all such 
actions are necessary and appropriate, why not? What would be the 
preferred action?
    Commenters should, when possible, provide the Commission with 
empirical data to support their views. Commenters suggesting 
alternative approaches should provide comprehensive proposals, 
including any conditions or limitations that they believe should apply, 
the reasons for their suggested approaches, and their analysis 
regarding why their suggested approaches would satisfy the statutory 
mandate contained in Section 975 of the Dodd-Frank Act governing 
municipal advisors.

IV. Paperwork Reduction Act

    Certain provisions of the Dodd-Frank Act and the rules and forms 
the Commission is proposing thereunder relating to the permanent 
registration of municipal advisors would impose new ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``Paperwork Reduction Act'' or ``PRA'').\287\
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    \287\ 44 U.S.C. 3501 et seq.
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    The Commission is submitting these collections of information to 
the Office of Management and Budget (``OMB'') for review and approval 
in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The proposed 
titles for these collections of information are ``Form MA: Application 
for Municipal Advisor Registration''; ``Form MA-I: Application for 
Municipal Advisor Registration for Natural Persons''; ``Rule 15Ba1-4: 
Amendments to Application for Registration and Self-Certification''; 
``Form MA-W: Notice of Withdrawal from Registration as a Municipal 
Advisor''; ``Form MA-NR: Designation of U.S. Agent for Service of 
Process''; and ``Rule 15Ba1-7: Books and Records to be Maintained by 
Municipal Advisors.''
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. Section 15B of the Exchange Act, as 
amended by the Dodd-Frank Act, requires municipal advisors (as defined 
in Section 15B(e)(4) of the Exchange Act \288\) to register with the 
Commission.\289\ As a transitional step to the implementation of a 
permanent registration program, the Commission adopted, on an interim 
final basis, Rule 15Ba2-6T, which permitted municipal advisors to 
temporarily satisfy the registration requirement by filing Form MA-T, 
effective October 1, 2010. The interim final temporary rule provides 
that, unless rescinded, a municipal advisor's temporary registration by 
means of Form MA-T will expire on the earlier of (1) the date that the 
municipal advisor's registration is approved or disapproved by the 
Commission pursuant to a final rule establishing a permanent 
registration regime; (2) the date on which the municipal advisor's 
temporary registration is rescinded by the Commission; or (3) December 
31, 2011.\290\ Pursuant to the Dodd-Frank Act, the Commission is 
proposing new rules that would establish a permanent municipal advisor 
registration regime and would impose certain record-keeping 
requirements on municipal advisors.
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    \288\ See 15 U.S.C. 78o-4(e)(4). See also supra Section II.A.1.
    \289\ See 15 U.S.C. 78o-4(a).
    \290\ See 17 CFR 240.15Ba2-6T(e). The OMB approved the 
collection of information for Form MA-T and Rule 15Ba2-6T 
(``Temporary Registration of Municipal Advisors--Form MA-T'') (OMB 
Control No. 3235-0659) on an emergency basis for six months.
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A. Summary of Collection of Information

    Section 15B(a)(2) of the Exchange Act, as amended by the Dodd-Frank 
Act, provides that a municipal advisor may be registered by filing with 
the Commission an application for registration in such form and 
containing such information and documents concerning the municipal 
advisor and any persons associated with the municipal advisor as the 
Commission, by rule, may prescribe as necessary or appropriate in the 
public interest or for the protection of investors.\291\
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    \291\ See 15 U.S.C. 78o-4(a)(2).
---------------------------------------------------------------------------

    Under the proposed rules, the permanent registration regime for 
municipal advisors would be more comprehensive than the temporary one. 
The proposed regime would require more detailed disclosures, and entail 
a review of a respondent's registration form. Under proposed rule 
15Ba1-2(a), a municipal advisory firm would be required to apply for 
registration with the Commission by completing and electronically 
filing Form MA. Under proposed rule 15Ba1-2(b), a natural person 
municipal advisor would be required to apply for registration with the 
Commission by completing and electronically filing Form MA-I. A sole 
proprietor would have to complete both Form MA and Form MA-I. The 
Commission anticipates developing an online filing system, where a 
municipal advisor would be able to file a completed Form MA and/or MA-I 
and the information filed would be publicly available. In addition, 
under proposed rule 15Ba1-7, registered municipal advisors other than 
natural persons (i.e., municipal advisory firms, including sole 
proprietors) would be required to maintain books and records relating 
to their municipal advisory activities.
    Under the proposed permanent registration regime, municipal 
advisors

[[Page 864]]

would include sole proprietorships, individual employees of municipal 
advisors, and firms of varying sizes. In addition, municipal advisors 
would include firms that engage in municipal advisory activities as 
part of a broader array of financial services serving many types of 
clients, and may have many associated persons. Thus, the paperwork 
burden would reflect these differences in size and types of other 
financial services in which the municipal advisors engage.
    Pursuant to proposed rule 15Ba1-4(a)(1), a municipal advisory firm 
that registers on Form MA would have to amend its Form MA at least 
annually, within 90 days of the end of the applicant's fiscal year in 
the case of applicants that are firms, or within 90 days of the end of 
the calendar year in the case of sole proprietors. Proposed rule 15Ba1-
4(a)(2) would require a municipal advisory firm to amend its Form MA 
more frequently than annually as required by the General Instructions. 
Pursuant to proposed rule 15Ba1-4(b), a natural person municipal 
advisor who registers on Form MA-I would have to amend his or her Form 
MA-I whenever any information previously provided in Form MA-I becomes 
inaccurate. Pursuant to proposed rule 15Ba1-4(e), a registered 
municipal advisor would have to complete the self-certification on Form 
MA or Form MA-I, as applicable, both at the time the municipal advisor 
initially files its application for registration, and also on an 
ongoing annual basis. Municipal advisors registered on Form MA would 
have to complete the Form MA self-certification within 90 days of the 
end of a municipal advisor's fiscal year, or for municipal advisors 
that are sole proprietors, within 90 days of the end of the calendar 
year. Municipal advisors registered on Form MA-I would have to complete 
the Form MA-I self-certification within 90 days of the end of the 
calendar year.
    Pursuant to proposed rule 15Ba1-3, all municipal advisors, whether 
registered on Form MA or MA-I, would be required to file Form MA-W to 
withdraw from registration with the Commission as a municipal advisor. 
As would be the case with Form MA and MA-I, Form MA-W would be required 
to be filed electronically with the Commission.
    Proposed rule 15Ba1-5 sets forth the general procedures for serving 
non-residents on Form MA-NR. Pursuant to the instructions to Form MA-
NR, and consistent with proposed rule 15Ba1-5, non-resident municipal 
advisors other than natural persons, but including sole proprietors 
(``non-resident municipal advisory firms''), and non-resident general 
partners and non-resident managing agents of municipal advisors must 
file Form MA-NR to furnish the Commission with a written irrevocable 
consent and power of attorney to appoint an agent in the United States, 
other than a Commission member, official, or employee, upon whom may be 
served any process, pleadings, or other papers in any action brought 
against the non-resident municipal advisory firm, non-resident general 
partner or non-resident managing agent that arises out of or relates to 
the municipal advisory activities of the municipal advisor. In 
addition, proposed rule 15Ba1-5(d) would require each non-resident 
municipal advisory firm to provide an opinion of counsel that the 
advisory firm can, as a matter of law, provide the Commission with 
prompt access to the advisory firm's books and records and that the 
advisory firm can, as a matter of law, submit to onsite inspection and 
examination by the Commission.
    Proposed rule 15Ba1-7 would require all registered municipal 
advisors other than natural persons (i.e., municipal advisory firms, 
including sole proprietors) to maintain books and records relating to 
their municipal advisory activities. Generally, proposed rule 15Ba1-7 
would require such books and records to be maintained and preserved for 
a period of not less than five years, the first two years in an easily 
accessible place.

B. Proposed Use of Information

    The proposed requirement that a municipal advisor must register 
with the Commission on Forms MA and MA-I to continue to engage in 
municipal advisory activities would help ensure that the Commission has 
information to effectively oversee respondents and their activities in 
the municipal securities market. In particular, the information 
provided in Forms MA and MA-I would be used to determine whether to 
grant the applicant's application for registration, institute 
proceedings to determine whether registration should be denied, and 
place limitations on the applicant's activities as a municipal advisor. 
The information would also be used to focus on-site examinations and 
aid in risk-based examination targeting. It would enable the Commission 
to obtain an accurate estimate of the number of municipal advisors, by 
size and by municipal advisory activity; analyze data regarding the 
various types of municipal advisory activities in which advisors 
engage; and evaluate the disciplinary history of all advisors and 
associated persons, including all regulatory, civil, and criminal 
proceedings. The proposed registration requirement would also help to 
ensure that the Commission can make such information transparent and 
easily accessible to the investing public, including municipal entities 
and obligated persons who engage municipal advisors, investors who may 
purchase securities from offerings in which municipal advisors 
participated, and other regulators.
    The proposed requirement that a municipal advisory firm must make 
and keep books and records, including written communications and 
records of associated persons, would help to ensure that records exist 
of the respondent's primary municipal advisory activities and of its 
associated persons, and could potentially be requested by Commission 
staff during an examination to evaluate the municipal advisory firm's 
compliance with the proposed rules. In particular, the proposed 
requirement that a municipal advisory firm must keep a record of the 
initial or annual review, as applicable, conducted by the municipal 
advisory firm of such municipal advisory firm's business in connection 
with its self-certification on Form MA, would help ensure, among other 
things, that the municipal advisory firm and every natural person 
associated with it has met certain standards of training, experience, 
and competence required by the Commission, the MSRB, or any other 
relevant SROs.
    The proposed requirement that a non-resident municipal advisor, or 
a non-resident general partner or non-resident managing agent of a 
municipal advisor, file Form MA-NR in connection with the municipal 
advisor's initial application would help minimize legal or logistical 
obstacles that the Commission may encounter when attempting to effect 
service, to conserve Commission resources, and to avoid potential 
conflicts of law. The proposed requirement that a non-resident 
municipal advisory firm provide an opinion of counsel on Form MA would 
help ensure that such non-resident municipal advisory firm could 
provide access to its books and records and submit to onsite inspection 
and examination by the Commission.

C. Respondents

    The Commission estimates that the proposed ``collections of 
information'' would initially apply to approximately 1,000 municipal 
advisory firms, including sole proprietors. This estimate is based 
partly on the number of municipal advisors that have registered with 
the Commission under rule 15Ba2-

[[Page 865]]

6T. As of October 2010, there were approximately 800 total unique 
electronic registrations where Form MA-T was completed and not 
withdrawn. The Commission believes that this number of Form MA-T 
registrants would likely increase, because numerous applicants that 
would be required to register may have missed the October 1, 2010 
deadline for a variety of reasons, such as concluding, based on their 
interpretation of the Dodd-Frank Act, that they were not required to 
register as municipal advisors. For the PRA analysis of the interim 
final temporary rule, Commission staff estimated that approximately 
1,000 applicants would be required to complete Form MA-T.\292\ 
Commission staff believes that this remains an appropriate estimate for 
the total number of municipal advisory firms that would be required to 
register on Form MA under the proposed permanent registration 
regime.\293\
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    \292\ See Temporary Registration Rule Release, supra note 63, at 
54473.
    \293\ The Commission notes that a person that solicits a 
municipal entity or obligated person on behalf of a broker, dealer, 
municipal securities dealer, municipal advisor, or investment 
adviser that controls, is controlled by, or is under common control 
with the person undertaking such solicitation, may voluntarily apply 
to register as a municipal advisor. See supra Section II.A.2.a. 
Based on investment adviser registration data, Commission staff 
estimates that out of approximately 12,000 investment advisers 
currently registered with the Commission, only 385, or approximately 
3%, (1) have municipal clients; (2) use firms or persons to solicit 
advisory clients on the adviser's behalf; and (3) compensate persons 
for client referrals. The Commission expects that of these 385 
investment advisers, a significantly smaller subset would have the 
specific circumstances where voluntary municipal advisor 
registration would be applicable, i.e., they use affiliates that 
exclusively solicit municipal entities for them (or other 
affiliates), and not for third parties. For purposes of this 
analysis, the Commission's estimate of the number of potential 
voluntary municipal advisor applicants is included as part of the 
total estimate of 1,000 applicants noted above.
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    The proposed ``collections of information'' would also apply to 
natural person municipal advisors. For purposes of estimating the 
paperwork burden, the Commission notes that the number of Form MA-I 
applicants may be divided into three main categories: (1) Individuals 
who are currently also registered as investment advisers, broker-
dealers, or both, and who are employed at investment advisory firms, 
broker-dealer firms, or banks; (2) individuals who are employed at 
financial advisor firms that are not registered as broker-dealers or 
investment advisers; and (3) individual solicitors who are employed at 
third-party marketing and solicitor firms. To calculate the total 
number of likely Form MA-I applicants, the Commission estimates the 
number of respondents in each of these categories.
    First, the Commission estimates the number of individuals who are 
currently registered as investment advisers, broker-dealers, or both, 
and would register on Form MA-I. To calculate this estimate, the 
Commission compares the proportion of FINRA Form U4 filers (i.e., 
individuals who are registered representatives of investment advisers 
and/or broker-dealers) to the sum of all investment advisers registered 
on Form ADV and all broker-dealers registered on Form BD. FINRA 
estimates that as of October 2010, 637,000 individuals had registered 
as representatives of broker-dealers and/or investment advisers on Form 
U4.\294\ The Commission estimates that as of October 2010, 11,888 
investment advisers had registered on Form ADV, while as of March 2010, 
5,163 broker-dealers had registered on Form BD. The proportion of Form 
U4 registrants to the sum of Form ADV and Form BD registrants is 
approximately 37.36 to 1.\295\ According to Form MA-T data collected to 
date, the Commission estimates that approximately 450 of 1,000 MA-T 
registrants would be investment adviser and/or broker-dealer firms. 
Thus, the Commission estimates that approximately 16,800 individuals 
who are registered as investment advisers, broker-dealers, or both, 
would be required to register on Form MA-I.\296\
---------------------------------------------------------------------------

    \294\ See October 2010 ``Registered Reps'' in ``FINRA 
Statistics,'' available at http://www.finra.org/Newsroom/Statistics.
    \295\ 637,000 (estimated number of Form U4 registrants)/(11,888 
(estimated number of Form ADV registrants) + 5,163 (estimated number 
of Form BD registrants)) = 37.36.
    \296\ 450 (total number of investment adviser and broker-dealer 
firms registered as municipal advisors) x 37.36 (proportion of Form 
U4 registrants to all Form ADV and Form BD registrants) = 16,812.
---------------------------------------------------------------------------

    Second, the Commission estimates the number of individuals who are 
employed at financial advisor firms and would register on Form MA-I. 
Commission staff understands from discussions with industry and market 
participants that it is reasonable to estimate that there is an average 
of approximately 10 professional employees per financial advisor firm. 
According to Form MA-T data collected to date, the Commission estimates 
that approximately 450 of 1,000 MA-T registrants would be financial 
advisor firms. Thus, the Commission estimates that approximately 4,500 
individuals who are employed at financial advisor firms would be 
required to register on Form MA-I.\297\
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    \297\ 450 (total number of independent financial advisor firms 
registered as municipal advisors) x 10 (estimated average number of 
professional employees per independent financial advisor firm) = 
4,500.
---------------------------------------------------------------------------

    Third, the Commission estimates the number of individual solicitors 
who would register on Form MA-I. Commission staff examined the data of 
all MA-T registrants as of October 2010, and estimates that 
approximately 100 out of 1,000 registrants are exclusively focused on 
third-party marketing and solicitation. For purposes of this PRA, the 
Commission assumes that there are five individual solicitors who would 
register on Form MA-I for every solicitor firm that would register on 
Form MA.\298\ Thus, the Commission estimates that approximately 500 
individual solicitors would be required to register on Form MA-I.\299\
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    \298\ See Letter from Donna DiMaria, President, Third Party 
Marketers Association, dated August 27, 2009, available at http://www.sec.gov/comments/s7-18-09/s71809-36.pdf (commenting on the 
Commission's proposal to adopt a rule addressing ``pay to play'' 
practices by investment advisers and estimating that the typical 
solicitor firm consists of 2 to 5 professionals).
    \299\ 100 (estimated number of solicitor firms) x 5 (estimated 
number of Form MA-I applicants per solicitor firm) = 500. The 
Commission notes that a person that solicits a municipal entity or 
obligated person on behalf of a broker, dealer, municipal securities 
dealer, municipal advisor, or investment adviser that controls, is 
controlled by, or is under common control with the person 
undertaking such solicitation, may voluntarily apply to register as 
a municipal advisor. See supra Section II.A.2.a. Based on investment 
adviser registration data, Commission staff expects that only a 
small number of registered investment advisers that are natural 
persons would have the specific circumstances where voluntary 
municipal advisor registration would be applicable. See supra note 
293. For purposes of this analysis, the Commission's estimate of the 
number of potential voluntary natural person municipal advisor 
applicants is included as part of the total estimate of 500 
individual solicitors noted above.
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    The Commission estimates that the total number of Form MA-I 
applicants would be approximately 21,800 natural persons.\300\ The 
Commission recognizes that, based on a number of factors, the actual 
total number of respondents may differ from this estimate. For example, 
the current estimate does not include Form MA-I applicants who might be 
employed at banks, but are not registered as either investment advisers 
or broker-dealers. Thus, the actual total number of respondents could 
be higher. Under the proposed rules, sole proprietors would be required 
to complete both Form MA and Form MA-I. The respondent estimates 
presented here likely include some overlap, but the actual total number 
of respondents could be slightly lower depending on

[[Page 866]]

the overall percentage of sole proprietors among all municipal advisory 
firms.
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    \300\ 16,800 (estimated number of individual investment advisers 
and/or broker-dealers) + 4,500 (estimated number of individuals who 
are employed at financial advisor firms) + 500 (estimated number of 
individuals who are employed at solicitation firms) = 21,800.
---------------------------------------------------------------------------

