[Federal Register Volume 83, Number 123 (Tuesday, June 26, 2018)]
[Notices]
[Pages 29855-29861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13619]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83483; File No. SR-MSRB-2018-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To, Among Other Things, Amend MSRB Rule G-3 To Restructure the 
MSRB's Current Municipal Securities Representative Qualification 
Examination and Harmonize Certain MSRB Qualification Requirements With 
FINRA Rules

June 20, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on June 8, 2018 the Municipal Securities 
Rulemaking Board (the ``MSRB'' or ``Board'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the MSRB. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change to amend 
MSRB Rule G-3, on professional qualification requirements, to (i) 
restructure the MSRB's current Municipal Securities Representative 
Qualification Examination (``Series 52''); (ii) harmonize certain MSRB 
qualification requirements with the Financial Industry Regulatory 
Authority's (``FINRA'') rule change to make modifications to its 
representative-level qualification program, consolidate NASD and 
Incorporated NYSE registration and qualification rules, and amend its 
continuing education (``CE'') requirements (hereinafter ``FINRA's 
consolidated rule change''); \3\ and (iii) make technical changes to 
Rule G-3 (collectively the ``proposed rule change''). The MSRB has 
filed the proposed rule change for immediate effectiveness pursuant to 
Section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) \5\ thereunder. 
The MSRB proposes an operative date of October 1, 2018, to coincide 
with the effective date of FINRA's consolidated rule change.
---------------------------------------------------------------------------

    \3\ On July 7, 2017, the SEC approved FINRA's consolidated rule 
change to: (1) restructure FINRA's representative-level 
qualification examination program; (2) adopt amendments to 
consolidate NASD and Incorporated NYSE rules as FINRA's consolidated 
qualification and registration rules; and (3) amend FINRA's CE 
requirements. See Exchange Act Release No. 81098 (July 7, 2017), 82 
FR 32419 (July 13, 2017) (SR-FINRA-2017-007).
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the MSRB's 
website at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2018-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the MSRB included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The MSRB has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    MSRB The MSRB is charged with setting professional qualification 
standards for brokers, dealers, and municipal securities dealers 
(``dealers''), and municipal advisors. Specifically, Section 
15B(b)(2)(A) of the Act authorizes the MSRB to prescribe ``standards of 
training, experience, competence, and such other qualifications as the 
Board finds necessary or appropriate in the public interest or for the 
protection of investors and municipal entities or obligated persons.'' 
\6\ Section 15B(b)(2)(A)(iii) of the Act also provides that the Board 
may appropriately classify associated persons of dealers and municipal 
advisors and require persons in any such class to pass tests prescribed 
by the Board.\7\ Accordingly, over the years, the MSRB has adopted 
professional qualification standards to ensure that associated persons 
of dealers and municipal advisors attain and maintain specified levels 
of competence and knowledge for each classification category. The 
purpose of the proposed rule change is to generally harmonize Rule G-3 
with approved amendments to

[[Page 29856]]

FINRA's professional qualification and registration rules in 
furtherance of promoting regulatory consistency with respect to 
qualification requirements. To that end, the MSRB is proposing to (i) 
require the Securities Industry Essentials (SIE) examination as a 
prerequisite for the Series 52 examination; (ii) restructure the Series 
52 examination into a specialized knowledge examination; (iii) amend 
Rule G-3 to further harmonize with FINRA's consolidated rule change by 
providing for permissive registrations and relief to individuals from 
having to requalify by examination by recognizing the financial 
services affiliate (``FSA'') waiver program; and (iv) make other 
amendments that are technical in nature.
---------------------------------------------------------------------------

    \6\ See 15 U.S.C. 78o-4(b)(2)(A).
    \7\ See 15 U.S.C. 78o-4(b)(2)(A)(iii).
---------------------------------------------------------------------------

Background
    FINRA's consolidated rule change reflected a multi-year effort to 
not only create a consolidated FINRA rulebook, but to create the SIE 
and tailored, specialized knowledge examinations for its particular 
registration categories, and also to enhance its registration rules to 
afford firms greater flexibility to develop and maintain a depth of 
registered associated persons with professional qualifications. The 
consolidated rule change began, in part, in December 2009, with the 
publication of FINRA Regulatory Notice 09-70 \8\ requesting comment on, 
among other things: (i) Revising the categories of permissive 
registrations to allow any associated person to obtain and maintain any 
registration permitted by the member; and (ii) establishing a process 
by which a person working for a financial services affiliate of a 
member would be permitted to re-associate with a member without having 
to meet the necessary qualification requirements.\9\
---------------------------------------------------------------------------