    To estimate the average annual number of new Form MA applicants, 
the Commission relies on investment adviser registration data, which 
indicates that new investment adviser applicants comprise, on average, 
approximately 10.4% of the total number of registered investment 
advisers.\301\ The Commission expects the proportion of new municipal 
advisory firm applicants to all municipal advisory firm applicants may 
be similar. Accordingly, the Commission estimates that the average 
number of new Form MA applicants per year would be 100.\302\ To 
estimate the average annual number of new Form MA-I applicants, the 
Commission relies on FINRA registration data, which indicates that new 
Form U4 applicants that are new to the industry comprise, on average, 
approximately 8.39% of the total number of Form U4 applicants.\303\ The 
Commission expects the proportion of new natural person municipal 
advisor registrants to all natural person municipal advisor registrants 
may be similar. Accordingly, the Commission estimates that the average 
number of new Form MA-I applicants per year would be 1,800.\304\
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    \301\ According to the Commission's Division of Investment 
Management, as of October 2010, there were 11,888 investment 
advisers registered with the Commission. From 2002 to 2009, there 
was an average of 1,237 new investment adviser registrations per 
year. (1,237/11,888) = 10.4%.
    \302\ 1,000 (all Form MA applicants) x 10.4% = 104 new Form MA 
applicants per year.
    \303\ According to FINRA, as of October 2010, there were 
approximately 637,000 individuals registered on Form U4. See supra 
note 295. FINRA has notified the Commission that from October 2008 
to the present, there was an average of 53,474 Form U4 registrants 
that were new to the industry per year. (53,474/637,000) = 8.39%.
    \304\ 21,800 (all Form MA-I applicants) x 8.39% = 1,829 new Form 
MA-I applicants per year.
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D. Total Initial and Annual Reporting and Record-Keeping Burdens

    The estimated burdens on respondents to complete and submit Forms 
MA, MA-I, MA-W, and MA-NR,\305\ amend Forms MA and MA-I, consult with 
outside counsel, and maintain books and records related to municipal 
advisory activities, are described below.
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    \305\ See infra Sections IV.D.4 and IV.D.5 (discussing the 
number of respondents relating to filing Form MA-W and Form MA-NR, 
respectively).
---------------------------------------------------------------------------

1. Form MA
    Form MA, which is to be completed by municipal advisory firms 
(including sole proprietors) registering under the proposed permanent 
registration regime, would require more comprehensive disclosure in 
addition to the information already collected and submitted on Form MA-
T. As discussed in detail above, municipal advisory firms that would be 
required to register with the Commission by filing Form MA would have 
to provide, among other things:
    1. Identifying information;
    2. Information regarding the municipal advisor's form of 
organization;
    3. Whether the advisor is succeeding to the business of a 
registered municipal advisor;
    4. Information about the municipal advisor's business and business 
structure;
    5. Information regarding the municipal advisor's other business 
activities;
    6. Financial industry affiliations of associated persons of the 
municipal advisor;
    7. The municipal advisor's interest in municipal advisory client 
transactions;
    8. Information related to control persons of the municipal advisor;
    9. Disclosures relating to regulatory, civil, and criminal 
disciplinary history; \306\
---------------------------------------------------------------------------

    \306\ See supra Section II.A.2.c.
---------------------------------------------------------------------------

    10. Information regarding whether the municipal advisor is a 
``small business;'' and
    11. A self-certification, filed on an initial and annual basis, 
regarding the municipal advisor's qualifications as a municipal advisor 
and its ability to comply with its obligations under the Federal 
securities laws.
    The Commission has previously estimated that, in the case of Form 
ADV--a similar form to Form MA, which must be completed for the 
registration of investment advisers with the Commission--the average 
time necessary to complete the form is approximately 36.24 hours.\307\ 
Form ADV, however, is significantly longer than Form MA and contains 
sections that are not required for Form MA registration, such as Part 
2A, which requires the applicant to create narrative brochures 
containing information about the advisory firm. Thus, the Commission 
expects the hourly burden for Form MA to be considerably less than 
36.24 hours.
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    \307\ See Release No. IA-3060, supra note 286, at 49256. 
Additionally, the Commission notes that the average time necessary 
to complete Part IA of Form ADV is approximately 4.32 hours. See 
Form ADV, Part 1A (Paper Version), at 1 (under ``OMB Approval,'' 
estimated average burden hours per response is 4.32 hours).
---------------------------------------------------------------------------

    In contrast, the Commission previously estimated that the average 
amount of time for a municipal advisor to complete Form MA-T, 
regardless of advisor size, is approximately 2.5 hours.\308\ This 
estimate for completion of Form MA-T includes all of the time necessary 
to research, evaluate, and gather all of the information that is 
requested in the form and all of the time necessary to complete and 
submit the form.\309\
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    \308\ See Temporary Registration Rule Release, supra note 63, at 
54473.
    \309\ The Commission notes that some municipal advisors that 
would be required to register under the proposed permanent 
registration regime would also be registered with the Commission as 
broker-dealers and/or investment advisers. The Commission believes 
that these persons could require less time to research and complete 
the proposed permanent registration forms to the extent information 
contained in those other registration(s) could be incorporated by 
reference, avoiding the need to repeat the information on Form MA. 
See supra note 220, and accompanying text.
---------------------------------------------------------------------------

    The Commission believes that the paperwork burden of completing 
Form MA would be greater than the amount of time required to complete 
Form MA-T, because Form MA is longer and more comprehensive than Form 
MA-T. Nevertheless, the Commission believes that the estimated time to 
complete Form MA-T, rather than Form ADV, is the more appropriate basis 
to estimate the time to complete Form MA. Accordingly, the Commission 
estimates that the average amount of time for a municipal advisory firm 
to complete Form MA would be 3.5 hours. This estimate would apply to 
all municipal advisory firms, because even those that had already 
completed Form MA-T under the temporary registration regime must 
register anew.
    In addition, pursuant to proposed rule 15Ba1-4(e)(1), a municipal 
advisory firm would be required at the time it initially files Form MA 
to conduct an initial review of its business and certify that, among 
other things, it and every natural person associated with the municipal 
advisory firm meet standards required by the Commission, the MSRB, or 
any other relevant SRO to engage in municipal advisory activities. To 
estimate the initial burden for this self-certification, the Commission 
examined burden estimates for Form N-CSR (``Certified Shareholder 
Report of Registered Management Investment Companies'') and Form N-Q 
(``Quarterly Schedule of Portfolio Holdings of Registered Management 
Investment Company''), which include similar self-certification 
requirements.\310\ Based on its prior burden estimates, Commission 
staff estimates that the initial burden to

[[Page 867]]

comply with the Form MA self-certification requirement would be, on 
average, approximately 3.0 hours per applicant. Thus, the total average 
initial burden for Form MA would be 6.5 hours per applicant.\311\
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    \310\ See Exchange Act Release No. 34-47262 (January 27, 2003), 
68 FR 5348 (February 3, 2003); Exchange Act Release No. 34-49333 
(February 27, 2004), 69 FR 11244 (March 9, 2004).
    \311\ 3.5 hours (average time required to complete Form MA) + 
3.0 hours (average time required to complete self-certification) = 
6.5 hours per applicant.
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    The Commission recognizes that depending on the specific 
circumstances of the municipal advisory firm, the initial burden to 
complete Form MA may vary from respondent to respondent. For example, 
as discussed above, a non-resident municipal advisor would be required 
to attach a legal opinion to its Non-Resident Municipal Advisor 
Execution Page to Form MA.\312\
---------------------------------------------------------------------------

    \312\ See supra Section II.A.2.b. For a discussion of the 
estimated burden for a non-resident municipal advisor to provide 
opinion of counsel, see infra Section IV.D.5.
---------------------------------------------------------------------------

    As discussed above, Commission staff estimates that approximately 
1,000 municipal advisory firms would be required to fill out Form MA. 
Thus, the Commission estimates that the total initial paperwork burden 
for completion and submission of Form MA would be 6,500 hours.\313\ The 
Commission notes that respondents may have potential one-time burdens 
associated with Form MA. For example, respondents may need to develop 
internal controls associated with procedures for obtaining the 
information required by Form MA, and they would need to familiarize 
themselves with the proposed rules and the form. For purposes of this 
analysis, these potential one-time burdens are included in the 
estimates noted above.
---------------------------------------------------------------------------

    \313\ 1,000 (persons required to submit Form MA) x 6.5 hours 
(average estimated time required to complete Form MA and initial 
self-certification) = 6,500 hours.
---------------------------------------------------------------------------

    The Commission estimates that the average number of new Form MA 
applicants per year would be 100,\314\ and the annual paperwork burden 
for new completions and submissions of Form MA would be 650 hours.\315\ 
The Commission notes that respondents may have potential recurring 
burdens associated with Form MA, such as systemic ongoing monitoring 
and maintenance of the information required by the form. For the 
purposes of this analysis, these potential recurring burdens are 
included in the estimates with respect to amendments to Form MA.\316\
---------------------------------------------------------------------------

    \314\ See supra Section IV.C.
    \315\ 100 (new Form MA applicants per year) x 6.5 hours (average 
estimated time required to complete Form MA and initial self-
certification) = 650 hours.
    \316\ See infra Section IV.D.3.
---------------------------------------------------------------------------

    The collection of information made pursuant to Form MA would not be 
confidential and would be made publicly available. Some information, 
such as social security numbers, would be kept confidential to the 
extent permitted by law.
2. Form MA-I
    Form MA-I, which is to be completed by natural persons (including 
sole proprietors) registering under the proposed permanent registration 
regime, would require more comprehensive disclosure compared to the 
information already collected and submitted on Form MA-T. As discussed 
above, natural person municipal advisors required to register with the 
Commission by filing Form MA-I would be required to provide, among 
other things:
    1. Identifying information;
    2. Residential history for the five years preceding filing of the 
application;
    3. Employment history for the ten years preceding filing of the 
application;
    4. Any other businesses in which the advisor is currently engaged;
    5. Disclosures relating to regulatory, civil, and criminal 
disciplinary history; and
    6. A self-certification, filed on an initial and annual basis, 
indicating, among other things, that the municipal advisor has met or 
will meet qualification standards required by the Commission, the MSRB, 
or any other relevant SRO for municipal advisors.
    Moreover, Form MA-I would require disclosure forms for reporting 
disciplinary proceedings, including criminal, regulatory, and civil 
judicial actions.
    To estimate the average amount of time required to complete Form 
MA-I, the Commission compares the average amount of time required for 
an applicant to complete Form MA-T. As described above, the Commission 
previously estimated that the average amount of time for a municipal 
advisor to complete Form MA-T would be approximately 2.5 hours.\317\ 
This estimate includes all of the time necessary to research, evaluate, 
and gather all of the information that is requested in Form MA-T and 
all of the time necessary to complete and submit the form. The 
Commission believes that the paperwork burden of completing Form MA-I 
would not be significantly greater than the amount of time required to 
complete Form MA-T, because some of the information required for Form 
MA-I would have already been gathered for completing Form MA-T. The 
Commission anticipates that the most burdensome portion of the form 
would be the disclosure of the advisor's disciplinary history, but the 
Commission believes that this burden should only be substantial for a 
small number of applicants. Overall, the Commission estimates that the 
average amount of time for a natural person municipal advisor to 
complete Form MA-I would be 3.0 hours.\318\ This estimate would apply 
to all natural person municipal advisors, because even those who had 
already completed Form MA-T under the temporary registration regime 
must register anew.
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    \317\ See supra note 308, and accompanying text.
    \318\ The Commission notes that pursuant to proposed rule 15Ba1-
4(e)(1), a natural person municipal advisor would also be required 
at the time he or she initially files Form MA-I to certify that, 
among other things, he or she meets standards required by the 
Commission, the MSRB, or any other self-regulatory organization to 
engage in municipal advisory activities. For purposes of this 
analysis, the Commission believes that the initial burden for a 
natural person to complete Form MA-I self-certification would be 
minimal, because it would not require the more burdensome initial 
review of a municipal advisory firm. Thus, the Commission includes 
the average amount of time for initial self-certification as part of 
its estimate of the average amount of time for a natural person 
municipal advisor to initially complete Form MA-I.
---------------------------------------------------------------------------

    The Commission estimates that approximately 21,800 natural person 
municipal advisors would be required to register on Form MA-I.\319\ 
Thus, the Commission estimates that the total paperwork burden for 
completion and submission of Form MA-I would be 65,400 hours.\320\ The 
Commission notes that respondents may have potential one-time burdens 
associated with Form MA-I. For example, respondents may need to locate 
information not previously required for other registrations, but 
required by Form MA-I, and they would need to familiarize themselves 
with the proposed rules and the form. For purposes of this analysis, 
these potential one-time burdens are included in the estimates noted 
above.
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    \319\ See supra Section IV.C.
    \320\ 21,800 (persons required to submit Form MA-I) x 3.0 hours 
(average estimated time required to complete Form MA-I and initial 
self-certification) = 65,400 hours.
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    The Commission estimates that the average number of new Form MA-I 
applicants per year would be 1,800,\321\ and the annual paperwork 
burden for new completions and submissions of Form MA-I would be 5,400 
hours.\322\ The Commission notes that respondents may have potential 
recurring burdens associated with Form MA-I, such as tracking ongoing 
updates to the information required by the form. For

[[Page 868]]

the purposes of this analysis, these potential recurring burdens are 
included in the estimates with respect to amendments to Form MA-I.\323\
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    \321\ See supra Section IV.C.
    \322\ 1,800 (new Form MA-I registrants per year) x 3.0 hours 
(average estimated time required to complete Form MA-I and initial 
self-certification) = 5,400 hours.
    \323\ See infra Section IV.D.3.
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    The collection of information made pursuant to Form MA-I would not 
be confidential and would be made publicly available. Some information, 
such as social security numbers, would be kept confidential to the 
extent permitted by law.
3. Amendments to Form MA and Form MA-I
    Under proposed rule 15Ba1-4, once a municipal advisor is registered 
on Form MA, the municipal advisor would be required to electronically 
amend Form MA at least annually, within 90 days of the end of the 
advisor's fiscal year, if a firm, or within 90 days of the end of the 
calendar year, if a sole proprietor; and more frequently, as set forth 
in the General Instructions to Form MA, as applicable. A natural person 
municipal advisor registered on Form MA-I would be required to 
electronically amend Form MA-I whenever the information previously 
provided in Form MA-I becomes inaccurate.
    The Commission notes that in addition to preparing amendments for 
Form MA and/or Form MA-I as described above, a respondent would also be 
required to certify annually that, among other things, it meets 
qualification standards required by the Commission, the MSRB, or any 
other relevant SRO to engage in municipal advisory activities. For 
purposes of this analysis, the Commission includes the annual self-
certification as part of the amendment requirements, and the Commission 
addresses their associated burdens together below.
    The Commission estimates that the average time necessary to prepare 
an annual amendment for Form MA would be approximately 1.5 hours 
because only certain parts of Form MA would need to be completed for 
amendments. The Commission recognizes that depending on the extent of 
the amendments, the burden to complete the annual amendment may vary 
greatly from respondent to respondent, and that some would require 
significantly more time than 1.5 hours to submit annual amendments 
while others would require significantly less time than 1.5 hours. For 
example, as discussed above, a non-resident municipal advisory firm 
would be required to file an amendment to Form MA promptly and include 
a revised opinion of counsel after any changes in the legal or 
regulatory framework that would impact its ability or the manner in 
which it provides the Commission with the required access to its books 
and records or impacts the Commission's ability to inspect to examine 
the municipal advisory firm onsite.\324\
---------------------------------------------------------------------------

    \324\ See supra Section II.A.4. For a discussion of the 
estimated burden for a non-resident municipal advisor to provide 
opinion of counsel, see infra Section IV.D.5.
---------------------------------------------------------------------------

    In addition, pursuant to proposed rule 15Ba1-4(e)(2), a municipal 
advisory firm would be required to conduct an annual review of its 
business and certify that, among other things, it and every natural 
person associated with the municipal advisory firm has met, or will 
meet, qualification standards required by the Commission, the MSRB, or 
any other relevant SRO to engage in municipal advisory activities. To 
estimate the annual burden, the Commission examined burden estimates 
for Form N-CSR and Form N-Q.\325\ Based on its prior burden estimates, 
Commission staff estimates that the annual burden to comply with the 
Form MA self-certification requirement would be, on average, 
approximately one hour per respondent. Therefore, the total average 
annual burden for Form MA amendments would be 2.5 hours per 
respondent.\326\
---------------------------------------------------------------------------

    \325\ See supra note 310.
    \326\ 1.5 hours (average time required to amend Form MA) + 1.0 
hour (average time required to complete annual self-certification) = 
2.5 hours per respondent.
---------------------------------------------------------------------------

    To estimate the average amount of time necessary to prepare an 
additional updating amendment for Form MA (i.e., any additional 
amendment other than the required annual amendment), the Commission 
relies on its estimate for the amount of time required to prepare an 
interim updating amendment for Form ADV. The Commission estimated that 
an updating amendment for Form ADV would require 0.5 hours per 
amendment, because interim amendments typically only amend one or two 
items in Form ADV and thus should not require as much time to prepare 
as an annual amendment.\327\ For the purposes of this PRA analysis, the 
Commission believes that the amount of time to complete an updating 
amendment for Form MA would also be 0.5 hours.
---------------------------------------------------------------------------

    \327\ See Release No. IA-3060, supra note 286, at 49257.
---------------------------------------------------------------------------

    Under proposed rule 15Ba1-4(a)(1), all 1,000 municipal advisory 
firms registered on Form MA would be required to amend their Form MA 
once every fiscal or calendar year, as applicable. It is also possible 
that some of these 1,000 municipal advisory firms would have to submit 
more than one amendment. To estimate the average number of amendments 
in addition to the annual amendment, the Commission relies on its prior 
estimate for the average number of additional amendments for Form ADV. 
The Commission estimated that, on average, each adviser filing Form ADV 
would likely amend its form two times during the year--one annual 
amendment, and one interim updating amendment.\328\ For the purposes of 
this PRA analysis, the Commission believes that the same estimate of 
two Form MA amendments per year on average--one annual amendment and 
one interim updating amendment--would be appropriate, although the 
Commission recognizes that the actual number of amendments per advisor 
might be higher or lower, depending on how frequently respondents must 
amend Form MA for material changes. The total estimated burden for 
updates to Form MA per year, including compliance with the annual self-
certification requirement, would be 3,000 hours.\329\
---------------------------------------------------------------------------

    \328\ Id.
    \329\ 1,000 (persons required to amend Form MA) x 2.5 (average 
estimated time to amend Form MA and complete self-certification 
annually) x 1.0 (number of annual amendments per year) + 1,000 
(persons required to amend Form MA) x 0.5 (average estimated time to 
prepare an interim updating amendment for Form MA) x 1.0 (number of 
interim updating amendments per year) = 3,000 hours per year.
---------------------------------------------------------------------------

    To estimate the average amount of time necessary to prepare an 
updating amendment for Form MA-I (i.e., a required amendment whenever 
any information previously provided becomes inaccurate), the Commission 
relies on its estimate for the amount of time required to prepare an 
interim updating amendment for Form ADV. As noted above, the Commission 
estimated that an updating amendment for Form ADV would require 0.5 
hours per amendment, because interim amendments typically only amend 
one or two items in Form ADV and thus should not require as much time 
to prepare as an annual amendment.\330\ For the purposes of this PRA 
analysis, the Commission believes that the amount of time to complete 
an updating amendment for Form MA-I would also be 0.5 hours.
---------------------------------------------------------------------------

    \330\ See supra note 327.
---------------------------------------------------------------------------

    The Commission estimates that the time required to complete the 
Form MA-I annual self-certification requirement would be approximately 
five minutes, or 0.1 hours. The Commission believes that, given the 
short time required to read and review the self-certification statement 
and sign the section, this estimate is appropriate.

[[Page 869]]

    To estimate the average number of Form MA-I amendments per 
respondent per year, the Commission relies on FINRA Form U4 
registration data. FINRA estimates that from October 2008 to the 
present, there was an average of 1,088,637 Form U4 amendment filings 
per year, regardless of the information updated. For purposes of 
estimating the paperwork burden, the Commission believes that the 
proportion of Form U4 amendment filings compared to all Form U4 
registrants may be similar to the proportion of Form MA-I amendments 
compared to all Form MA-I respondents. Thus, the Commission estimates 
that the average number of amendments that a Form MA-I respondent would 
submit would be 1.7 per year.\331\ The Commission recognizes, however, 
that because Form U4 is significantly longer than Form MA-I and 
contains sections that are not required for Form MA-I registration, the 
actual number of Form MA-I amendments per applicant may be less than 
1.7 per year.\332\ The total burden for these Form MA-I amendments per 
year would be 18,500 hours.\333\
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    \331\ (1,088,637/637,000) (proportion of Form U4 amendment 
filings to all Form U4 registrants) = 1.7.
    \332\ Information requested in Form U4 that is not requested in 
Form MA-I include fingerprint information, SRO registration 
requests, jurisdictions for broker-dealer agent and/or investment 
adviser representative registration requests, and FINRA examination 
requests.
    \333\ 21,800 (persons required to amend Form MA-I during any 
given year) x 0.5 (average estimated time to prepare any updating 
amendment for Form MA-I) x 1.7 (average number of amendments per 
year) = 18,530 hours per year.
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    The Commission estimates that the annual burden attributable to the 
requirement to certify on Form MA-I would equal approximately 2,200 
hours.\334\ The total burden associated with updates to Form MA-I, 
including compliance with the annual self-certification requirement, 
would be approximately 20,700 hours.\335\
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    \334\ 21,800 (persons required to complete annual self-
certification on Form MA-I) x 0.1 (average estimated time to 
complete self-certification) = 2,180 hours per year.
    \335\ 18,530 + 2,180 = 20,710 hours per year.
---------------------------------------------------------------------------

    The collection of information made pursuant to amendments to Forms 
MA and MA-I would not be confidential and would be made publicly 
available. Some information, such as social security numbers, would be 
kept confidential to the extent permitted by law.
4. Withdrawal From Municipal Advisor Registration
    Pursuant to proposed rule 15Ba1-3, municipal advisors that withdraw 
from municipal advisor registration with the Commission would be 
required to electronically file Form MA-W. The Commission has 
previously estimated that, in the case of Form ADV-W--a similar form to 
Form MA-W--the average time necessary to complete the form is 
approximately 0.5 hours.\336\ Based on this prior estimate, the 
Commission estimates that the average time necessary to complete Form 
MA-W would be approximately 0.5 hours.
---------------------------------------------------------------------------

    \336\ See Form ADV-W (Paper Version), at 1 (under ``OMB 
Approval,'' estimated average burden hours per response is 0.5 
hours).
---------------------------------------------------------------------------

    To estimate the annual number of withdrawals for Form MA 
registrants, the Commission relies on investment adviser registration 
data, which indicates that annually, investment adviser withdrawals 
comprise, on average, approximately 6.4% of the total number of 
registered investment advisers.\337\ The Commission expects the 
proportion of Form MA withdrawals compared to all Form MA registrants 
would be similar. Thus, the average number of withdrawals from Form MA 
registration per year would be 60,\338\ and the total burden would be 
approximately 30 hours.\339\
---------------------------------------------------------------------------

    \337\ As of October 2010, there were 11,888 investment advisers 
registered with the Commission. From 2002 to 2009, there was an 
average of 760 investment adviser withdrawals per year. (760/11,888) 
= 6.4%.
    \338\ 1,000 (all Form MA applicants) x 6.4% = 64 Form MA 
withdrawals per year.
    \339\ 60 (estimated number of persons withdrawing from Form MA 
registration each year) x 0.5 hours (average estimated time to 
complete Form MA-W) = 30 hours per year.
---------------------------------------------------------------------------

    Meanwhile, to estimate the number of Form MA-I withdrawals per 
year, the Commission relies on FINRA Form U4 registration data. FINRA 
estimates that from October 2008 to the present, there was an average 
of 79,722 individuals per year who fully terminated FINRA registration 
and had not returned to the industry. For purposes of establishing the 
paperwork burden, the Commission believes that the proportion of 
individuals who fully terminated FINRA registration compared to all 
Form U4 registrants may be similar to the proportion of Form MA-I 
withdrawals compared to all Form MA-I registrants. Thus, the average 
number of withdrawals from Form MA-I registration per year would be 
2,700,\340\ and the total burden would be 1,350 hours.\341\
---------------------------------------------------------------------------

    \340\ 21,800 (all Form MA-I applicants) x (79,722/637,000) 
(proportion of individuals who fully terminated FINRA registration 
to all Form U4 registrants) = 2,728.
    \341\ 2,700 (estimated number of persons withdrawing from Form 
MA-I registration each year) x 0.5 hours (average estimated time to 
complete Form MA-W) = 1,350 hours per year.
---------------------------------------------------------------------------

    The collection of information made pursuant to Form MA-W would not 
be confidential and would be made publicly available.
5. Non-Resident Municipal Advisors
    As discussed above, proposed rule 15Ba1-5 sets forth the general 
procedures for serving non-resident municipal advisors, non-resident 
general partners and non-resident managing agents. A non-resident 
municipal advisor, or a non-resident general partner or non-resident 
managing agent of a municipal advisor must, among other things, furnish 
to the Commission a written irrevocable consent and power of attorney 
on Form MA-NR to appoint an agent in the United States, other than a 
Commission member, official, or employee, upon whom may be served any 
process, pleadings, or other papers in any action brought against the 
non-resident municipal advisor, non-resident general partner, or non-
resident managing agent.\342\ In addition, proposed rule 15Ba1-5(d) 
would require each non-resident municipal advisory firm to provide an 
opinion of counsel that the non-resident municipal advisory firm can, 
as a matter of law, provide the Commission with access to the advisory 
firm's books and records and that the advisory firm can, as a matter of 
law, submit to onsite inspection and examination by the Commission.
---------------------------------------------------------------------------

    \342\ See supra Section II.A.5, and accompanying text 
(discussing proposed rule 15Ba1-5 and Form MA-NR).
---------------------------------------------------------------------------

    The Commission has previously estimated that, in the case of Form 
ADV-NR--a form with a similar purpose to Form MA-NR--the average time 
necessary to complete the form is approximately one hour.\343\ The 
Commission estimates that, because of the additional time required to 
find and designate an agent, the process to complete Form MA-NR would 
take longer, or approximately 1.5 hours on average. The burden 
associated with this process would primarily involve the designation 
and authorization of a

[[Page 870]]

United States person as agent for service of process.
---------------------------------------------------------------------------

    \343\ See Form ADV-NR (Paper Version), at 1 (under ``OMB 
Approval,'' estimated average burden hours per response is 1 hour). 
The Commission notes that for Form ADV-NR, the non-resident general 
partner or non-resident managing agent must appoint each of the 
Secretary of the Commission, and the Secretary of State, or 
equivalent officer, of the state in which the investment adviser 
maintains its principal office and place of business, if applicable, 
and any other state in which the adviser is applying for 
registration, amending its registration, or submitting a notice 
filing, as agents to receive service. In contrast, Form MA-NR would 
require the respondent to find and designate a United States person 
(and not currently the Secretary of the Commission) to be an agent, 
which the Commission expects would require additional time.
---------------------------------------------------------------------------

    To estimate the average time necessary to provide an opinion of 
counsel, Commission staff relies on its burden estimates for Form 20-F, 
a form submitted by certain foreign private issuers, which has a 
similar opinion of counsel requirement to proposed rule 15Ba1-5(d). The 
Commission estimates that this additional burden would add 
approximately three hours and $900 in outside legal costs per 
respondent.\344\
---------------------------------------------------------------------------

    \344\ See Exchange Act Release No. 49616 (April 26, 2004); 69 FR 
24016 (April 30, 2004). The $900 figure is based on an hourly cost 
estimate of $400 on average for an outside attorney, which is based 
on Commission staff conversations with law firms that regularly 
assist regulated financial firms with compliance matters. Based on 
previous burden estimates, the Commission estimates that outside 
counsel would take, on average, 2.25 hours to assist in preparation 
of the opinion of counsel, for an average cost of $900 per 
respondent.
---------------------------------------------------------------------------

    The Commission notes that proposed Form MA-NR would have one 
additional type of respondent (i.e., non-resident municipal advisory 
firms) compared to the types of respondents that must file Form ADV-NR. 
Thus, to estimate the total number of Form MA-NR respondents, 
Commission staff has combined two different estimates--one for the 
number of non-resident general partners or non-resident managing 
agents, and another for the number of non-resident municipal advisory 
firms. To estimate the number of non-resident general partners or non-
resident managing agents that would have to file Form MA-NR, the 
Commission relies on investment adviser registration data, which 
indicates that the percentage of Form MA-NR filings to total number of 
investment adviser applicants is 1.64%.\345\ The Commission expects the 
proportion of non-resident general partners or non-resident managing 
agents compared to all Form MA applicants would be similar. Based on 
this estimate, the Commission anticipates that there would be 16 non-
resident general partner or non-resident managing agent applicants on 
Form MA-NR.\346\
---------------------------------------------------------------------------

    \345\ The Commission's Division of Investment Management 
indicates that 195 Form ADV-NRs have been filed since January 1, 
2003. The proportion of filed forms to the total number of 
investment adviser registrants is 195/11,888 = 1.64%.
    \346\ 1,000 (all Form MA applicants) x 1.64% = 16 Form MA-NR 
filers that are non-resident general partners or non-resident 
managing agents.
---------------------------------------------------------------------------

    To estimate the number of non-resident municipal advisory firms 
that would have to file Form MA-NR, the Commission relies on Form MA-T 
registrant data, which indicate that as of October 2010, two of 800 
Form MA-T registrants had non-U.S.-based addresses. The Commission 
expects that the proportion of non-resident municipal advisory firms 
compared to all Form MA applicants would be similar. Based on this 
estimate, the Commission anticipates that three respondents would be 
non-resident municipal advisory firms that would be required to 
complete Form MA-NR.\347\ Thus, the total number of Form MA-NR filers 
would be approximately 20, and the total initial burden for completion 
of Form MA-NR would be 30 hours.\348\
---------------------------------------------------------------------------

    \347\ 1,000 (all Form MA applicants) x (2/800) (proportion of 
non-U.S.-based Form MA-T registrants compared to all Form MA-T 
registrants) = 2.5 Form MA-NR filers that are non-resident municipal 
advisors.
    \348\ 20 (persons expected to file Form MA-NR for the first 
time) x 1.5 hours (average estimated time to complete Form MA-NR) = 
30 hours.
---------------------------------------------------------------------------

    The three non-resident municipal advisory firms that would be 
required to complete Form MA-NR would be the respondents required to 
provide an opinion of counsel. The total initial burden for providing 
an opinion of counsel would be approximately 9 hours.\349\ Thus, the 
total initial burden for non-resident municipal advisors to complete 
Form MA-NR and provide an opinion of counsel would be 39 hours. The 
Commission estimates that the total initial cost for all non-resident 
municipal advisory firms to hire outside counsel as part of providing 
an opinion of counsel would be approximately $2,700.\350\
---------------------------------------------------------------------------

    \349\ 3 (non-resident municipal advisory firms expected to 
provide opinion of counsel) x 3.0 hours (average estimated time to 
provide an opinion of counsel) = 9 hours.
    \350\ 3 (non-resident municipal advisory firms expected to 
provide opinion of counsel) x $900 (average estimated cost to hire 
outside counsel for providing an opinion of counsel) = $2,700.
---------------------------------------------------------------------------

    The Commission notes that filers may have potential one-time 
burdens associated with Form MA-NR. For example, filers may need to 
locate information required by Form MA-NR, or they may need to 
familiarize themselves with the proposed rules and the form. For 
purposes of this analysis, these potential one-time burdens are 
included in the estimates noted above.
    To estimate the ongoing annual number of new Form MA-NR filers that 
are non-resident general partners or non-resident managing agents, the 
Commission relies on investment adviser registration data, which 
indicate that yearly filings of Form ADV-NR comprise, on average, 
approximately 0.09% of the total number of registered investment 
advisers.\351\ The Commission expects the proportion of Form MA-NR 
filers that are non-resident general partners or non-resident managing 
agents compared to all Form MA applicants would be similar. Based on 
the above estimate, the Commission anticipates that only one municipal 
advisor respondent per year would have a non-resident general partner 
or non-resident managing agent that would be required to complete Form 
MA-NR.\352\ This estimate includes the ongoing annual number of new 
Form MA-NR filers that are non-resident municipal advisors, because the 
small initial number of non-resident municipal advisors suggests that, 
at most, there would be only one new non-resident municipal advisor 
every several years. Thus, the total burden per year for completion of 
Form MA-NR would be approximately two hours.\353\ For the purposes of 
this analysis, the Commission assumes that the one new non-resident 
municipal advisor per year would not be a natural person, and would 
thus be required to provide opinion of counsel. The total burden per 
year for providing opinion of counsel would be approximately three 
hours.\354\ The Commission estimates that the ongoing annual cost for 
non-resident municipal advisors to hire outside counsel as part of 
providing opinion of counsel would be approximately $900.\355\
---------------------------------------------------------------------------

    \351\ As of October 2010, there were 11,888 investment advisers 
registered with the Commission. For the years 2003-2004 and 2007-
2010, there was an average of 11 new Form ADV-NR filings per year. 
(11/11,888) = 0.09%.
    \352\ 1,000 (all Form MA applicants) x 0.09% = 0.9 Form MA-NR 
filers per year; this number was rounded up to 1.
    \353\ 1 (persons expected to file Form MA-NR each year) x 1.5 
(average estimated time to complete Form MA-NR) = 1.5 hours per 
year.
    \354\ 1 (municipal advisory firms expected to provide an opinion 
of counsel) x 3.0 (average estimated time to provide opinion of 
counsel) = 3.0 hours per year.
    \355\ 1 (persons expected to file Form MA-NR each year) x $900 
(average estimated cost to hire outside counsel for providing 
opinion of counsel) = $900.
---------------------------------------------------------------------------

    The Commission notes that filers may have potential recurring 
burdens associated with Form MA-NR, such as monitoring and maintaining 
the information required by the form. For the purposes of this 
analysis, these potential recurring burdens are included in the 
estimates noted above.
    Proposed rule 15Ba1-5 also would require that non-resident 
municipal advisors, general partners and managing agents update the 
information on Form MA-NR if it becomes inaccurate. Commission staff 
believes that the burdens associated with these updates are accounted 
for in the above estimates because, given the small number of Form MA-
NR filers, the burden for Form MA-NR updates would likely be 
negligible.