    \8\ See Regulatory Notice 09-70 (FINRA Requests Comment on 
Proposed Consolidated FINRA Rules Governing Registration and 
Qualification Requirements) (December 2009).
    \9\ FINRA received over 20 comments in response to Regulatory 
Notice 09-70.
---------------------------------------------------------------------------

    In May 2015, in connection with its continued efforts to streamline 
its registration and qualification rules, FINRA published Regulatory 
Notice 15-20 \10\ seeking comment on a proposal to restructure its 
representative-level qualification examination program. The 
restructured program consists of the SIE examination paired with 
specialized knowledge examinations for specific representative-level 
qualifications. The SIE examination is designed to cover fundamental 
knowledge that is commonly tested across the representative-level 
examinations, such as product knowledge, functions of the regulatory 
agencies, and structure of the securities markets. Each specialized 
knowledge examination would test knowledge of concepts and rules 
specifically corresponding to a particular representative-level 
qualification.
---------------------------------------------------------------------------

    \10\ See Regulatory Notice 15-20 (FINRA Requests Comment on a 
Concept Proposal to Restructure the Representative-Level 
Qualification Examination Program) (May 2015). FINRA received over 
20 comments in response to Regulatory Notice 15-20.
---------------------------------------------------------------------------

    In March 2017, FINRA's consolidated rule change was filed with the 
SEC to: (i) Consolidate, with amendments, the NASD and Incorporated 
NYSE qualification and registration rules; (ii) restructure FINRA's 
representative-level qualification examination program with the 
creation of the SIE; and (iii) amend FINRA's CE requirements. All 
proposed amendments were subject to notice and comment through FINRA's 
previous requests for comments. FINRA's proposed rule change was 
published for comment in the Federal Register on April 10, 2017; the 
SEC received 18 comments in response to the proposal, which FINRA 
responded to on June 26, 2017.\11\ The SEC found that the proposal was 
consistent with the requirements of the Exchange Act and the rules and 
regulations thereunder and approved FINRA's proposed rule changes.\12\ 
Thereafter, FINRA announced that its consolidated rule change would 
become effective on October 1, 2018 in Regulatory Notice 17-30 (October 
2017).
---------------------------------------------------------------------------

    \11\ The SEC received another comment letter in response to 
FINRA's response to comments. See Letter from Michele Van Tassel, 
President, Association of Registration Management, to Afshin 
Atabaki, Associate General Counsel, Financial Industry Regulatory 
Authority (July 21, 2017).
    \12\ Specifically, the Commission found that the proposed rule 
change was consistent with Section 15A(b)(6) of the Exchange Act, 15 
U.S.C. 78o-3(b)(6), which requires, among other things, that FINRA 
rules be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and, 
in general, to protect investors and the public interest and Section 
15(A)(g)(3) of the Exchange Act, 15 U.S.C. 78o-3(g)(3), which 
authorizes FINRA to prescribe standards of training, experience, and 
competence for persons associated with FINRA members.
---------------------------------------------------------------------------

    The MSRB conducted a review of its qualifications program to 
determine where it was appropriate to harmonize with FINRA's 
consolidated rule change. Provided below is a detailed description of 
the proposed amendments to Rule G-3.
Description of the Proposed Amendments to Rule G-3--Designed To Promote 
Regulatory Consistency With FINRA's Consolidated Rule Change
Permissive Registrations
    FINRA's consolidated rule change expanded the scope of permissive 
registrations under NASD Rules 1021 and 1031 to eliminate a constraint 
that only certain associated persons of a member could obtain 
permissive registrations and to codify such provisions as FINRA Rule 
1210.02. Specifically, as approved, FINRA Rule 1210.02 allows any 
associated person of a member to obtain and maintain any registration 
permitted by the member irrespective of the functional role of the 
person at the firm. In addition, FINRA Rule 1210.02 provides that a 
person maintaining a permissive registration would be deemed a 
registered person of the firm and be assigned an appropriately 
registered supervisor who would be responsible for periodically 
contacting such individual's direct supervisor to verify that the 
individual is not engaging in activities outside the scope of his or 
her current role.\13\ The individual would nevertheless be subject to 
all FINRA rules to the extent relevant to their activities.\14\
---------------------------------------------------------------------------

    \13\ An individual's day-to-day supervisor may be a non-
registered person, however an appropriately registered supervisor 
would be responsible for periodic check-ins to make sure that the 
individual is not acting outside the scope of his or her assigned 
functions.
    \14\ For example, FINRA rules that relate to interactions with 
customers would not be applicable to the conduct of a permissively-
registered individual who does not have any customer contact.
---------------------------------------------------------------------------