[[Page 871]]

    The collection of information made pursuant to Form MA-NR would not 
be confidential and would be made publicly available.
6. Outside Counsel
    The Commission believes that some municipal advisory firms would 
seek outside counsel to help them comply with the requirements of the 
proposed rules, and complete Form MA.\356\ The Commission believes that 
it is unlikely that natural person municipal advisors would obtain and 
consult counsel for purposes of completing Form MA-I. For PRA purposes, 
the Commission assumes that all 1,000 municipal advisory firms 
registering on Form MA would, on average, consult outside counsel for 
one hour to help them comply with the requirements. The Commission 
believes that the estimate of the number of municipal advisory firms 
that would consult outside counsel is likely to be lower than 1,000 
because some municipal advisory firms, especially those that are sole 
proprietors, would choose not to seek outside counsel. The Commission 
also recognizes that some municipal advisory firms would hire outside 
counsel for more than one hour and others may hire outside counsel for 
less than one hour. On balance, the Commission believes that its 
estimate that, on average, each municipal advisory firm would hire 
outside counsel for one hour is appropriate. The Commission estimates 
that the total cost for all municipal advisory firms to hire outside 
counsel to review their compliance with the requirements of the 
proposed rules and forms would be approximately $400,000.\357\
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    \356\ The collection of information relating to outside counsel 
will be included as part of the collection of information ``Form MA: 
Application for Municipal Advisor Registration.''
    \357\ 1,000 (estimated number of municipal advisory firms that 
would hire outside counsel) x 1 hour (average estimated time spent 
by outside counsel to help municipal advisory firms comply with the 
rule) x $400 (hourly rate for an attorney, outside counsel) = 
$400,000. The hourly cost estimate of $400 on average for an 
attorney is based on Commission staff conversations with law firms 
that regularly assist regulated financial firms with compliance 
matters.
---------------------------------------------------------------------------

7. Maintenance of Books and Records
    As described in detail above, all municipal advisory firms would be 
required to maintain books and records relating to their municipal 
advisory activities.\358\ These proposed books and records requirements 
are based generally on Exchange Act rules 17a-3 and 17a-4, and 
Investment Advisers Act rule 204-2, which set forth books and records 
requirements with respect to broker-dealers and investment advisers, 
respectively.\359\ In addition, proposed rule 15Ba1-7 would require all 
municipal advisory firms to keep a record of the initial and annual 
review, as applicable, conducted by the municipal advisory firm of such 
municipal advisory firm's business in connection with its self-
certification on Form MA.\360\
---------------------------------------------------------------------------

    \358\ See supra Section II.C. (discussing the books and records 
requirements under proposed rule 15Ba1-7).
    \359\ See 17 CFR 240.17a-3 and 17a-4, and 17 CFR 275.204-2.
    \360\ See supra Section II.C. (discussing the books and records 
requirements under proposed rule 15Ba1-7).
---------------------------------------------------------------------------

    To estimate the annual books and records burden for municipal 
advisory firms, the Commission examined the current annual burdens and 
number of respondents to rules 17a-3 and 17a-4 of the Exchange Act 
(``Rule 17a-3; Records to be Made by Certain Exchange Members, Brokers 
and Dealers'' and ``Rule 17a-4; Records to be Preserved by Certain 
Exchange Members, Brokers and Dealers''),\361\ and rule 204-2 of the 
Investment Advisers Act (``Books and Records To Be Maintained by 
Investment Advisers'').\362\ The most recently approved annual 
aggregate burden for broker-dealer compliance with rule 17a-3 is 
currently 2,835 hours based on an estimate of 105 respondents, or 27 
hours per respondent,\363\ while the most recently approved annual 
aggregate burden for broker-dealer compliance with rule 17a-4 is 
currently 1,752,600 hours based on an estimate of 6,900 respondents, or 
254 hours per respondent.\364\ The most recently approved annual 
aggregate burden for rule 204-2 is currently 2,106,046 hours based on 
an estimate of 11,607 registered advisers, or 181 hours per registered 
adviser.\365\
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    \361\ See Collections of Information for Rules 17a-3 and 17a-4 
(OMB Control Nos. 3235-0508 and 3235-0279), Office of Information 
and Regulatory Affairs, Office of Management and Budget, available 
at http://www.reginfo.gov/public/do/PRAMain.
    \362\ See Collection of Information for Rule 204-2 of the 
Investment Advisers Act (OMB Control No. 3235-0278), Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
available at http://www.reginfo.gov/public/do/PRAMain.
    \363\ 2,835 hours/105 respondents = 27 hours per respondent.
    \364\ 1,752,600 hours/6,900 respondents = 254 per respondent.
    \365\ 2,106,046 hours/11,607 registered advisers = 181 hours per 
adviser.
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    The Commission anticipates that, given the relatively smaller size 
of municipal advisory firms compared to investment adviser and broker-
dealer firms and the fewer books and records requirements imposed by 
proposed rule 15Ba1-7 than by rules 17a-3 or 17a-4, or by rule 204-2, 
the hourly burden per registered municipal advisory firm would likely 
be lower than the hourly burden estimates per broker-dealer and per 
investment adviser. For the purposes of this analysis, the Commission 
estimates that the annual books and records burden on average for a 
municipal advisory firm to comply with the proposed books and records 
requirements would be similar to that of an investment adviser, or 181 
hours. The Commission staff recognizes that the proposed books and 
records requirements would likely impose initial burdens on respondents 
in connection with necessary updates to their record-keeping systems, 
such as systems development or modifications. For the purposes of this 
analysis, these initial burdens are included in the estimate of 181 
burden hours per respondent per year. Thus, the total compliance burden 
is about 181,000 hours per year.\366\
---------------------------------------------------------------------------

    \366\ 1,000 (estimated number municipal advisors) x 181 hours 
(estimated time spent by municipal advisors to ensure annual 
compliance with the books and records requirement) = 181,000 hours.
---------------------------------------------------------------------------

    Based on discussions with industry participants and the 
Commission's prior experience with broker-dealers and investment 
advisers, the Commission believes that the ongoing books and records 
obligations under the proposed rule would be handled internally because 
compliance with these obligations is consistent with the type of work 
that a market participant would typically handle internally. The 
Commission does not believe that a municipal advisory firm would have 
any recurring external costs associated with books and records 
obligations.
    The Commission staff would use the collection of information for 
maintenance of books and records in its examinations and oversight 
program, and the information would be generally kept confidential to 
the extent permitted by law.
8. Total Burden
    Under the proposed rules and forms, the total initial one-time 
burden for all respondents would be approximately 71,939 hours,\367\ 
while the total ongoing annual burden for all respondents would be 
approximately 212,135 hours.\368\ The total initial outside cost

[[Page 872]]

for all respondents would be $402,700,\369\ while the total ongoing 
outside cost for all respondents would be $900 per year.\370\
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    \367\ 6,500 hours (initial burden for Form MA applicants) + 
65,400 hours (initial burden for Form MA-I applicants) + 39 hours 
(initial burden for Form MA-NR filers) = 71,939 hours.
    \368\ 650 hours (annual burden for new Form MA applicants) + 
5,400 hours (annual burden for new Form MA-I applicants) + 3,000 
hours (annual burden for Form MA amendments) + 20,700 hours (annual 
burden for Form MA-I amendments) + 30 hours (annual burden for Form 
MA withdrawal) + 1,350 hours (annual burden for Form MA-I 
withdrawal) + 5 hours (annual burden for Form MA-NR filers) + 
181,000 hours (annual burden for books and records requirement) = 
212,135 hours.
    \369\ $2,700 (estimated initial cost to hire outside counsel for 
providing opinion of counsel) + $400,000 (initial cost for review by 
outside counsel) = $402,700.
    \370\ $900 = estimated ongoing cost to hire outside counsel for 
providing opinion of counsel.
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    The Commission seeks comment on the reporting and record-keeping 
collection of information burdens associated with the proposed rules 
and forms. In particular:
    <bullet> How many municipal advisors would incur collection of 
information burdens if the proposed rules and forms were adopted by the 
Commission?
    <bullet> Would there be additional or alternative burdens 
associated with the collection of information under the proposed rules 
and forms?
    <bullet> How much work would it take for municipal advisory firms 
with existing books and records to comply with the books and records 
requirements of the proposed rules?
    <bullet> Would municipal advisory firms generally perform the work 
internally or outsource the work?

E. Collections of Information Are Mandatory

    The collections of information would be mandatory.

F. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comment to:
    <bullet> Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information would have practical 
utility;
    <bullet> Evaluate the accuracy of the Commission's estimate of the 
burden of the proposed collections of information;
    <bullet> Enhance the quality, utility, and clarity of the 
information to be collected; and
    <bullet> Minimize the burden of collections of information on those 
who are to respond, including through the use of automated collection 
techniques or other forms of information technology.
    Persons wishing to submit comments on the collection of information 
requirements should direct them to the Office of Management and Budget, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Room 10102, New Executive 
Office Building, Washington, DC 20503; and should send a copy to 
Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 
F Street, NE., Washington, DC 20549-1090 with reference to File No. S7-
45-10. OMB is required to make a decision concerning the collection of 
information between 30 and 60 days after publication, so a comment to 
OMB is best assured of having its full effect if OMB receives it within 
30 days of publication of this release. Requests for the materials 
submitted to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-45-10, and be 
submitted to the Securities and Exchange Commission, Office of Investor 
Education and Advocacy, 100 F Street, NE., Washington, DC 20549-0213.

V. Economic Analysis

    As discussed above, the Dodd-Frank Act added provisions to the 
Exchange Act that, among other things, require municipal advisors to 
register with the Commission and authorize the Commission to impose 
certain record-keeping requirements on municipal advisors.\371\ In 
enacting Section 975 of the Dodd-Frank Act, Congress established a 
mandatory registration regime for municipal advisors but left the form 
and content of such registration within the discretion of the 
Commission.\372\ In determining the form and content of such 
registration, the Commission may require ``such information and 
documents'' as it considers ``necessary or appropriate in the public 
interest or for the protection of investors.'' \373\ Congress also 
granted the Commission exemptive authority to exclude certain persons 
from the definition of municipal advisor.\374\
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    \371\ See 15 U.S.C. 78o-4.
    \372\ See 15 U.S.C. 78o-4(a)(2).
    \373\ See id.
    \374\ See 15 U.S.C. 78o-4(a)(4).
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    The Commission is proposing new rules and forms that, if adopted, 
would provide for a permanent registration regime for municipal 
advisors. The proposed rules and forms would include the submission of 
Form MA by municipal advisory firms (including sole proprietors) 
seeking registration, the submission of Form MA-I by natural person 
municipal advisors (including sole proprietors) seeking registration, 
the completion of a self-certification as to the municipal advisors' 
qualifications and ability to comply with applicable regulatory 
obligations, and the submission of Form MA-W by municipal advisors 
seeking to withdraw from registration. The Commission is also proposing 
rule 15Ba1-5, which would require certain non-resident persons to 
submit Form MA-NR in certain circumstances, relating to consent to 
service of process, and would require non-resident municipal advisory 
firms to provide an opinion of counsel that the non-resident municipal 
advisory firms can provide the Commission with access to their books 
and records and submit to onsite inspection and examination by the 
Commission. In addition, proposed rule 15Ba1-7 would require certain 
books and records to be maintained by municipal advisory firms in 
connection with their municipal advisory activities.\375\
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    \375\ See supra Section II.C (discussing the books and records 
requirements under proposed rule 15Ba1-7).
---------------------------------------------------------------------------

    The Commission is sensitive to the costs and benefits imposed by 
its rules. The discussion below focuses on the costs and benefits of 
the decisions made by the Commission to fulfill the mandates of the 
Dodd-Frank Act within its permitted discretion, rather than the costs 
and benefits of the mandates of the Dodd-Frank Act itself. However, to 
the extent that the Commission's discretion is exercised to realize the 
benefits intended by the Dodd-Frank Act or to impose the costs 
associated with the Dodd-Frank Act, the two types of benefits and costs 
are not entirely separable. Accordingly, the PRA hourly burden 
estimates made in accordance with the requirements of the PRA, and 
their corresponding dollar cost estimates, are included in full below, 
although a portion of the cost to register is attributable to the 
requirements of the Dodd-Frank Act and not to the specific rules 
proposed by the Commission.
    Section 3(f) of the Exchange Act requires the Commission, whenever 
it engages in rulemaking and is required to consider or determine 
whether an action is necessary or appropriate in the public interest, 
to consider, in addition to the protection of investors, whether the 
action would promote efficiency, competition and capital 
formation.\376\ In addition, Section 23(a)(2) of the Exchange Act 
requires the Commission, when making rules under the Exchange Act, to 
consider the impact such rules would have on competition.\377\ Exchange 
Act Section 23(a)(2) prohibits the Commission from adopting any rule 
that would impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act.\378\ The 
Commission's consideration of these matters is set forth below. In

[[Page 873]]

considering these matters, the Commission is mindful of the industry 
background described above in Sections I.A.1.a and I.A.1.b. The 
Commission requests comment on those Sections I.A.1.a and I.A.1.b in 
connection with comments requested below.
---------------------------------------------------------------------------

    \376\ See 15 U.S.C. 78c(f).
    \377\ See 15 U.S.C. 78w(a)(2).
    \378\ See id.
---------------------------------------------------------------------------

A. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor'' and 
Related Terms

    Proposed rule 15Ba1-1(d) would clarify that the exclusion from the 
definition of ``municipal advisor'' for a broker, dealer or municipal 
securities dealer serving as an underwriter shall not apply when such 
persons are acting in a capacity other than as underwriters on behalf 
of a municipal entity or obligated person.\379\ The proposed rule also 
would clarify that the exclusion from the definition of ``municipal 
advisor'' for a Commission-registered investment adviser and its 
associated persons applies only to advice that ``would subject such 
adviser or person associated with such adviser to the Investment 
Advisers Act of 1940.'' \380\ The proposed rule also would interpret 
the exclusion from the definition of ``municipal advisor'' for any 
registered commodity trading advisors and their associated persons to 
apply only to such persons when they are providing advice related to 
swaps on behalf of a municipal entity or obligated person.\381\ In 
addition, the proposed rule provides that the definition of ``municipal 
advisor'' shall not include attorneys offering legal advice or 
providing services that are of a traditional legal nature,\382\ or 
engineers providing engineering advice.\383\
---------------------------------------------------------------------------

    \379\ See proposed rule 15Ba1-1(d)(2)(i). See also supra notes 
105-106, and accompanying text.
    \380\ See proposed rule 15Ba1-1(d)(2)(ii). See also supra notes 
114-117, and accompanying text.
    \381\ See proposed rule 15Ba1-1(d)(2)(iii). See also supra notes 
121-122, and accompanying text.
    \382\ See proposed rule 15Ba1-1(d)(2)(iv). See also supra note 
132, and accompanying text.
    \383\ See proposed rule 15Ba1-1(d)(2)(v). See also supra note 
133-138, and accompanying text.
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    As discussed above, the Commission is proposing to exclude from the 
definition of ``municipal advisor'' accountants preparing financial 
statements, auditing financial statements, or issuing letters for 
underwriters for, or on behalf of, a municipal entity or obligated 
person.\384\ The Commission is also proposing to exclude ``providers of 
municipal bond insurance, letters of credit, or other liquidity 
facilities'' from the definition of ``obligated persons.'' \385\ 
Excluding such persons from the definition of ``obligated persons'' 
would, among other things, help reduce market confusion because the 
exclusion would further uniformity among rules relating to the 
definition of ``obligated person'' in the municipal securities 
market.\386\
---------------------------------------------------------------------------

    \384\ See proposed rule 15Ba1-1(d)(2)(vi). See also supra note 
124-131, and accompanying text.
    \385\ See proposed rule 15Ba1-1(i). See also supra note 90, and 
accompanying text.
    \386\ See supra note 88, and accompanying text.
---------------------------------------------------------------------------

    These proposed interpretations and exclusions would mean that 
certain persons who are currently regulated (such as broker-dealers 
serving as underwriters or investment advisers providing advice which 
would subject them to the Investment Advisers Act) or that are governed 
by other professional codes of conduct (such as attorneys providing 
traditional legal services) would not be required to register as 
municipal advisors.
    The Dodd-Frank Act includes distinct groups of professionals within 
its definition of ``municipal advisor'' that offer different services 
and compete in distinct markets. The three principal types of municipal 
advisors are: (1) Financial advisors, including, but not limited to, 
broker-dealers already registered with the Commission, that provide 
advice to municipal entities with respect to their issuance of 
municipal securities and their use of municipal financial products 
(``financial advisors'' or ``municipal financial advisors''); (2) 
investment advisers that advise municipal pension funds and other 
municipal entities on the investment of funds held by or on behalf of 
municipal entities (subject to certain exclusions from the definition 
of a ``municipal advisor'') (``municipal investment advisers''); and 
(3) third-party marketers and solicitors (``solicitors''). As discussed 
above in Sections I.A.1.a and I.A.1.b, these different types of 
municipal advisors operate in different markets. These markets have 
distinct competitive structures. Within each of these markets, 
different participants are subject to different regulatory regimes. For 
purposes of this Economic Analysis, the Commission uses the above-
defined terms to describe these distinct types of professionals 
separately, while using the term ``municipal advisors'' to describe all 
municipal advisors generally.
    The Commission believes that the proposed interpretations and 
exemptions contained in proposed rule 15Ba1-1(d) would not impose a 
burden on competition and would have minimal, if any, impact on the 
promotion of efficiency and capital formation except to the extent that 
they reduce market confusion with respect to which persons would be 
required to register as municipal advisors under the proposed permanent 
registration regime. Finally, the Commission believes that the direct 
costs for respondents to read and apply the definitions in proposed 
rule 15Ba1-1(d) would be minimal.