    The MSRB is proposing to amend Rule G-3 to adopt Supplementary 
Material .03 that would similarly allow dealers to have any associated 
person at a dealer maintain certain MSRB qualifications. More 
specifically, any individual associated with a dealer would be allowed, 
if permitted by the dealer, to obtain and maintain a registration as a 
municipal securities representative, a municipal securities principal 
or a municipal fund securities limited principal. Additionally, 
proposed Supplementary Material .03 would make clear that individuals 
maintaining permissive registrations pursuant to Rule G-3 would be 
considered qualified persons and, to the extent relevant to the 
person's activities, the person would be subject to applicable MSRB 
rules.\15\ The MSRB recognizes that allowing dealers to

[[Page 29857]]

maintain permissive qualifications for associated persons would support 
a greater regulatory understanding of the municipal securities market 
by persons currently in capacities not requiring a qualification 
classification, and would further develop the knowledge and skills of 
qualified persons, as it relates to the municipal securities market, by 
allowing permissive qualifications specific to the municipal securities 
business. Additionally, by harmonizing with FINRA's related rule on 
permissive registrations, the industry is afforded the opportunity to 
continue to develop a robust workforce and a depth of associated 
persons holding professional qualifications for purposes of better 
managing unanticipated staffing changes.
---------------------------------------------------------------------------

    \15\ At this time, the MSRB does not believe it is necessary to 
be prescriptive in this area and identify each potential rule that a 
permissively-qualified person would be subject to based on a 
particular set of activities. For example, the MSRB notes that a 
rule such as Rule G-47, on time of trade disclosure, would have very 
little application to a person holding a permissive qualification 
who does not have customer contact regarding the purchase or sale of 
municipal securities. Bearing that in mind, a facts and 
circumstances analysis would apply as to the securities laws and 
regulations applicable to persons holding permissive qualifications, 
and such a determination would need to be made by the dealer, as 
part of its supervisory obligations, under Rule G-27.
---------------------------------------------------------------------------

FSA-Waiver Program
    FINRA's consolidated rule change adopted Rule 1210.09, which 
established a waiver program for any individual registered with a 
member who subsequently leaves the firm to work for a financial 
services industry affiliate of a member,\16\ whereby, upon re-
association with a member, an individual may be granted a waiver from 
having to requalify by examination (``FSA-waiver''). In order to be 
granted a waiver under FINRA Rule 1210.09, an individual must be 
initially designated as FSA-eligible at the time the individual 
terminates association with a member and the individual must have 
satisfied the criteria, under FINRA Rule 1210.09 for an FSA-waiver.
---------------------------------------------------------------------------

    \16\ The term ``financial services industry affiliate of a 
member'' as defined under FINRA Rule 1210.09 is ``a legal entity 
that controls, is controlled by or is under common control with a 
member and is regulated by the SEC, CFTC, state securities 
authorities, federal or state banking authorities, state insurance 
authorities, or substantially equivalent foreign regulatory 
authorities.''
---------------------------------------------------------------------------

    Additionally, under FINRA Rule 1210.09, to be eligible for an 
initial designation as an FSA-eligible person by a FINRA member, an 
individual must have been registered for a total of five years within 
the most recent 10-year period prior to the designation. Once 
designated as FSA-eligible, the individual is eligible for an FSA-
waiver for up to seven years, so long as the individual is continuously 
working for a financial services industry affiliate of a member and 
other conditions are satisfied.
    Pursuant to FINRA Rule 1240, during the period an FSA-eligible 
person is working for a financial services industry affiliate, the 
person is required to complete the Regulatory Element portion of CE 
that correlates with such person's most recent registration category 
and based on the same CE cycle had the person remained registered. 
Consequently, a person loses the ability to qualify for an FSA-waiver 
if such person fails to complete the mandatory Regulatory Element 
portion of CE. FINRA Rule 1210.09 provides that once an FSA-eligible 
person re-associates with a FINRA member, the firm can file a Form U4 
(Uniform Application for Securities Industry Registration or Transfer) 
and request that the individual's prior FINRA registration(s) be 
reinstated without having to requalify by examination.
    The MSRB is proposing to amend Rule G-3 to adopt Supplementary 
Material .04 that would allow a municipal securities representative, 
municipal securities principal and/or a municipal fund securities 
limited principal \17\ to be eligible for a waiver from having to 
requalify by examination, for such MSRB qualifications, if the 
following conditions are met:
---------------------------------------------------------------------------