B. Registration System

    The Commission is proposing rules to create a permanent 
registration regime that would consist of the following forms: Form MA, 
Form MA-I, and Form MA-W. Municipal advisors would complete these forms 
to register with the Commission, to amend information previously 
reported to the Commission, to report the succession of registration of 
a municipal advisor, and to withdraw from registration. Under proposed 
rule 15Ba1-4, amendments to Form MA must be filed annually and in the 
event of certain material changes to the information previously 
provided, and to Form MA-I whenever the information previously provided 
becomes inaccurate. Municipal advisors would also be required to 
provide, on both an initial and annual basis, a self-certification as 
to their qualifications as municipal advisors and ability to comply 
with applicable regulatory obligations.
1. Benefits
    The proposed permanent registration regime is designed to allow the 
Commission and other regulators to oversee the conduct of municipal 
financial advisors, municipal investment advisers, and solicitors in 
the municipal securities market, as contemplated by the Dodd-Frank Act. 
Forms MA and MA-I have been designed to provide information that the 
Commission believes would be helpful for municipal entities to have in 
a standard format, because it would lower the costs of information 
gathering for municipal entities \387\ in comparing municipal advisors. 
The Commission believes that a municipal advisor's knowledge of the 
Commission's authority to examine the municipal advisor and its 
authority to sanction the municipal advisor for false and misleading 
statements is likely to result in increased reliability of the 
information submitted by municipal advisors under the proposed 
permanent registration regime.
---------------------------------------------------------------------------

    \387\ For the purposes of this Economic Analysis, references to 
municipal entities include obligated persons where the context 
requires.
---------------------------------------------------------------------------

    The proposed forms would require municipal advisors to provide 
information about their disciplinary histories and potential conflicts 
of interest (and information that may be useful in assessing potential 
conflicts of

[[Page 874]]

interest).\388\ Municipal entities and obligated persons would have 
ready access to this information and thus would be in a position to 
become more fully informed about more municipal financial advisor 
candidates at lower cost when choosing those who would provide advice 
to them. Research has shown that most municipal entities do not utilize 
a formalized selection process when they choose their municipal 
financial advisors \389\ and, therefore, might not have disciplinary 
information about the advisors they hire. To the extent that municipal 
entities or obligated persons consider such information important in 
the selection of municipal advisors, the proposed permanent 
registration regime may reduce municipal entities' or obligated 
persons' reliance on municipal advisors that have been the subject of 
disciplinary actions, or whose activities or affiliations create or 
have the potential to create conflicts of interest. In addition, 
municipal advisors, knowing that conflicts of interest must be 
disclosed, may be more likely to avoid associations that could be 
perceived as creating conflicts of interest, or would more likely avoid 
recommending financial intermediaries or investments for which 
conflicts of interest might be present.
---------------------------------------------------------------------------

    \388\ See supra Sections II.A.2.c and II.A.2.d.
    \389\ According to Mark D. Robbins and Bill Simonsen, 2003, 
Financial Advisor Independence and the Choice of Municipal Bond Sale 
Type, Municipal Finance Journal 24: 42 (``Robbins and Simonsen''), 
an RFP had been used only 22.6% of the time by governments in 
selecting the financial advisor for their last bond sale. See also 
Allen & Dudney, supra note 11.
---------------------------------------------------------------------------

    While much of this information is already publicly available with 
respect to municipal financial advisors that are already registered 
with the Commission as broker-dealers, disclosure of potential 
conflicts of interest specific to their municipal financial advisory 
role could be valuable to potential municipal clients. Many municipal 
financial advisors that are not registered as broker-dealers would make 
this sort of information publicly available for the first time.
    Similar benefits would be expected to accrue from the public 
disclosure of the disciplinary history and potential conflicts of 
interest of municipal investment advisers not registered with the 
Commission. Congress determined that investment advisers to municipal 
entities that are already registered with the Commission as investment 
advisers would not be required to register again as municipal advisors, 
to the extent the advice provided would subject the investment adviser 
to the Investment Advisers Act. Many, if not most, of the investment 
advisers that would be required to register as municipal advisors may 
be registered as investment advisers under state laws, and any 
incremental benefit in requiring disciplinary and conflict disclosure 
would vary from state to state, depending on how that disciplinary and 
conflict disclosure is required by or applied to different state legal 
regimes. Nevertheless, the availability of important information in a 
uniform, standardized format may prove beneficial by reducing the cost 
of collecting information and comparing it across municipal investment 
advisers.\390\
---------------------------------------------------------------------------

    \390\ Unless registered with the Commission as municipal 
advisors, state-registered investment advisers that advise municipal 
entities would not be subject to ``pay-to-play'' rules, as 
contemplated in the Commission's recent releases. See Political 
Contributions Final Rule, supra note 31 and IA-3110, supra note 104 
(proposing rules implementing amendments to the Investment Advisers 
Act, and, among other things, modifying the Commission's ``pay-to-
play'' rule).
---------------------------------------------------------------------------

    Solicitors are a group of municipal advisors about whom relatively 
little is known, and the benefits of registering this group may prove 
to be substantial, to the extent that disciplinary records and 
conflicts of interest are revealed.\391\
---------------------------------------------------------------------------

    \391\ The Commission's recent proposed amendments to the ``pay-
to-play'' rules for investment advisers contemplate that, if 
adopted, certain solicitors for municipal investment advisers would 
be registered as municipal advisors and potentially subject to 
``pay-to-play'' rules. See IA-3110, supra note 104, at 69-70. Other 
solicitors for municipal investment advisers may voluntarily 
register as municipal advisors in order to continue in the business 
of soliciting on behalf of municipal investment advisers. See supra 
Section II.A.2.a.
---------------------------------------------------------------------------

    Public disclosure of the disciplinary history of municipal 
advisors, and their associated persons, would make this information 
available not only to regulators, but also to all interested 
persons.\392\ This disclosure would benefit municipal entities and the 
general public. Even if the municipal entity does not otherwise seek to 
obtain this disciplinary information as part of its selection process, 
the information would be available to interested persons (e.g., the 
press and concerned citizens) who might directly or indirectly 
influence the selection of the municipal advisor.
---------------------------------------------------------------------------

    \392\ See supra Sections II.A.2.c and II.A.2.d.
---------------------------------------------------------------------------

    In addition, such public disclosure may deter municipal advisors 
that have disclosable disciplinary events from entering the market. 
Thus, this proposed requirement (as well as the ability to regulate 
municipal advisors going forward) could help discourage entities with 
disclosable disciplinary histories from entering the pool of potential 
municipal advisors and reduce the potential for corruption in the 
municipal market.
    To the extent that municipal entities or obligated persons have 
been deterred from engaging a municipal advisor because they were not 
familiar with the municipal advisor population and were unsure whether 
they could identify a trustworthy advisor (including fear of hiring 
someone tainted with conflicts or violations too expensive to uncover), 
the proposed permanent registration regime might increase the use of 
municipal advisors generally. As such, there could be an increased 
likelihood of using a municipal advisor when a municipal entity or 
obligated person makes issuance or investment decisions.
    With respect to the issuance of municipal securities, this 
increased likelihood of using a municipal financial advisor could in 
turn reduce issuance costs and may produce savings. One empirical study 
suggests that the use of municipal financial advisors is associated 
with better borrowing terms, lower reoffering yields and narrower 
underwriter gross spreads,\393\ particularly where the advisors are of 
a higher quality.\394\ The small average size of publicly offered 
municipal issues, as compared, for example, to publicly offered 
corporate issues,\395\ makes municipal securities issuers particularly 
sensitive to issuance costs. This sensitivity may create a demand for 
advisors that can successfully negotiate to lower these costs. 
Municipal financial advisors that provide advice with respect to the 
issuance of municipal securities and are continually active in the 
municipal securities market may help to reduce the information 
asymmetry gap between municipal entities and underwriters, swap 
dealers, bond insurers, letter of credit providers and other financial 
intermediaries.\396\ Thus, municipal issuers and obligated persons 
should benefit from having municipal financial advisors compete in a 
more informationally efficient market that may result from the proposed 
permanent registration regime. In addition, reducing the cost of 
identifying a high-quality municipal financial advisor may be expected 
to

[[Page 875]]

increase the use of such advisors, who may be in a position to obtain 
better financing terms for their municipal entity clients and, 
indirectly, for taxpayers, than those that could be negotiated by 
lesser-quality municipal financial advisors. Higher-quality municipal 
financial advisors have been shown to be associated with more efficient 
capital formation (i.e., lower interest costs).\397\
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    \393\ See generally Vijayakumar and Daniels, supra note 7.
    \394\ See generally Allen & Dudney, supra note 11.
    \395\ See Testimony of Christopher M. Ryon, Principal and Senior 
Municipal Bond Portfolio Manager, the Vanguard Group, before the 
Senate Committee on Banking, Housing, and Urban Affairs, June 17, 
2004, at 4, available at http://banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=2474c4c6-d0ed-4a44-a9c8-6376484a4cde.
    \396\ See generally Vijayakumar and Daniels, supra note 7.
    \397\ See generally Allen & Dudney, supra note 11, at 412.
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    With the readily available information on municipal advisor 
disciplinary histories and conflicts of interest, municipal entities 
would be able to more easily set objective criteria for the municipal 
advisors hired by decision-making officials. The ease of setting such 
criteria and verifying compliance with such criteria might reduce the 
likelihood that municipal advisors are hired because of their political 
or personal connections to decision-making officials, rather than 
because of their qualifications.
    The collection of this information pursuant to the proposed 
permanent registration regime, and the fact that, if adopted, the 
information would be available directly to regulators, would also 
facilitate enforcement against municipal advisors by allowing the 
available information to be used for identifying trends and risky firms 
and natural persons, among other uses. If such information were 
requested directly from applicants as contemplated in the proposed 
permanent registration regime, regulators would not have to rely on 
other sources to obtain this disciplinary history information.
    The combined effect of increasing the likelihood of using municipal 
advisors and improving the average quality of the municipal advisor 
selection pool (as described above) may improve allocative efficiency, 
since municipal entities may benefit from better advice in their 
consideration of issuance or investment alternatives. Such improvements 
in allocative efficiency may also promote more efficient capital 
formation. In addition, the improvement in disclosure about, and 
average quality of, municipal advisors, and the more frequent use of 
municipal advisors by municipal entities or obligated persons, may also 
increase competition among municipal advisors of all types--municipal 
financial advisors, municipal investment advisers, and solicitors. As 
noted above, however, the benefits in the case of municipal investment 
advisers would be limited, to the extent that the same or similar 
information is publicly available under an applicable state law regime.
2. Costs
    The establishment of a permanent registration regime would impose 
costs on persons registering as municipal advisors on Form MA and/or 
Form MA-I. In particular, the Commission anticipates the following one-
time costs for the proposed rules:
    <bullet> The Commission believes that the total initial labor cost 
for all municipal advisory firms to complete Form MA would be 
approximately $1,105,000,\398\ while the total initial labor cost for 
all natural person municipal advisors to complete Form MA-I would be 
approximately $11,118,000.\399\
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    \398\ 6,500 hours (total estimated hourly burden under the 
proposed rules for all municipal advisors to complete a Form MA) x 
$170 (combined hourly rate for a Compliance Manager and Compliance 
Clerk) = $1,105,000. The Commission expects that Form MA completion 
would most likely be performed equally by compliance managers and 
compliance clerks. Dividing the hourly rate evenly between a 
compliance manager of $273 per hour and a compliance clerk of $67 
per hour results in a cost per hour of $170. ($273 x 0.5) + ($67 x 
0.5) = $177. The $273 per hour figure for a Compliance Manager and 
the $67 per hour figure for a Compliance Clerk are from the SIFMA 
publication titled Management & Professional Earnings in the 
Securities Industry 2010, as modified by Commission staff to account 
for an 1,800 hour work year and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits and overhead.
    \399\ 65,400 hours (total estimated hourly burden under the 
proposed rules for all municipal advisors to complete a Form MA-I) x 
$170 (combined hourly rate for a Compliance Manager and Compliance 
Clerk) = $11,118,000. See id. The Commission recognizes that instead 
of using a Compliance Manager or Compliance Clerk, most Form MA-I 
registrants would fill out the form themselves. The Commission 
believes, however, that the average compliance rate used to 
calculate the labor cost for Form MA would be a reasonable proxy for 
the compliance rate used to calculate the labor cost for Form MA-I.
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    <bullet> If adopted, municipal advisors would incur one-time costs 
in familiarizing themselves with the proposed rules and the relevant 
proposed forms. The Commission notes, however, that such a 
familiarization period is an inevitable necessity for any newly-
introduced registration regime. As noted in the PRA section above, the 
paperwork burden of gathering information for the purpose of completing 
Forms MA and MA-I would be reduced because some of the information 
required by Form MA and Form MA-I would have already been gathered for 
Form MA-T. For municipal advisors that are either municipal financial 
advisors or municipal investment advisers, to the extent that the 
disclosures that would be required on Form MA or Form MA-I have been 
disclosed on Form ADV, BD or U4, the employees would be permitted to 
incorporate such information by reference in completing Form MA or Form 
MA-I, further reducing the costs to complete the form. The one-time 
costs for familiarizing themselves with the proposed rules and the 
relevant proposed forms would likely be higher for municipal financial 
advisors or solicitors that are not broker-dealers or investment 
advisers, because they may need to gather information required by Form 
MA and Form MA-I for the first time. For the purposes of this analysis, 
this one-time cost is included in the cost estimates noted above.
    <bullet> If adopted, municipal advisors might incur one-time costs 
in establishing new internal controls such as procedures for obtaining 
the information required by Form MA and Form MA-I, as applicable. The 
Commission believes that these costs would be limited for municipal 
advisors that are financial advisors or investment advisers and are 
currently regulated with respect to their other activities or have 
voluntarily adopted such practices. These costs would be higher for 
municipal financial advisors or solicitors that are not broker-dealers 
or investment advisers, are not otherwise regulated, or have not 
voluntarily adopted such practices.\400\ For the purposes of this 
analysis, this one-time cost is included in the cost estimates noted 
above.
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    \400\ Some unregulated groups that engage in municipal advisory 
activities have formed professional associations that have 
implemented their own voluntary best practices with respect to 
conflicts of interest, educational standards, and other disclosure 
of note to their clients. See, e.g., National Association of 
Independent Public Finance Advisors, http://www.naipfa.com.
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    The Commission also anticipates the following recurring costs for 
compliance with the proposed permanent registration regime, which would 
likely be similar across all municipal advisor types--municipal 
financial advisors, municipal investment advisers, and solicitors:
    <bullet> The Commission believes that the ongoing annual labor cost 
for new municipal advisory firms to complete Form MA would be 
approximately $110,500,\401\ while the ongoing annual labor cost for 
new natural person municipal advisors to complete Form MA-I would be 
approximately $918,000.\402\
---------------------------------------------------------------------------

    \401\ 650 hours (total estimated hourly burden under the 
proposed rules for new municipal advisors to complete a Form MA) x 
$170 (combined hourly rate for a Compliance Manager and Compliance 
Clerk) = $110,500. See supra note 398 for the calculation of the 
combined hourly rate.
    \402\ 5,400 hours (total estimated hourly burden under the 
proposed rules for new municipal advisors to complete a Form MA-I) x 
$170 (combined hourly rate for a Compliance Manager and Compliance 
Clerk) = $918,000. See supra note 399 for the calculation of the 
combined hourly rate.

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[[Page 876]]

    <bullet> The Commission believes that the ongoing annual labor cost 
for all municipal advisory firms to amend Form MA and complete the 
annual self-certification would be approximately $510,000,\403\ while 
the ongoing annual labor cost for all natural person municipal advisors 
to amend Form MA-I and complete the annual self-certification would be 
approximately $3,519,000.\404\
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    \403\ 3,000 hours (total estimated hourly burden under the 
proposed rules for all municipal advisors to amend a Form MA and 
complete annual self-certification) x $170 (combined hourly rate for 
a Compliance Manager and Compliance Clerk) = $510,000. See supra 
note 398 for the calculation of the combined hourly rate.
    \404\ 20,700 hours (total estimated hourly burden under the 
proposed rules for all municipal advisors to amend a Form MA-I and 
complete annual self-certification) x $170 (combined hourly rate for 
a Compliance Manager and Compliance Clerk) = $3,519,000. See supra 
note 399 for the calculation of the combined hourly rate.
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    <bullet> The Commission believes that the ongoing annual labor cost 
for all municipal advisory firms to complete Form MA-W to withdraw from 
Form MA registration would be approximately $5,100,\405\ while the 
ongoing annual labor cost for all natural person municipal advisors to 
complete Form MA-W to withdraw from Form MA-I registration would be 
approximately $229,500.\406\
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    \405\ 30 hours (total estimated hourly burden under the proposed 
rules for all municipal advisors to withdraw from Form MA 
registration) x $170 (combined hourly rate for a Compliance Manager 
and Compliance Clerk) = $5,100. See supra note 398 for the 
calculation of the combined hourly rate.
    \406\ 1,350 hours (total estimated hourly burden under the 
proposed rules for all municipal advisors to withdraw from Form MA-I 
registration) x $170 (combined hourly rate for a Compliance Manager 
and Compliance Clerk) = $229,500. See supra note 399 for the 
calculation of the combined hourly rate.
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    <bullet> If adopted, municipal advisors would incur recurring costs 
for monitoring and/or maintaining the information required by the 
registration forms and providing updates to the registration forms. For 
the purposes of this analysis, this recurring cost is included in the 
cost estimates noted above.
    In addition to the direct, out-of-pocket costs estimated for PRA 
purposes, the Commission considered the economic costs of the proposed 
permanent registration regime. The Commission recognizes that the cost 
of becoming subject to registration for the first time may lead some 
municipal advisors that are not particularly active to leave the 
business, to the extent they presume that the additional costs 
associated with registration would negatively impact potential revenues 
to such a degree that the best economic choice for them would be to 
suspend operating their business or, at least, the municipal advisory 
portion of their business. Moreover, if the proposed permanent 
registration regime is adopted, municipal entities may also incur costs 
from decisions based on the incorrect perception that registration as a 
municipal advisor is a stamp of quality.
    Furthermore, as noted above, the additional costs associated with 
registration may impact those municipal advisors that are not already 
registered as either investment advisers or broker-dealers to a greater 
degree than they would impact municipal advisors that have previously 
registered under another regulatory regime. To the extent that 
municipal advisors that have not previously registered under another 
regime provide greater positive value to their advisees,\407\ their 
disproportionate exit from the market, compared to municipal advisors 
that have previously registered under another regulatory regime, would 
negatively impact the value of advice provided to municipal entities. 
In the case of solicitors for investment advisers to municipal pension 
funds, however, few are currently registered as either broker-dealers 
or investment advisers. The registration requirement under the proposed 
permanent registration regime may cause some of these solicitors to 
exit the market to avoid the cost and scrutiny that would accompany 
registration. To the extent that the solicitors that would exit this 
market would disproportionately include those that provide less value 
to municipal entities, their exit from the market would be a benefit 
that may mitigate these costs.
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    \407\ See, e.g., Robbins and Simonsen, supra note 389, at 55 
(finding that financial advisors that are not broker-dealers are 
more likely to recommend a competitive sale, which generally results 
in lower borrowing costs for the issuer).
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    Because the existing markets for all three municipal advisor 
types--municipal financial advisors, municipal investment advisers, and 
solicitors--appear to be competitive, exits from such markets are not 
expected to lead to market concentration levels at which economic 
inefficiency (monopoly profits for the few surviving municipal 
advisors) would result. Moreover, given the content of the proposed 
forms, those municipal advisors that may exit such markets may include 
disproportionately more municipal advisors with disciplinary records or 
other negative histories.
    The Commission further recognizes that some state-registered 
investment advisers that manage municipal pension investments may have 
the incentive to exit these investments to avoid Federal registration 
under the proposed permanent registration regime. These investment 
advisers may perceive the costs of the required Federal registration, 
in addition to one or more state registrations, to outweigh the 
benefits of managing such municipal pension investments.
    The Commission believes that few of these initial and recurring 
costs, if any, would be passed on to municipal entities or obligated 
persons in the form of higher fees. To the extent that costs are passed 
on, the financial advisor and solicitor markets may be impacted to a 
greater degree than the investment adviser market, which would be more 
likely to keep fees relatively fixed for investment adviser services.
    The Commission has considered the effects on competition, 
efficiency and capital formation of the proposed rule regarding the 
proposed permanent registration regime as a whole, as noted above.