    \17\ An individual who has passed the Municipal Securities 
Representative Qualification Examination (Series 52), Municipal 
Securities Principal Qualification Examination (Series 53) and 
Municipal Fund Securities Limited Principal Qualification 
Examination (Series 51), respectively.
---------------------------------------------------------------------------

    1. An individual must have been registered with a dealer for a 
total of five years within the most recent 10-year period prior to 
working for a financial services industry affiliate, which shall be a 
legal entity that controls, is controlled by or is under common control 
with a dealer and is regulated by the SEC, CFTC, state securities 
authorities, federal or state banking authorities, state insurance 
authorities, or substantially equivalent foreign regulatory 
authorities.
    2. The individual has continuously worked for a financial services 
industry affiliate(s) of a dealer since terminating association with a 
dealer;
    3. The individual has completed the Regulatory Element portion of 
CE consistent with the requirements under Rule G-3(i)(i)(A) based on 
the person's most recent registration status and such CE has been 
completed based on the same cycle, as if the person had remained 
registered;
    4. The individual does not have any pending or adverse regulatory 
matters, or terminations and has not otherwise been subject to a 
statutory disqualification while working for a financial services 
industry affiliate(s) of a dealer; and
    5. The waiver request is made within seven years of the 
individual's initial designation as an FSA-eligible person.
    The MSRB is also proposing to amend Rule G-3(h)(i) to provide that 
associated persons that have met the conditions under Supplementary 
Material .04 shall be granted an FSA-waiver consistent with Rule G-
3(h)(i)(A) and (B). Providing for such waivers allows associated 
persons of dealers a greater opportunity to enhance their financial 
services industry knowledge without having to requalify by examination 
each time a person decides to explore different career opportunities 
with a financial services industry affiliate of a dealer.
Qualified Persons Functioning as Principals for a Limited Period
    Currently Rule G-3(b)(ii)(D) provides that an individual qualified 
as a municipal securities representative, general securities 
representative or general securities principal may function as a 
municipal securities principal for a period of 90 days before passing 
the Series 53 exam; and pursuant to Rule G-3(b)(iv)(B)(4) an individual 
qualified as a general securities representative, investment company/
variable contracts limited representative, general securities principal 
or investment company/variable contracts limited principal may function 
as a municipal fund securities limited principal for a period of 90 
days before passing the Series 51 exam. In addition, Rule G-3(c)(ii)(D) 
provides that an individual qualified as a municipal securities 
representative, general securities representative or general securities 
principal may function as a municipal securities sales principal for a 
period of 90 days before passing the General Securities Sales 
Supervisory Qualification Examination (Series 9/10).
    FINRA's consolidated rule change modified a similar FINRA provision 
\18\ permitting a registered person of a member to function as a 
principal before passing the applicable principal examination, 
increasing the time period from 90 calendar days to 120 calendar days, 
to better align the time frame with the current examination enrollment 
window.\19\ In addition, FINRA imposed an experience requirement 
providing that a registered person must have at least 18 months of 
experience functioning as a registered representative within the five-
year period immediately prior to being permitted to function as a 
principal,

[[Page 29858]]

without the applicable principal qualification examination.
---------------------------------------------------------------------------

    \18\ FINRA's consolidated rule change amended NASD Rule 1021 as 
FINRA Rule 1210.04.
    \19\ An examination enrollment window is the timeframe between a 
person registering for a professional qualification examination and 
taking the examination.
---------------------------------------------------------------------------

    Accordingly, the MSRB is proposing to amend Rule G-3(b) and (c) to 
extend the limited time period in which a person could function as a 
principal without being qualified with a principal examination, 
assuming other qualification requirements are met, from 90 days to 120 
calendar days in furtherance of also better aligning with the current 
examination enrollment window. The MSRB is also proposing to amend Rule 
G-3(b) and (c) to require that, before a qualified representative can 
be permitted to function as a principal for 120 calendar days without 
passing a principal examination, the qualified representative must have 
at least 18 months of experience within the five-year period 
immediately preceding the designation as principal. The MSRB believes 
that establishing an experience requirement ensures that individuals 
designated to supervise activities have an appropriate level of 
experience as a qualified representative before acting as a principal 
without passing the principal examination. For this reason, the 18-
month experience requirement will not apply to a qualified principal 
who is designated to function in another principal capacity for 120 
days before passing the additional principal qualification examination.
Continuing Education Program Requirements
A. Regulatory Element
    Currently, Rule G-3(i)(i)(A)(2) provides that any registered 
persons who have not completed the Regulatory Element portion of CE 
within the prescribed time frames will have their municipal securities 
registration(s) deemed inactive until the Regulatory Element 
requirements have been satisfied. Rule G-3(i)(i)(A)(2) also requires 
for any person whose registration has been deemed inactive that such 
person must cease all activities as a registered person and prohibits 
such person from performing any duties and functioning in any capacity 
requiring registration.
    FINRA's consolidated rule change codified existing guidance in 
NASD's Notice to Members 95-35, regarding the impact of failing to 
complete the Regulatory Element portion of CE on a person's activities 
and compensation, as FINRA Rule 1240(a)(2). Specifically, approved 
FINRA Rule 1240(a)(2) provides that any person whose registration has 
been deemed inactive under the rule may not accept or solicit business 
or receive any compensation for the purchase or sale of securities.\20\ 
FINRA's approved rule also prescribes that a person deemed inactive for 
failing to complete the Regulatory Element portion of CE within the 
prescribed time frames may, if it does not violate the firm's policy, 
receive trail or residual commissions resulting from transactions that 
were completed before the person's registration status was deemed 
inactive. The MSRB is proposing to amend Rule G-3(i)(i)(A)(2) to adopt 
the provision restricting any person whose municipal securities 
registration(s) have been deemed inactive for failing to complete the 
Regulatory Element portion of CE from receiving any compensation for 
transactions in municipal securities, except for trails, residual 
commissions, or like compensation resulting from transactions completed 
before the person's inactive status, unless the dealer's policy 
prohibits such trails, residual commissions or like compensation. The 
MSRB recognizes that, by adding the clause ``like compensation,'' the 
proposed amendment would provide flexibility as to the types of 
compensation permitted under the rule as compared to FINRA's approved 
rule. However, the MSRB believes that such differentiation is warranted 
to recognize the various compensation arrangements for associated 
persons of dealers with respect to transactions in municipal 
securities. For example, the compensation received by an associated 
person that is part of a dealer's public finance underwriting team is 
generally not characterized as commissions.
---------------------------------------------------------------------------

    \20\ The MSRB believes that this prohibition is adequately 
addressed currently in Rule G-3(i)(i)(A)(2) and, therefore, is not 
proposing to adopt FINRA's provision that more specifically 
articulates that such persons are prohibited from accepting or 
soliciting business.
---------------------------------------------------------------------------

B. Firm Element
    Currently, Rule G-3(i)(i)(B), on Firm Element continuing education, 
requires that a dealer maintain a continuing education program for its 
covered registered persons to enhance their securities knowledge, skill 
and professionalism. The MSRB has supported a principles-based approach 
to compliance in this area and afforded dealers' considerable 
flexibility in developing the scope and content for their Firm Element 
portion of CE subject to the enumerated minimum standards for a firm's 
training programs. A dealer's Firm Element portion of CE, as prescribed 
in Rule G-3(i)(i)(B)(2)(b), must cover, with respect to municipal 
securities products, services and strategies offered by the dealer, at 
a minimum:
    (i) General investment features and associated risk factors;
    (ii) Suitability and sales practice considerations; and
    (iii) Applicable regulatory requirements.
    FINRA's consolidated rule change also requires, pursuant to FINRA 
Rule 1240, that each member maintain a continuing education program for 
its covered registered persons to enhance their securities knowledge, 
skill and professionalism and that the training be appropriate for the 
business of the member and, at a minimum, cover, among other things, 
training in ethics and professional responsibility. The MSRB is 
proposing to amend Rule G-3(i)(i)(B)(2)(b) to adopt a similar provision 
to require dealers to also include training in ethics and professional 
responsibility for its registered persons. The MSRB believes such 
training promotes high standards of professionalism for registered 
persons.
Registration Status of Armed Forces
    The MSRB does not currently have a rule that provides an inactive 
status for an associated person that volunteers for or is called to 
active military service in the Armed Forces of the United States that 
would allow such person's registration to be tolled.
    FINRA's consolidated rule change consolidated NASD Rule IM-1000-2 
as FINRA Rule 1210.10 with certain changes, which affords relief to a 
registered person who volunteers for or is called to active military 
service in the Armed Forces of the United States by tolling such 
person's lapse of registration and CE obligations. More specifically, 
FINRA Rule 1210.10 allows, after proper notification to FINRA, for a 
member to place a registered person on inactive status, whereby such 
person does not have to re-register upon returning to active 
employment. An associated person who is placed on inactive status may 
either return to active employment with the firm the person remained 
registered with during the person's inactive status period or associate 
with a different firm. FINRA Rule 1210.10 also relieves registered 
persons on such inactive status from having to complete either the 
Regulatory Element or Firm Element portion of CE during their active 
military service.
    Additionally, during the pendency of the registered person's 
inactive status, the person may continue to receive transaction-based 
compensation, including continuing commissions. The employing member 
may also allow an inactive person to enter into an