C. Non-Resident Municipal Advisors

    The Commission is proposing rule 15Ba1-5 to set forth the general 
procedures for serving non-residents on Form MA and Form MA-NR. 
Pursuant to the instructions to Form MA-NR, and consistent with 
proposed rule 15Ba1-5, non-resident municipal advisory firms, non-
resident general partners and non-resident managing agents of municipal 
advisors must file Form MA-NR to furnish the Commission with a written 
irrevocable consent and power of attorney to appoint an agent in the 
United States, other than a Commission member, official, or employee, 
upon whom may be served any process, pleadings, or other papers in any 
action brought against the non-resident municipal advisory firm, non-
resident general partner or non-resident managing agent. Proposed rule 
15Ba1-5(e) would also require each non-resident municipal advisory firm 
to provide an opinion of counsel that the non-resident municipal 
advisory firm can, as a matter of law, provide the Commission with 
prompt access to its books and records and can, as a matter of law, 
submit to onsite and inspection and examination by the Commission.
1. Benefits
    The proposed requirement that a non-resident municipal advisor or a 
non-resident general partner or non-resident managing agent of a 
municipal advisor file Form MA-NR in connection with the municipal 
advisor's initial application would help minimize any legal or 
logistical obstacles that the

[[Page 877]]

Commission may encounter when attempting to effect service, to conserve 
Commission resources, and to avoid potential conflicts of law. The 
proposed requirement that a non-resident municipal advisory firm must 
obtain an opinion of counsel that the municipal advisory firm can 
provide access to books and records and can be subject to onsite 
inspection and examination would allow the Commission to better 
evaluate a municipal advisory firm's ability to meet the requirements 
of registration and ongoing supervision. These benefits would be the 
same across all municipal advisor types--municipal financial advisors, 
municipal investment advisers, and solicitors. In addition, the 
requirements to file Form MA-NR and provide an opinion of counsel are 
expected to have minimal, if any, effect on competition, efficiency and 
capital formation.
2. Costs
    The filing of proposed Form MA-NR and the obtaining of an opinion 
of counsel would impose compliance burdens on municipal advisors. In 
particular, the Commission anticipates the following one-time costs:
    <bullet> The Commission believes that the initial labor cost for 
non-resident municipal advisory firms, non-resident general partners or 
non-resident managing agents to complete the Form MA-NR would be 
approximately $5,100.\408\
---------------------------------------------------------------------------

    \408\ 30 hours (estimated initial hourly burden under the 
proposed rules for all respondents to complete a Form MA-NR) x $170 
(combined hourly rate for a Compliance Manager and Compliance Clerk) 
= $5,100. See supra note 398 for the calculation of the combined 
hourly rate.
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    <bullet> The Commission believes that the initial labor cost for 
non-resident municipal advisory firms to obtain an opinion of counsel 
that the municipal advisor can provide access to books and records and 
can be subject to onsite inspection and examination would be 
approximately $3,200.\409\
---------------------------------------------------------------------------

    \409\ 9 hours (estimated initial hourly burden under the 
proposed rules for all respondents to obtain opinion of counsel) x 
$354 (hourly rate for an internal attorney) = $3,186. The $354 per 
hour figure for an Attorney is from the SIFMA publication titled 
Management & Professional Earnings in the Securities Industry 2010, 
as modified by Commission staff to account for an 1,800 hour work 
year and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead.
---------------------------------------------------------------------------

    <bullet> If adopted, non-resident municipal advisory firms and non-
resident general partners and non-resident managing agents of municipal 
advisors may incur one-time costs in establishing new internal controls 
such as procedures for obtaining the information required by Form MA-
NR. For the purposes of this analysis, this one-time cost is included 
in the cost estimate noted above.
    The Commission also anticipates the following recurring costs:
    <bullet> The Commission believes that the ongoing annual labor cost 
for non-resident advisory firms, non-resident general partners or non-
resident managing agents to complete the Form MA-NR would be 
approximately $340.\410\
---------------------------------------------------------------------------

    \410\ 2 hours (estimated ongoing annual hourly burden under the 
proposed rules for respondents to complete a Form MA-NR) x $170 
(combined hourly rate for a Compliance Manager and Compliance Clerk) 
= $340. See supra note 398 for the calculation of the combined 
hourly rate.
---------------------------------------------------------------------------

    <bullet> The Commission believes that the ongoing annual labor cost 
for non-resident municipal advisory firms to obtain opinion of counsel 
that the municipal advisory firm can provide prompt access to books and 
records and can be subject to onsite inspection and examination would 
be approximately $1,100.\411\
---------------------------------------------------------------------------

    \411\ 3 hours (estimated ongoing annual hourly burden under the 
proposed rules for all respondents to obtain opinion of counsel) x 
$354 (hourly rate for an internal attorney) = $1,062. The $354 per 
hour figure for an Attorney is from the SIFMA publication titled 
Management & Professional Earnings in the Securities Industry 2010, 
as modified by Commission staff to account for an 1,800 hour work 
year and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead.
---------------------------------------------------------------------------

    <bullet> If adopted, non-resident municipal advisory firms or non-
resident general partners and non-resident managing agents of municipal 
advisors would incur recurring costs for monitoring and maintaining the 
information required by Form MA-NR. This cost would likely be similar 
across all municipal advisor types--municipal financial advisors, 
municipal investment advisers, and solicitors. For the purposes of this 
analysis, this recurring cost is included in the cost estimate noted 
above.

D. Record-Keeping

    Proposed rule 15Ba1-7 sets forth requirements relating to the 
maintenance and retention of certain records relating to the business 
of municipal advisors and the forms required for the proposed permanent 
registration regime. The proposed rule would require, among other 
things, that municipal advisory firms maintain and preserve all books 
and records required to be made under the proposed rule for a period of 
not less than five years, the first two years in an easily accessible 
place.\412\ Record-keeping requirements are a familiar and important 
element of the Commission's approach to investment adviser and broker-
dealer regulation, and are designed to maintain the efficiency and 
effectiveness of the Commission's inspection program for regulated 
entities, which facilitates the Commission's review for their 
compliance with statutory mandates and with the Commission's rules.
---------------------------------------------------------------------------

    \412\ See supra Section II.C.
---------------------------------------------------------------------------

1. Benefits
    The proposed rule would assist the Commission in evaluating a 
municipal advisory firm's compliance with Section 15B of the Exchange 
Act \413\ and rules and regulations promulgated thereunder. Regulators 
would benefit from standardized record-keeping practices for municipal 
advisory firms because they would be able to perform more efficient, 
targeted inspections and examinations, and have an increased likelihood 
of identifying improper conduct at earlier stages in the inspection or 
examination. In addition, municipal advisory firms should benefit from 
standardized record-keeping practices by having their operations 
interrupted for shorter time periods in response to inspections or 
examinations than if their record-keeping practices were not 
standardized. Both regulators and municipal advisory firms should 
benefit from standardized record-keeping requirements to the extent 
that uniform records would identify for regulators and municipal 
advisory firms the records that municipal advisory firms should have on 
hand.
---------------------------------------------------------------------------

    \413\ See 15 U.S.C. 78o-4.
---------------------------------------------------------------------------

    The record-keeping practices proposed in rule 15Ba1-7 would also 
help regulators perform their supervisory functions in an effective 
manner. To the extent that more effective supervision results in 
greater market integrity, municipal entities may make better use of 
municipal advisory firms in a way that should positively affect their 
capital formation activities.
2. Costs
    The books and records requirements of proposed rule 15Ba1-7 would 
impose compliance burdens on municipal advisory firms. In particular, 
the Commission anticipates the following one-time costs:
    <bullet> If adopted, municipal advisory firms may incur one-time 
costs in establishing the new internal controls and systems necessary 
to comply with the record-keeping requirements of the proposed rule. 
The Commission believes that for municipal advisory firms that are 
municipal financial advisors or municipal investment advisers and are 
currently regulated with respect to their other activities, these costs 
would be limited because the proposed rule allows some records

[[Page 878]]

to be maintained in compliance with those other rules.\414\ The 
Commission believes that these costs would also be limited for 
municipal advisory firms that have voluntarily adopted similar record-
keeping practices. Commission staff anticipates that these costs may be 
higher for solicitors and for municipal advisory firms that are not 
otherwise regulated or have not voluntarily adopted similar record-
keeping practices.
---------------------------------------------------------------------------

    \414\ See supra Section II.C.
---------------------------------------------------------------------------

    The Commission also anticipates the following recurring costs:
    <bullet> The Commission believes that the ongoing annual labor cost 
for all municipal advisory firms to comply with the proposed 
requirement would be approximately $9,050,000.\415\
---------------------------------------------------------------------------

    \415\ 181,000 hours (total estimated hourly burden under the 
proposed rules for all municipal advisory firms to annually comply 
with the books and records requirement) x $50 (hourly rate for a 
General Clerk) = $9,050,000. The $50 per hour figure for a General 
Clerk is from the SIFMA publication titled Management & Professional 
Earnings in the Securities Industry 2010, as modified by Commission 
staff to account for an 1,800 hour work year and multiplied by 5.35 
to account for bonuses, firm size, employee benefits and overhead.
---------------------------------------------------------------------------

    <bullet> If adopted, municipal advisory firms would also incur 
recurring costs related to the maintenance of books and records and the 
storage of such books and records, as required by the proposed rule. 
For the purposes of this analysis, these recurring costs are included 
in the cost estimate noted above.
    <bullet> If adopted, municipal advisory firms would also need to 
provide applicable training to ensure compliance with the proposed 
record-keeping requirements. For the purposes of this analysis, this 
recurring cost is included in the cost estimate noted above.
    The Commission does not believe that currently-operating municipal 
advisory firms would be subject to significant additional record-
keeping costs as a result of the proposed rule because such municipal 
advisory firms already maintain books and records as part of their day-
to-day operations. The proposed rule, however, provides specific 
parameters relating to the retention and maintenance of certain books 
and records and the proposed requirements may be more extensive than 
current market practices. Moreover, the Commission recognizes that 
these costs may impact those municipal advisory firms that are not 
already registered as either investment advisers or broker-dealers to a 
greater degree than they would impact municipal advisory firms that 
have previously registered under another regulatory regime. Based on 
discussions with industry participants, however, Commission staff 
believes that some unregistered municipal advisory firms may already 
keep business records similar to those required by the Commission's 
proposal. The proposed record-keeping requirements would reinforce 
improvements in disclosure about, and the average quality of, municipal 
advisors.
    The Commission has considered the effects on competition, 
efficiency and capital formation of the proposed rule regarding initial 
and ongoing record-keeping in the context of the proposed permanent 
registration regime as a whole, as noted above.

E. Request for Comment on Economic Analysis

    The Commission seeks estimates of the costs and benefits identified 
in this Economic Analysis section, as well as any costs and benefits 
not already discussed, which may result from the adoption of the 
proposed rules and forms. In connection with the comments requested 
below, the Commission requests comment on its understanding of the 
municipal advisor markets reflected in Sections I.A.1.a and I.A.1.b 
above. The Commission also requests comment on the potential costs and 
benefits of alternatives suggested by commenters. The Commission 
specifically requests comments with respect to the following:
    <bullet> Would the availability of disciplinary information and 
conflict of interest information, along with the other information 
required by Form MA and Form MA-I, assist municipal entities or 
obligated persons in making hiring decisions with respect to municipal 
advisors?
    The Commission solicits comments on the costs associated with the 
registration-related rules and new forms. The Commission specifically 
requests comment on the following:
    <bullet> Would additional benefits accrue if the Commission 
required different or additional information on the proposed forms and, 
if so, what would these requirements entail?
    <bullet> Are there additional costs or benefits related to 
registration that the Commission should consider? In particular, are 
there any outside costs associated with Form MA-NR that the Commission 
has not identified and should consider?
    The Commission solicits comments on the costs and benefits related 
to the proposed record-keeping requirements. The Commission 
specifically requests comment on the following:
    <bullet> Would additional benefits accrue if the Commission imposed 
different or additional record-keeping requirements and, if so, what 
would these requirements entail?
    <bullet> The Commission specifically requests comments on the 
initial and ongoing costs associated with establishing and maintaining 
the record-keeping systems and related policies and procedures, 
including whether municipal advisory firms that are otherwise currently 
regulated would incur different record-keeping costs.
    <bullet> Are there additional costs or benefits related to record-
keeping that the Commission should consider? If so, please explain.
    The Commission generally requests comment on the competitive or 
anticompetitive effects, as well as efficiency and capital formation 
effects, of the proposed rules and forms on any market participants if 
the proposals are adopted as proposed. Commenters should provide 
analysis and empirical data to support their views on the costs and 
benefits associated with the proposed rules and forms.

VI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, or ``SBREFA,'' \416\ the Commission must advise OMB as to 
whether the proposed regulation constitutes a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results or 
is likely to result in: (1) An annual effect on the economy of $100 
million or more (either in the form of an increase or a decrease); (2) 
a major increase in costs or prices for consumers or individual 
industries; or (3) significant adverse effect on competition, 
investment or innovation. If a rule is ``major,'' its effectiveness 
will generally be delayed for 60 days pending Congressional review.
---------------------------------------------------------------------------

    \416\ Public Law 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

    The Commission requests comment on the potential impact of the 
proposed rules and forms on the economy on an annual basis, on the 
costs or prices for consumers or individual industries, and on 
competition, investment or innovation. Commenters are requested to 
provide empirical data and other factual support for their view to the 
extent possible.

VII. Initial Regulatory Flexibility Analysis

    The Commission has prepared this Initial Regulatory Flexibility 
Analysis

[[Page 879]]

(IRFA) in accordance with Section 603(a) of the Regulatory Flexibility 
Act (RFA).\417\ This IRFA relates to proposed rules 240.15Ba1-1 through 
240.15Ba1-7 under the Exchange Act, which sets forth the requirements 
for municipal advisors to register with the Commission and the books 
and records that registered municipal advisory firms must make and 
keep.
---------------------------------------------------------------------------

    \417\ See 5 U.S.C. 603(a).
---------------------------------------------------------------------------

    Section 15B, as amended by the Dodd-Frank Act, generally is 
intended to strengthen oversight of the municipal securities markets 
and broaden current municipal securities market protections to cover, 
among other things, previously unregulated market participants. The 
proposed rules and forms are designed to meet this mandate by requiring 
each municipal advisor, whether a firm or a natural person, to provide 
basic identifying information about itself, a description of its 
activities, and facts regarding its disciplinary history, if any.

A. Reasons and Objectives for the Proposed Rules

    Sections I and II of this Release describe the reasons for and 
objectives of the proposed rules and forms. Many market professionals 
are involved in issuing municipal securities and advising municipal 
entities and obligated persons with respect to municipal financial 
products. Historically, however, municipal advisors have been largely 
unregulated. Consistent with the requirements of the Dodd-Frank Act, 
the Commission is proposing new rules and forms that, if adopted, would 
establish a permanent registration regime for municipal advisors. The 
Commission believes that the information disclosed pursuant to the 
proposed rules and forms would provide significant value to the 
Commission in its oversight of municipal advisors and their activities 
in the municipal securities markets. The information provided pursuant 
to these proposed rules and forms would also aid municipal entities, 
obligated persons, and others in choosing municipal advisors, engaging 
in transactions with municipal advisors, or participating in 
transactions in municipal securities issued in offerings in which a 
municipal advisor provided municipal advisory services.

B. Legal Basis

    Pursuant to the Exchange Act, and particularly Sections 15B, 17, 
and 36 (15 U.S.C. 78o-4, 78q, and 78mm, respectively), the Commission 
is proposing to adopt Sec. Sec.  240.15Ba1-1 through 240.15Ba1-7, Form 
MA, Form MA-I, Form MA-W, and Form MA-NR.

C. Small Entities Subject to the Proposed Rules

    Under section 601(3) of the RFA, the term ``small business'' is 
defined as having ``the same meaning as the term `small business 
concern' under section 3 of the Small Business Act, unless an agency, 
after consultation with the Office of Advocacy of the Small Business 
Administration and after opportunity for public comment, establishes 
one or more definitions of such term which are appropriate to the 
activities of the agency and publishes such definition(s) in the 
Federal Register.'' \418\ The Commission's rules do not define ``small 
business'' or ``small organization'' for purposes of municipal 
advisors. The SBA defines small business, for purposes of entities that 
provide financial investments and related activities, as a business 
that had annual receipts of less than $7 million during the preceding 
fiscal year and is not affiliated with any person that is not a small 
business or small organization.\419\ Therefore, the Commission is using 
the SBA's definition of small businesses to define municipal advisors 
that are small entities for purposes of the RFA.
---------------------------------------------------------------------------

    \418\ 5 U.S.C. 601(3).
    \419\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    In developing the proposed rules and forms, the Commission has 
considered their potential impact on the small entities that would be 
subject to the proposed rules and would be required to complete the 
proposed forms. All municipal advisors must register with the 
Commission, including small entities, and would be subject to the 
proposed rules.
    Based on the number of municipal advisors who have already 
registered with the Commission by completing Form MA-T, the Commission 
estimates that approximately 1,000 municipal advisory firms, including 
sole proprietors, would be required to complete Form MA.\420\ In 
connection with the promulgation of rule 15Ba2-6T, industry sources 
were unable to provide an estimate, based on the definitions discussed 
above, of how many of these municipal advisory firms would be small 
businesses or small organizations.\421\ However, for purposes of this 
IRFA, the Commission believes that the proportion of small municipal 
advisory firms subject to the proposed rules compared to all Form MA 
applicants subject to the proposed rules may be similar to the 
proportion of small registered broker-dealers compared to all 
registered broker-dealers. The Commission has previously estimated that 
approximately 17% of all broker-dealers are ``small'' for the purposes 
of the RFA.\422\ Thus, the Commission estimates that approximately 170 
municipal advisory firms that would be required to register with the 
Commission by filing Form MA would be small entities subject to the 
proposed rules.\423\
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    \420\ See supra Section IV.C.
    \421\ Proposed Form MA, Item 10, would ask municipal advisors to 
indicate whether they meet the definition of ``small business'' or 
``small organization.'' As a result, if adopted, in the future the 
Commission would have information on which to base estimates of the 
number of small municipal advisors subject to its rules.
    \422\ See Securities Exchange Act Release No. 61908 (April 14, 
2010), 75 FR 21456, 21483 (April 23, 2010). The Commission received 
no comments on its estimate of the percentage of all broker-dealers 
that are considered ``small'' for RFA purposes.
    \423\ 1,000 (estimated number of municipal advisors subject to 
the Rule) x .17 (estimated percentage of municipal advisors that are 
small entities) = 170 small entity municipal advisors.
---------------------------------------------------------------------------

    The Commission estimates that approximately 21,800 natural persons 
must complete Form MA-I.\424\ Of these Form MA-I applicants, only those 
that are sole proprietors and meet the annual receipts threshold would 
be considered small entities subject to the proposed rules.\425\ 
Because all sole proprietors would be required to complete Form MA in 
addition to Form MA-I, the Commission believes that sole proprietors 
that would be small entities subject to the proposed rules, i.e., that 
are under the ``small entities'' annual receipts thresholds, are 
already counted among the estimate of 170 small entities calculated 
above. Thus, for the purposes of this IRFA, the Commission does not 
believe that it would be necessary to further estimate the number of 
small entities among Form MA-I applicants, because such an estimate 
would result in the double-counting of respondents. The Commission 
estimates that a total of 170 municipal advisors would be small 
entities subject to the proposed rules.
---------------------------------------------------------------------------

    \424\ See supra Section IV.C.
    \425\ Individuals who are not sole proprietors, i.e., employees 
of municipal advisors, and must register on Form MA-I would not fall 
within the definitions of ``small business'' or ``small 
organization,'' because only those businesses and organizations that 
are ``independently owned'' may qualify as small entities pursuant 
to the definitions contained in the RFA. See 5 U.S.C. 601(4) and 15 
U.S.C. 632(a)(1).
---------------------------------------------------------------------------

    The Commission requests comment on its estimate of how many 
municipal advisors would be small entities for purposes of the IRFA. 
Specifically, the Commission seeks comment on whether there are 
alternative ways to estimate the number of municipal advisors that are 
small entities. Is the proportion of

[[Page 880]]

small registered municipal advisors to all registered municipal 
advisors for purposes of the IRFA similar to the proportion of small 
registered broker-dealers to all registered broker-dealers?