[[Page 29859]]

agreement with a registered person of the member to take over and 
service clients' accounts, on behalf of the person, and to share 
transaction-related compensation based upon business generated by the 
accounts.
    A person who is no longer registered with a member will generally 
have their professional qualifications lapse after a period of two 
years. However, FINRA Rule 1210.10 provides that, for purposes of 
determining the two year period, a formerly registered person who 
volunteers for or is called to active military service will have that 
time tolled, commencing on the date the person began active 
service.\21\ FINRA Rule 1210.10 also provides that a sole proprietor 
who volunteers for or is called to active military service will be 
placed on inactive status and, in addition to the relief provided under 
FINRA Rule 1210.10, as a registered person, the sole proprietor will 
not be required to pay dues or assessments during the inactive period 
and will not be required to pay an admission fee upon returning to his 
or her investment banking or securities business.
---------------------------------------------------------------------------

    \21\ More specifically, FINRA's rule states that the two-year 
period for lapse of registration of its representative and 
principal-level qualifications and the four-year expiration for the 
SIE examination would be tolled for the period the individual is on 
active service.
---------------------------------------------------------------------------

    Rule G-3 generally provides that an individual who is not 
associated with a dealer or municipal advisor for a period of more than 
two years will have his or her professional qualifications lapse, 
requiring such person to requalify by examination upon re-associating 
with a dealer or municipal advisor. The MSRB is proposing to amend Rule 
G-3 to adopt Supplementary Material .05, which would provide that, for 
purposes of determining the two-year period, a formerly qualified 
associated person who volunteers for or is called to active U.S. 
military service will have that time tolled commencing on the date the 
person began active military service. Importantly, Supplementary 
Material .05 would preserve the time tolled by establishing that the 
MSRB must receive notice of the person's period of active U.S. military 
service within 90 days following the completion of such person's active 
U.S. military service.\22\ Absent such notice, the deferral will 
terminate and the period of time while on active U.S. military service 
will not have been tolled.
---------------------------------------------------------------------------

    \22\ The notice required to preserve such deferral shall be in 
the form of a letter to the MSRB that includes the individual's name 
(including, if applicable, the individual's CRD number), the start 
and end dates of the individual's active U.S. military service and 
the branch of service. Such notice shall be provided to the MSRB 
electronically at <a href="/cdn-cgi/l/email-protection#2665494b564a4f47484543664b55544408495441"><span class="__cf_email__" data-cfemail="5615393b263a3f37383533163b25243478392431">[email protected]</span></a>.
---------------------------------------------------------------------------

    In addition, proposed Supplementary Material .05 would permit an 
associated person of a dealer or municipal advisor that is qualified 
under Rule G-3, upon volunteering for or being called to active U.S. 
military service, to be deemed inactive until the associated person 
returns from active U.S. military service. Additionally, under the 
proposed rule change, during the period the associated person is on 
active U.S. military service, the person would remain eligible for 
transaction-related compensation, including continuing commissions and 
the firm could permit the inactive person to enter into an agreement 
with a qualified associated person of the dealer or municipal advisor 
to have such qualified associated person service clients on behalf of 
the inactive person and share transaction-related compensation 
resulting from the municipal securities or municipal advisory business 
generated by the accounts. In addition, an associated person of a 
dealer or municipal advisor would not be subject to the applicable CE 
obligations under Rule G-3(i) during the period of active U.S. military 
service, provided the MSRB receives notice of the associated person's 
period of active U.S. military service within 30 days of completion of 
such service.\23\
---------------------------------------------------------------------------

    \23\ The notice required shall be in the form of a letter to the 
MSRB on firm letterhead that includes the firm's MSRB ID number, the 
individual's name (including, if applicable, the individual's CRD 
number), the start and end dates of the individual's active U.S. 
military service and the branch of service. Such notice shall be 
provided to the MSRB electronically at <a href="/cdn-cgi/l/email-protection#eead81839e82878f808d8bae839d9c8cc0819c89"><span class="__cf_email__" data-cfemail="3f7c50524f53565e515c5a7f524c4d5d11504d58">[email protected]</span></a>.
---------------------------------------------------------------------------

    Proposed Supplementary Material .05 would also provide that a 
dealer or municipal advisor sole proprietor who temporarily closes his 
or her business by reason of volunteering for or being called into 
active U.S. military service shall be placed, on an inactive status 
after notice to the MSRB. As a result, in addition to the relief 
provided to the sole proprietor as a qualified associated person, the 
sole proprietor will not be required to pay fees pursuant to Rules A-11 
or A-12 that, if applicable, accrue during the inactive period. 
Further, upon returning from active U.S. military service, the dealer 
or municipal advisor sole proprietor must provide the MSRB notice 
within 30 calendar days that the sole proprietor has returned to his or 
her business.\24\
---------------------------------------------------------------------------

    \24\ The notice required shall be in the form of a letter to the 
MSRB on firm letterhead that includes the firm's MSRB ID number, the 
individual's name (including, if applicable, the individual's CRD 
number), the start and end dates of the individual's active military 
service and the branch of service. Such notice shall be provided to 
the MSRB electronically at <a href="/cdn-cgi/l/email-protection#b6f5d9dbc6dadfd7d8d5d3f6dbc5c4d498d9c4d1"><span class="__cf_email__" data-cfemail="4d0e22203d21242c232e280d203e3f2f63223f2a">[email protected]</span></a>.
---------------------------------------------------------------------------

Waiting Periods for Retaking a Failed Examination
    Rule G-3(g) allows any associated person of a broker, dealer, 
municipal securities dealer or municipal advisor who fails to pass an 
MSRB qualification examination to take the examination again after a 
period of 30 days has elapsed from the date of the prior examination, 
except that any person who fails to pass an examination three or more 
times in succession shall be prohibited from taking the examination 
again until a period of six months has elapsed from the date of such 
person's last attempt to pass the examination.
    FINRA's consolidated rule change consolidated NASD Rule 1070(e) as 
FINRA Rule 1210.06 to provide that a person who fails a FINRA 
examination may retake the examination after 30 calendar days from the 
date of the person's last attempt to pass the examination, except a 
person who fails an examination three or more times in succession 
within a two-year period may only retake the examination after 180 
calendar days from the date of the person's last attempt to pass the 
examination. In addition, FINRA Rule 1210.06 extended these provisions 
to the SIE examination.
    Although generally consistent with FINRA's approved rule, to 
promote regulatory consistency, the MSRB is proposing to amend to Rule 
G-3(g), on retaking of qualification examinations, to change the term 
``six months'' to ``180 calendar days'' and to add ``within a two-year 
period'' after the phrase ``three of more times in succession.'' The 
addition of the phrase is intended to clarify the frequency with which 
FINRA's test delivery system resets a candidate's exam history data.
Restructuring of the MSRB's Professional Qualification Examination 
Program
A. Accepting the SIE Examination and Revising the Municipal Securities 
Representative Qualification Examination
    FINRA's consolidated rule change established the SIE exam to 
eliminate the duplicative testing of general securities knowledge 
across its current representative-level qualification examinations by 
moving such content into the SIE exam.\25\ With the establishment of 
the SIE exam, FINRA restructured its representative-level exams into 
specialized knowledge examinations to test knowledge of

[[Page 29860]]

concepts and rules specifically corresponding to a particular 
representative-level qualification. FINRA Rule 1210.03, on 
qualification examinations, provides that before a person can become 
registered as a representative, such person must pass the SIE exam and 
an appropriate representative-level qualification examination.
---------------------------------------------------------------------------

    \25\ Individuals do not have to be associated with a FINRA 
member to take the SIE examination, unlike FINRA's representative-
level qualification examinations.
---------------------------------------------------------------------------

    In developing the SIE exam, FINRA established a committee of 
industry professionals to create the content outline for the SIE exam 
and invited staff from the MSRB's Professional Qualifications 
department to participate on the committee.\26\ The SIE exam content 
outline is divided into four sections, with each section addressing the 
essential areas of general knowledge. The SIE exam will consist of 75 
scored multiple-choice questions.\27\ Pursuant to FINRA Rule 1210.08, a 
passing score on the SIE exam would be valid for four years and a 
person that passes the SIE exam would have up to four years to pass a 
representative-level qualification examination in order to become 
registered in a representative-level capacity.
---------------------------------------------------------------------------

    \26\ MSRB staff reviewed the SIE content outline and provided 
substantive comments to ensure relevant MSRB rules were incorporated 
and content specific to municipal securities was addressed on the 
outline. FINRA filed the content outline and selection 
specifications for the new SIE examination with the SEC for 
immediate effectiveness. See Exchange Act Release No. 82578 (January 
24, 2018), 83 FR 4375 (January 30, 2018) (SR-FINRA-2018-002).
    \27\ The passing score for the SIE exam will be published on 
FINRA's website prior to the first administration of the examination 
in October 2018.
---------------------------------------------------------------------------