D. Reporting, Record-keeping, and Other Compliance Requirements

    The proposed rules and forms would impose certain reporting and 
record-keeping requirements on small municipal advisors. For example, 
under the proposed rules, municipal advisors would be required to 
complete the information disclosure requirements on Forms MA and MA-I, 
as applicable. Moreover, municipal advisory firms would be required to 
maintain books and records relating to their municipal advisory 
activities in which they engage.
    As discussed above, under the proposed rules, municipal advisors 
are required by statute to register with the Commission. The Commission 
is proposing a permanent registration regime for municipal advisors 
that would require completion of Form MA and/or Form MA-I, as 
applicable.
    The Commission estimates that the initial cost per applicant to 
complete Form MA and the initial self-certification would be 
approximately $1,110,\426\ and the initial reporting cost per applicant 
to complete Form MA-I and the initial self-certification would be 
approximately $510.\427\ The Commission also estimates that the ongoing 
annual cost per applicant to amend Form MA and complete self-
certification would be approximately $510,\428\ and the ongoing annual 
cost per applicant to amend Form MA-I and complete self-certification 
would be approximately $160.\429\
---------------------------------------------------------------------------

    \426\ 6.5 hours (total estimated hourly burden under the 
proposed rules for one municipal advisor to complete a Form MA and 
complete initial self-certification) x $170 (combined hourly rate 
for a Compliance Manager and Compliance Clerk) = $1,110. See supra 
note 398 for the calculation of the combined hourly rate.
    \427\ 3.0 hours (total estimated hourly burden under the 
proposed rules for one municipal advisor to complete a Form MA-I and 
complete initial self-certification) x $170 (combined hourly rate 
for a Compliance Manager and Compliance Clerk) = $510. See supra 
note 399 for the calculation of the combined hourly rate.
    \428\ 2.5 hours (estimated time to prepare one annual amendment 
and complete annual self-certification for Form MA) x 1.0 (number of 
annual amendments per year) x $170 (combined hourly rate for a 
Compliance Manager and Compliance Clerk) + 0.5 hours (estimated time 
to prepare one interim updating amendment per year for Form MA) x 
1.0 (average number of interim updating amendments per year) x $170 
(combined hourly rate for a Compliance Manager and Compliance Clerk) 
= $510. See supra note 398 for the calculation of the combined 
hourly rate.
    \429\ 0.5 hours (estimated time to complete amended Form MA-I) x 
1.7 (average number of amendments per year) x $170 (combined hourly 
rate for a Compliance Manager and Compliance Clerk) = $145; 0.1 
hours (estimated time to complete annual self-certification on Form 
MA-I) x $170 (combined hourly rate for a Compliance Manager and 
Compliance Clerk) = $17; $145 + $17 = $162. See supra note 399 for 
the calculation of the combined hourly rate.
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    Municipal advisors would also incur costs when they need to 
withdraw their registration. The Commission estimates that the cost per 
registrant to complete Form MA-W would be approximately $85.\430\ In 
addition, non-resident municipal advisors and non-resident general 
partners and managing agents of municipal advisors would incur costs to 
file Form MA-NR. The Commission estimates that the cost per filer to 
complete Form MA-NR would be approximately $255.\431\ Non-resident 
municipal advisory firms would also incur costs to obtain an opinion of 
counsel. The Commission estimates that the cost per non-resident 
municipal advisory firm to obtain an opinion of counsel, including the 
cost to hire outside counsel, would be approximately $1,960.\432\
---------------------------------------------------------------------------

    \430\ 0.5 hours (estimated time to complete Form MA-W) x $170 
(combined hourly rate for a Compliance Manager and Compliance Clerk) 
= $85. See supra note 398 for the calculation of the combined hourly 
rate.
    \431\ 1.5 hours (estimated time to complete Form MA-NR) x $170 
(combined hourly rate for a Compliance Manager and Compliance Clerk) 
= $255. See supra note 398 for the calculation of the combined 
hourly rate.
    \432\ 3.0 hours (estimated time to obtain opinion of counsel) x 
$354 (hourly rate for an internal attorney) = $1,062. See supra note 
411 regarding the hourly rate. $900 = estimated cost to hire outside 
counsel. See supra note 344 for an explanation of the outside 
counsel cost estimate. $1,062 + $900 = $1,962.
---------------------------------------------------------------------------

    The Commission also believes that some municipal advisory firms 
would incur costs associated with hiring outside counsel to determine 
the need to file and to comply with the requirements of the proposed 
rules and forms. The Commission estimates that the total cost per 
municipal advisory firm to hire outside counsel would be approximately 
$400.\433\
---------------------------------------------------------------------------

    \433\ 1 hour (estimated time spent by outside counsel to help 
municipal advisor comply with rule) x $400 (hourly rate for an 
attorney) = $400. See supra note 357 for the calculation of the 
hourly rate.
---------------------------------------------------------------------------

    Based on discussions with various industry participants and the 
Commission's prior experience with broker-dealers and investment 
advisers, the Commission estimates that the average cost per municipal 
advisory firm to comply with the proposed requirement to maintain 
annual books and records would be approximately $9,050.\434\ The 
Commission requests comment on these estimates.
---------------------------------------------------------------------------

    \434\ 181 hours (estimated time spent by municipal advisors to 
ensure annual compliance with the books and records requirement) x 
$50 (hourly rate for a General Clerk) = $9,050. See supra note 415 
for the calculation of the hourly rate.
---------------------------------------------------------------------------

    The Commission believes that these compliance burdens would not 
disproportionately affect small entities. The Commission notes that the 
proposed rules and forms strike the appropriate balance between 
minimizing the burden on small municipal advisors and allowing the 
Commission to meet its mandate under Section 15B of the Exchange Act to 
establish a permanent registration regime for municipal advisors. 
Moreover, the Commission believes that completing and submitting Forms 
MA and MA-I electronically should not be unduly burdensome or costly 
for municipal advisors, including small municipal advisors.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    As discussed in Section I.B, a temporary registration procedure was 
developed as a transitional step toward the implementation of a 
permanent registration regime for municipal advisors. Rule 15Ba2-6T 
provides that, unless rescinded, a municipal advisor's temporary 
registration by means of Form MA-T will expire on the earlier of (1) 
the date that the municipal advisor's registration is approved or 
disapproved by the Commission pursuant to a final rule rescinded by the 
Commission or (2) December 31, 2011.\435\
---------------------------------------------------------------------------

    \435\ See 17 CFR 240.15Ba2-6T(e).
---------------------------------------------------------------------------

    The Commission is proposing rules and forms to establish a 
permanent municipal advisors registration regime. Under the permanent 
registration regime, all municipal advisors, including those who had 
previously registered on Form MA-T, would be required to register anew 
on Form MA and/or on Form MA-I. Thus, the Commission believes that 
current rules do not generally duplicate, overlap, or conflict with the 
proposed rules.
    The Commission recognizes, however, that some of the information 
that respondents would collect for purposes of the proposed record-
keeping rules and the relevant proposed registration forms would 
overlap with information previously collected for other registration 
regimes or record-keeping rules. As acknowledged above, the Commission 
recognizes that persons who have registered on Form MA-T under the 
temporary registration regime or that have completed a Form BD, ADV or 
U4, could require less time to research and complete the proposed 
permanent registration forms to the extent information contained in 
those

[[Page 881]]

other forms can be incorporated by reference or used to assist in 
completing information on Forms MA or MA-I. Persons who are Commission-
registered investment advisers or broker-dealers may also require less 
time to comply with the proposed rule 15Ba1-7 books and records 
requirements, to the extent that the proposed books and records 
requirements overlap with those required to be kept and maintained in 
accordance with investment adviser and/or broker-dealer books and 
records requirements.

F. Significant Alternatives

    Pursuant to Section 3(a) of the RFA,\436\ the Commission must 
consider certain types of alternatives, including: (1) The 
establishment of differing compliance or recording requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the proposed rules for 
small entities; (3) the use of performance rather than design 
standards; and (4) an exemption from coverage of the proposed rules, or 
any part of the proposed rules, for small entities.
---------------------------------------------------------------------------

    \436\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------

    The Commission believes that the proposed rules and forms strike 
the appropriate balance between minimizing the burden on small 
municipal advisors and allowing the Commission to meet its mandate 
under Section 15B of the Exchange Act to establish a registration 
regime for municipal advisors. The Commission does not believe that 
establishing different compliance or reporting standards is necessary 
because the information requested in Forms MA and MA-I would be 
accessible to municipal advisors regardless of whether the municipal 
advisor is a small entity. Moreover, the Commission believes that 
completing and submitting Forms MA and MA-I electronically should not 
be unduly burdensome or costly for municipal advisors, including small 
municipal advisors. In developing the proposed rules and forms, the 
Commission considered requiring additional information from municipal 
advisors and using different submission mechanisms. The Commission 
decided that the information in the proposed forms and the submission 
requirements would be simple, straightforward, and take into account 
the resources available to all municipal advisors, including small 
municipal advisors. The Commission believes that it is inconsistent 
with the goals of a uniform registration system to use performance 
standards rather than design standards. Further, the Commission 
believes that it would be inconsistent with the purposes of the 
Exchange Act to exempt small entities from compliance with the proposed 
rules.

G. General Request for Comment

    The Commission is soliciting comments regarding its analysis. The 
Commission requests comment on the number of small entities that would 
be subject to the proposed rules and forms and whether the proposed 
rules and forms would have any effects that have not been discussed. 
The Commission requests that commenters describe the nature of any 
effects on small entities subject to the rule and provide empirical 
data to support the nature and extent of such effects. The Commission 
also requests comment on the compliance burdens and how they would 
affect small entities. Does the proposed permanent registration regime 
create an undue burden on small entities? Are there any additional 
compliance burdens that would affect small entities in particular, 
compared to larger entities?

VIII. Statutory Basis and Text of Proposed Amendments

    Pursuant to the Exchange Act, and particularly Sections 15B, 17, 
and 36 (15 U.S.C. 78o-4, 78q, and 78mm, respectively), the Commission 
is proposing to adopt Sec. Sec.  240.15Ba1-1 through 240.15Ba1-7, Form 
MA, Form MA-I, Form MA-W, and Form MA-NR.

List of Subjects in 17 CFR Parts 240 and 249

    Municipal advisors, Registration requirements, Reporting and 
record-keeping requirements.

Text of Proposed Rules and Forms

    For the reasons set out above, Title 17, Chapter II of the Code of 
Federal Regulations, is proposed to be amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The general authority citation for part 240 is amended by adding 
the following citation in numerical order to read as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78o-4, 78p, 78q, 78s, 
78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 
80b-4, 80b-11, and 7201 et seq.; 18 U.S.C. 1350; and 12 U.S.C. 
5221(e)(3), unless otherwise noted.
* * * * *
    Sections 240.15Ba1-1 through 240.15Ba1-7 are also issued under 
Pub. L. 111-203, Sec.  975, 124 Stat. 1376, 1915-1923 (2010).
* * * * *
    2. Section 240.15Ba1-1 through 240.15Ba1-7 are added to read as 
follows:

Sec.
* * * * *
240.15Ba1-1 Definitions.
240.15Ba1-2 Application for municipal advisor registration.
240.15Ba1-3 Withdrawal from municipal advisor registration.
240.15Ba1-4 Amendments to application for registration and self-
certification.
240.15Ba1-5 Consent to service of process to be furnished by non-
resident municipal advisors, general partners and managing agents; 
legal opinion to be furnished by non-resident municipal advisors.
240.15Ba1-6 Registration of successor to municipal advisor.
240.15Ba1-7 Books and records to be maintained by municipal advisor.


Sec.  240.15Ba1-1  Definitions.

    As used in the rules and regulations prescribed by the Commission 
pursuant to Section 15B of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-4):
    (a) Guaranteed investment contract has the same meaning as in 
Section 15B(e)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o-4(e)(2)).
    (b) The term investment strategies, as defined in Section 15B(e)(3) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4(e)(3)), 
includes plans, programs or pools of assets that invest funds held by 
or on behalf of a municipal entity.
    (c) Managing agent means any person, including a trustee, who 
directs or manages, or who participates in directing or managing, the 
affairs of any unincorporated organization or association other than a 
partnership.
    (d)(1) Municipal Advisor has the same meaning as in Section 
15B(e)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
4(e)(4)).
    (2) The term Municipal Advisor shall not include:
    (i) A broker, dealer, or municipal securities dealer serving as an 
underwriter (as that term is defined in Section 2(a)(11) of the 
Securities Act of 1933 (15 U.S.C. 77b(a)(11))) on behalf of a municipal 
entity or obligated person, unless the broker, dealer or municipal 
securities dealer engages in municipal advisory activities while acting 
in a capacity other than as an underwriter on behalf of a municipal 
entity or obligated person.

[[Page 882]]

    (ii) An investment adviser registered under the Investment Advisers 
Act of 1940 (15 U.S.C. 80b-1 et seq.) or a person associated with such 
registered investment adviser, unless the registered investment adviser 
or person associated with the investment adviser engages in municipal 
advisory activities other than providing investment advice that would 
subject such adviser or person associated with such adviser to the 
Investment Advisers Act of 1940.
    (iii) Any commodity trading advisor registered under the Commodity 
Exchange Act or persons associated with a commodity trading advisor, 
unless the registered commodity trading advisor or persons associated 
with the registered commodity trading advisor engages in municipal 
advisory activities other than advice related to swaps (as defined in 
Section 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)) and 
Section 3(a)(69) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(69)), including any rules and regulations thereunder).
    (iv) Any attorney, unless the attorney engages in municipal 
advisory activities other than the offer of legal advice or the 
provision of services that are of a traditional legal nature to a 
client of the attorney that is a municipal entity or obligated person.
    (v) Any engineer, unless the engineer engages in municipal advisory 
activities other than providing engineering advice.
    (vi) Any accountant, unless the accountant engages in municipal 
advisory activities other than preparing financial statements, auditing 
financial statements, or issuing letters for underwriters for, or on 
behalf of, a municipal entity or obligated person.
    (e) Municipal advisory activities means providing advice to or on 
behalf of a municipal entity (as defined in Section 15B(e)(8) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-4(e)(8)) or obligated 
person (as defined in Section 15B(e)(10) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78o-4(e)(10))) with respect to municipal financial 
products or the issuance of municipal securities, including advice with 
respect to the structure, timing, terms, and other similar matters 
concerning such financial products or issues; or solicitation of a 
municipal entity or obligated person.
    (f) Municipal derivatives means any swap (as defined in Section 
1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)) and Section 
3(a)(69) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(69)), 
including any rules and regulations thereunder) or security-based swap 
(as defined in Section 3(a)(68) of the Securities Exchange Act of 1934 
(15 U.S.C. 78c(a)(68)), including any rules and regulations thereunder) 
to which a municipal entity is a counterparty, or to which an obligated 
person, acting in its capacity as an obligated person, is a 
counterparty.
    (g) Municipal financial product has the same meaning as in Section 
15B(e)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
4(e)(5)).
    (h) Non-resident means:
    (1) In the case of an individual, one who resides in or has his 
principal office and place of business in any place not in the United 
States;
    (2) In the case of a corporation, one incorporated in or having its 
principal office and place of business in any place not in the United 
States; and
    (3) In the case of a partnership or other unincorporated 
organization or association, one having its principal office and place 
of business in any place not in the United States.
    (i) The term obligated person, as defined in Section 15B(e)(10) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78o-4(e)(10)), shall not 
include providers of municipal bond insurance, letters of credit, or 
other liquidity facilities.
    (j) Principal office and place of business means the executive 
office of the municipal advisor from which the officers, partners, or 
managers of the municipal advisor direct, control, and coordinate the 
activities of the municipal advisor.


Sec.  240.15Ba1-2  Application for municipal advisor registration.

    (a) Form MA. A person, other than a natural person, including a 
sole proprietor, applying for registration with the Commission as a 
municipal advisor pursuant to Section 15B of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o-4) must complete Form MA (17 CFR 249.1300) 
in accordance with the instructions in such Form and file such Form 
electronically with the Commission.
    (b) Form MA-I. A natural person (including a sole proprietor) 
applying for registration with the Commission as a municipal advisor 
pursuant to Section 15B of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-4) must complete Form MA-I (17 CFR 249.1310) in accordance 
with the instructions in the Form and file such Form electronically 
with the Commission.
    (c) When filed. Each Form MA (17 CFR 249.1300) and Form MA-I (17 
CFR 249.1310) shall be considered filed with the Commission upon 
acceptance by the [applicable electronic system]. Filings required to 
be made on a day that the [applicable electronic system] is closed 
shall be considered timely filed with the Commission if filed 
electronically no later than the following business day.
    (d) Form MA and Form MA-I are reports. Each Form MA (17 CFR 
249.1300) and Form MA-I (17 CFR 249.1310) required to be filed under 
this section shall constitute a ``report'' within the meaning of 
Sections 15B(c), 17(a), 18(a), 32(a) of the Securities Exchange Act of 
1934 (15 U.S.C. 78o-4(c), 78q(a), 78r(a), 78ff(a)) and other applicable 
provisions of the Exchange Act.


Sec.  240.15Ba1-3  Withdrawal from municipal advisor registration.

    (a) Form MA-W. Notice of withdrawal from registration as a 
municipal advisor shall be filed on Form MA-W (17 CFR 249.1320) in 
accordance with the instructions to the Form.
    (b) Electronic filing. Any notice of withdrawal on Form MA-W (17 
CFR 249.1320) must be filed electronically.
    (c) Effective date. A notice of withdrawal from registration shall 
become effective for all matters on the 60th day after the filing 
thereof, within such longer period of time as to which such municipal 
advisor consents or which the Commission by order may determine as 
necessary or appropriate in the public interest or for the protection 
of investors, or within such shorter period of time as the Commission 
may determine. If a notice of withdrawal from registration is filed at 
any time subsequent to the date of the issuance of a Commission order 
instituting proceedings pursuant to Section 15B(c) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o-4(c)) to censure, place limitations 
on the activities, functions or operations of, or suspend or revoke the 
registration of, such municipal advisor, or if prior to the effective 
date of the notice of withdrawal pursuant to this paragraph (c), the 
Commission institutes such a proceeding or a proceeding to impose terms 
or conditions upon such withdrawal, the notice of withdrawal shall not 
become effective pursuant to this paragraph (c) except at such time and 
upon such terms and conditions as the Commission deems necessary or 
appropriate in the public interest or for the protection of investors.
    (d) Form MA-W is a report. Each Form MA-W (17 CFR 249.1320) 
required to be filed under this section shall constitute a ``report'' 
within the meaning of Sections 15B(c), 17(a), 18(a), 32(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-4(c), 78q(a), 78r(a), 
78ff(a)) and other applicable provisions of the Exchange Act.

[[Page 883]]

Sec.  240.15Ba1-4  Amendments to application for registration and self-
certification.

    (a) When amendment is required--Form MA. A registered municipal 
advisor shall promptly amend the information contained in its Form MA 
(17 CFR 249.1300):
    (1) At least annually, within 90 days of the end of a municipal 
advisor's fiscal year, or of the end of the calendar year for municipal 
advisors that are sole proprietors; and
    (2) More frequently, if required by the General Instructions to 
Form MA (17 CFR 249.1300), as applicable.
    (b) When amendment is required--Form MA-I. A registered municipal 
advisor shall promptly amend the information contained in its Form MA-I 
(17 CFR 249.1310) by filing an amended Form MA-I whenever the 
information contained in the Form MA-I becomes inaccurate for any 
reason.
    (c) Electronic filing of amendments. A registered municipal advisor 
shall file all amendments to Form MA (17 CFR 249.1300) and Form MA-I 
(17 CFR 249.1310) electronically.
    (d) Amendments to Form MA and Form MA-I are reports. Each amendment 
required to be filed under this section shall constitute a ``report'' 
within the meaning of Sections 15B(c), 17(a), 18(a), 32(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-4(c), 78q(a), 78r(a), 
78ff(a)) and other applicable provisions of the Exchange Act.
    (e) Self-certification. A registered municipal advisor shall 
complete the self-certification contained in Form MA (17 CFR 249.1300) 
or Form MA-I (17 CFR 249.1310), as applicable:
    (1) At the time the municipal advisor initially files its 
application for registration as a municipal advisor on Form MA (17 CFR 
249.1300) or Form MA-I (17 CFR 249.1310), as applicable; and
    (2) In the case of a municipal advisor registered on Form MA (17 
CFR 249.1300), annually, within 90 days of the end of a municipal 
advisor's fiscal year, or of the end of the calendar year for municipal 
advisors that are sole proprietors; and in the case of a municipal 
advisor registered on Form MA-I (17 CFR 249.1310), annually within 90 
days of the end of the calendar year.


Sec.  240.15Ba1-5  Consent to service of process to be furnished by 
non-resident municipal advisors, general partners and managing agents; 
legal opinion to be furnished by non-resident municipal advisors.

    (a) Each non-resident municipal advisor, and each non-resident 
general partner or managing agent of a municipal advisor, applying for 
registration pursuant to Section 15B(a) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78o-4(a)) shall, at the time of filing of the 
municipal advisor's application on Form MA (17 CFR 249.1300) or MA-I 
(17 CFR 249.1310), furnish to the Commission a written irrevocable 
consent and power of attorney on Form MA-NR (17 CFR 249.1330) to 
appoint an agent in the United States, other than a Commission member, 
official, or employee, upon whom may be served any process, pleadings, 
or other papers in any action brought against the non-resident 
municipal advisor, or non-resident general partner or non-resident 
managing agent of a municipal advisor, to enforce this Title.
    (b) Any change to the name or address of each non-resident 
municipal advisor's, general partner's or managing agent's agent for 
service of process shall be communicated promptly to the Commission 
through amendment of the Form MA-NR (17 CFR 249.1330).
    (c) Each non-resident municipal advisor, general partner and 
managing agent must promptly appoint a successor agent for service of 
process and file an amended Form MA-NR (17 CFR 249.1330) if the non-
resident municipal advisor, general partner or managing agent 
discharges its identified agent for service of process or if its agent 
for service of process is unwilling or unable to accept service on 
behalf of the non-resident municipal advisor, general partner or 
managing agent.
    (d) Each non-resident municipal advisor, other than a natural 
person, including non-resident sole proprietors, applying for 
registration pursuant to this section shall provide an opinion of 
counsel on Form MA (17 CFR 249.1300) that the municipal advisor can, as 
a matter of law, provide the Commission with access to the books and 
records of such municipal advisor as required by law and that the 
municipal advisor can, as a matter of law, submit to onsite inspection 
and examination by the Commission.


Sec.  240.15Ba1-6  Registration of successor to municipal advisor.

    (a) In the event that a municipal advisor succeeds to and continues 
the business of a municipal advisor registered pursuant to Section 
15B(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4(a)), the 
registration of the predecessor shall be deemed to remain effective as 
the registration of the successor if the successor, within 30 days 
after such succession, files an application for registration on Form MA 
(17 CFR 249.1300), and the predecessor files a notice of withdrawal 
from registration on Form MA-W (17 CFR 249.1320); provided, however, 
that the registration of the predecessor municipal advisor will cease 
to be effective as the registration of the successor municipal advisor 
45 days after the application for registration on Form MA is filed by 
such successor.
    (b) Notwithstanding paragraph (a) of this section, if a municipal 
advisor succeeds to and continues the business of a registered 
predecessor municipal advisor, and the succession is based solely on a 
change in the predecessor's date or state of incorporation, form of 
organization, or composition of a partnership, the successor may, 
within 30 days after the succession, amend the registration of the 
predecessor municipal advisor on Form MA (17 CFR 249.1300) to reflect 
these changes. This amendment shall be deemed an application for 
registration filed by the predecessor and adopted by the successor.


Sec.  240.15Ba1-7  Books and records to be maintained by municipal 
advisors.

    (a) Every person, other than a natural person, including sole 
proprietors, registered or required to be registered under Section 15B 
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4) shall make and 
keep true, accurate, and current the following books and records 
relating to its municipal advisory activities:
    (1) Originals or copies of all written communications received, and 
originals or copies of all written communications sent, by such 
municipal advisor (including inter-office memoranda and communications) 
relating to municipal advisory activities, regardless of the format of 
such communications;
    (2) All check books, bank statements, cancelled checks and cash 
reconciliations of the municipal advisor;
    (3) A copy of each version of the municipal advisor's policies and 
procedures, if any, that are in effect or at any time within the last 
five years were in effect;
    (4) A copy of any document created by the municipal advisor that 
was material to making a recommendation to a municipal entity or 
obligated person or that memorializes the basis for that 
recommendation;
    (5) All written agreements (or copies thereof) entered into by the 
municipal advisor with any municipal entity, employee of a municipal 
entity, or an obligated person or otherwise relating to the business of 
such municipal advisor as such;

[[Page 884]]

    (6) A record of the names of persons who are currently, or within 
the past five years were, associated with the municipal advisor; and
    (7) Books and records containing a list or other record of:
    (i) The names, titles, and business and residence addresses of all 
persons associated with the municipal advisor;
    (ii) All municipal entities or obligated persons with which the 
municipal advisor is engaging or has engaged in municipal advisory 
activities in the past five years;
    (iii) The name and business address of each person to whom the 
municipal advisor provides or agrees to provide, directly or 
indirectly, payment to solicit a municipal entity, an employee of a 
municipal entity, or an obligated person on its behalf; and
    (iv) The name and business address of each person that provides or 
agrees to provide, directly or indirectly, payment to the municipal 
advisor to solicit a municipal entity, an employee of a municipal 
entity or an obligated person on its behalf.
    (8) A record of the initial or annual review, as applicable, 
conducted by the municipal advisor of such municipal advisor's business 
in connection with its self-certification on Form MA (17 CFR 249.1300).
    (b)(1) All books and records required to be made under this section 
shall be maintained and preserved for a period of not less than five 
years, the first two years in an easily accessible place.
    (2) Partnership articles and any amendments thereto, articles of 
incorporation, charters, minute books, and stock certificate books of 
the municipal advisor and of any predecessor shall be maintained in the 
principal office of the municipal advisor and preserved until at least 
three years after termination of the business or withdrawal from 
registration as a municipal advisor.
    (c) A municipal advisor subject to paragraph (a) of this section, 
before ceasing to conduct or discontinuing business as a municipal 
advisor, shall arrange for and be responsible for the preservation of 
the books and records required to be maintained and preserved under 
this section for the remainder of the period specified in this section, 
and shall notify the Commission in writing, at its principal office, 
Washington, DC, of the exact address where such books and records will 
be maintained during such period.
    (d) Electronic storage permitted. (1) General. The records required 
to be maintained and preserved pursuant to this part may be maintained 
and preserved for the required time on:
    (i) Electronic storage media, including any digital storage medium 
or system that meets the terms of this section; or
    (ii) Paper documents.
    (2) General requirements. The municipal advisor must:
    (i) Arrange and index the records in a way that permits easy 
location, access, and retrieval of any particular record;
    (ii) Provide promptly any of the following that the Commission (by 
its examiners or other representatives) may request:
    (A) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (B) A legible, true, and complete printout of the record; and
    (C) Means to access, view, and print the records; and
    (iii) Separately store, for the time required for preservation of 
the record, a duplicate copy of the record on any medium allowed by 
this section.
    (3) Special requirements for electronic storage media. In the case 
of records on electronic storage media, the municipal advisor must 
establish and maintain procedures:
    (i) to maintain and preserve the records, so as to reasonably 
safeguard them from loss, alteration, or destruction;
    (ii) to limit access to the records to properly authorized 
personnel and the Commission (including its examiners and other 
representatives); and
    (iii) to reasonably ensure that any reproduction of a non-
electronic record on electronic storage media is complete, true, and 
legible when retrieved.
    (e)(1) Any book or other record made, kept, maintained, and 
preserved in compliance with Sec. Sec.  240.17a-3 and 240.17a-4 of this 
chapter, rules of the Municipal Securities Rulemaking Board, or Sec.  
275.204-2 under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1), 
which is substantially the same as a book or other record required to 
be made, kept, maintained and preserved under this section, shall 
satisfy the requirements of this section.
    (2) A record made and kept pursuant to any provision of paragraph 
(a) of this section that contains all the information required under 
any other provision of paragraph (a) of this section, need not be 
maintained in duplicate in order to meet the requirements of the other 
provisions of paragraph (a) of this section.
    (f)(1) Except as provided in paragraph (f)(3) of this section, each 
non-resident municipal advisor, other than a natural person, including 
sole proprietors, registered or applying for registration pursuant to 
Section 15B of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4) 
shall keep, maintain, and preserve, at a place within the United States 
designated in a notice from such municipal advisor as provided in 
paragraph (f)(2) of this section, true, correct, complete, and current 
copies of books and records which such municipal advisor is required to 
make, keep current, maintain or preserve pursuant to any provisions of 
any rule or regulation of the Commission adopted under the Securities 
Exchange Act of 1934.
    (2) Except as provided in paragraph (f)(3) of this section, each 
non-resident municipal advisor subject to paragraph (f)(1) of this 
section shall furnish to the Commission a written notice specifying the 
address of the place within the United States where the copies of the 
books and records required to be kept and preserved by such municipal 
advisor pursuant to paragraph (f)(1) of this section are located. Each 
non-resident municipal advisor registered or applying for registration 
when this paragraph becomes effective shall file such notice within 30 
days after this paragraph becomes effective. Each non-resident 
municipal advisor that files an application for registration after this 
paragraph becomes effective shall file such notice with such 
application for registration.
    (3) Notwithstanding the provisions of paragraphs (f)(1) and (2) of 
this section, a non-resident municipal advisor need not keep or 
preserve within the United States copies of the books and records 
referred to in paragraphs (f)(1) and (2) of this section, if:
    (i) Such non-resident municipal advisor files with the Commission, 
at the time or within the period provided by paragraph (f)(2) of this 
section, a written undertaking, in a form acceptable to the Commission 
and signed by a duly authorized person, to furnish to the Commission, 
upon demand, at the Commission's principal office in Washington, DC, or 
at any Regional Office of the Commission designated in such demand, 
true, correct, complete, and current copies of any or all of the books 
and records which such municipal advisor is required to make, keep 
current, maintain, or preserve pursuant to any provision of any rule or 
regulation of the Commission adopted under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a et seq.), or any part of such books and records 
that may be specified in such demand. Such undertaking shall be in 
substantially the following form:
    The undersigned hereby undertakes to furnish at its own expense to 
the Securities and Exchange Commission at the Commission's principal 
office in Washington, DC or at any Regional

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Office of the Commission specified in a demand for copies of books and 
records made by or on behalf of the Commission, true, correct, 
complete, and current copies of any or all, or any part, of the books 
and records that the undersigned is required to make, keep current, or 
preserve pursuant to any provision of any rule or regulation of the 
Securities and Exchange Commission under the Securities Exchange Act of 
1934. This undertaking shall be suspended during any period when the 
undersigned is making, keeping current, and preserving copies of all of 
said books and records at a place within the United States in 
compliance with 17 CFR 240.15Ba1-7(f)(1). This undertaking shall be 
binding upon the undersigned and the heirs, successors and assigns of 
the undersigned, and the written irrevocable consents and powers of 
attorney of the undersigned, its general partners, and managing agents 
filed with the Securities and Exchange Commission shall extend to and 
cover any action to enforce the same.

and
    (ii) Such non-resident municipal advisor furnishes to the 
Commission, at such municipal advisor's own expense 14 days after 
written demand therefor forwarded to such municipal advisor by 
registered mail at such municipal advisor's last address of record 
filed with the Commission and signed by the Secretary of the Commission 
or such person as the Commission may authorize to act in its behalf, 
true, correct, complete, and current copies of any or all books and 
records which such municipal advisor is required to make, keep current, 
or preserve pursuant to any provision of any rule or regulation of the 
Commission adopted under the Securities and Exchange Act of 1934, or 
any part of such books and records that may be specified in said 
written demand. Such copies shall be furnished to the Commission at the 
Commission's principal office in Washington, DC, or at any Regional 
Office of the Commission which may be specified in said written demand.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    3. The general authority citation for part 249 is amended by adding 
the following citation in numerical order to read as follows:

    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; and 18 
U.S.C. 1350, unless otherwise noted.
* * * * *

    Sections 249.1300, 1310, 1320 and 1330 are also issued under 
Pub. L. 111-203, Sec.  975, 124 Stat. 1376, 1915-1923 (2010).

* * * * *
    4. Subpart N is amended by removing Sec.  249.1300T and adding 
Sec. Sec.  249.1300, 249.1310, 249.1320, and 249.1330 to read as 
follows:

Subpart N--Forms for Registration of Municipal Advisors

Sec.
249.1300 Form MA, for registration as a municipal advisor, and for 
amendments to registration.
249.1310 Form MA-I, for registration as a municipal advisor, and for 
amendments to registration.
249.1320 Form MA-W, for withdrawal from registration as a municipal 
advisor.
249.1330 Form MA-NR, for appointment of agent for service of process 
by non-resident municipal advisor, and non-resident general partner 
and non-resident managing agent of a municipal advisor.


Sec.  249.1300  Form MA, for registration as a municipal advisor, and 
for amendments to registration.

    The form shall be used for registration as municipal advisors by 
persons other than natural persons, and by sole proprietors, and for 
amendments to registrations pursuant to Section 15B of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o-4).


Sec.  249.1310  Form MA-I, for registration as a municipal advisor, and 
for amendments to registration.

    The form shall be used for registration as municipal advisors by 
natural persons, and for amendments to registrations, pursuant to 
Section 15B of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4).


Sec.  249.1320  Form MA-W, for withdrawal from registration as a 
municipal advisor.

    The form shall be used for filing a notice of withdrawal from 
registration as a municipal advisor pursuant to Section 15B of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-4).


Sec.  249.1330  Form MA-NR, for appointment of agent for service of 
process by non-resident municipal advisor, and non-resident general 
partner and non-resident managing agent of a municipal advisor.

    The form shall be used for appointment of agent for service of 
process by a non-resident general partner and non-resident managing 
agent of a municipal advisor pursuant to Section 15B of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o-4).

    By the Commission.

    Dated: December 20, 2010.
Elizabeth M. Murphy,
Secretary.
    Note: The following Forms will not appear in the Code of Federal 
Regulations:
BILLING CODE 8011-01-P

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[FR Doc. 2010-32445 Filed 1-5-11; 8:45 am]
BILLING CODE 8011-01-C


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