    The sections and the associated number of questions for each 
section are:
    <bullet> Section 1: Knowledge of Capital Markets (12 questions);
    <bullet> Section 2: Understanding Products and Their Risks (33 
questions);
    <bullet> Section 3: Understanding Trading, Customer Accounts and 
Prohibited Activities (23 questions); and
    <bullet> Section 4: Overview of the Regulatory Framework (7 
questions).
    Rule G-3(a)(ii), on qualification requirements, provides that 
``every municipal securities representative shall take and pass the 
Municipal Securities Representative Qualification Examination prior to 
being qualified as a municipal securities representative.'' \28\ The 
Series 52 is designed to establish that persons associated with dealers 
that effect transactions in municipal securities have attained 
specified levels of competence and knowledge to become registered as 
municipal securities representatives.
---------------------------------------------------------------------------

    \28\ An exception to the rule, allows only persons having been 
duly qualified as a general securities representative by reason of 
having passed the General Securities Representative Qualification 
Examination before November 7, 2011 to qualify as a municipal 
securities representative.
---------------------------------------------------------------------------

    The Series 52, in its current format, has general securities 
knowledge content that will be tested on the future SIE exam. The MSRB, 
therefore, intends to restructure the Series 52 as a specialized 
knowledge examination to better focus the content of the examination 
more specifically to municipal securities knowledge. Accordingly, the 
MSRB is proposing an amendment to Rule G-3(a)(ii) that would require an 
individual to pass both the SIE exam and the revised Series 52 \29\ in 
order to become qualified as a municipal securities representative.\30\ 
Additionally, the MSRB will continue to recognize, in their revised 
forms as specialized knowledge examinations, the Municipal Securities 
Sales Limited Representative Examination (Series 7) and the Limited 
Representative-Investment Company Variable Contracts Product 
Representative Examination (Series 6) in furtherance of regulatory 
consistency and for purposes of avoiding impact to the current 
distribution channel for the sale of municipal securities.
---------------------------------------------------------------------------

    \29\ The content outlines for MSRB's qualification examinations 
serve as a guide to the subject matters tested on each examination. 
The MSRB's Series 52/53 Subcommittee of the Professional 
Qualification Advisory Committee has been reviewing the current 
content covered on the Series 52 examination to determine the 
revisions that will be necessary to appropriately modify the Series 
52 into a specialized knowledge examination. In connection with the 
filing of this proposed rule change, and in advance of the October 
1, 2018 effective date of the proposed rule change, the MSRB 
anticipates filing with the SEC a revised Series 52 content outline 
to reflect the modifications to the Series 52 examination and the 
removal of duplicative content that would appear on the SIE exam.
    \30\ Since the SIE examination is meant to eliminate duplicative 
testing of general content across representative-level examinations 
and thereby, affording the opportunity for representative-level 
examinations to become more specialized knowledge examinations there 
is no impact to the Series 51 exam and Series 53 exam that would 
necessitate restructuring of those principal-level exams.
    \31\ 15 U.S.C. 78o-4(b)(2)(A).
---------------------------------------------------------------------------

2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(A) of the Act,\31\ which provides that the MSRB's 
rules shall prescribe:

such standards of training, experience, competence, and such other 
qualifications as the Board finds necessary or appropriate in the 
public interest or for the protection of investors and municipal 
entities or obligated persons. In connection with the definition and 
application of such standards the Board may . . . specify that all 
or any portion of such standards shall be applicable to any such 
class; and require persons in any such class to pass tests . . .

    The MSRB believes that, by requiring persons to take and pass a 
professional qualification examination, such requirement promotes 
public confidence by ensuring the minimum standards of training, 
experience and competence required by the Board are being achieved. The 
MSRB also believes that the restructuring of its current qualification 
examination program is consistent with and in furtherance of the stated 
objectives of Section 15B(b)(2)(A) of the Act because by ensuring the 
Series 52 specialized knowledge examination focuses on the most 
relevant laws, rules and regulations of the municipal securities 
market, investors are more well protected. Also, by more closely 
aligning the Series 52 specialized knowledge examination content to the 
functions and activities performed by a municipal securities 
representative, such associated persons are more likely to fully grasp 
the prescribed regulatory standards, which aides to preserve the 
integrity of the municipal securities market. Importantly, without 
compromising the qualification standards, the proposed rule change 
would improve the efficiency of the examination program by eliminating 
duplicative testing of general securities knowledge.
    Moreover, consistent with Section 15B(b)(2)(A) of the Act, 
permitting such persons to work at an industry affiliate of a dealer 
without having to requalify by examination upon re-registering with a 
dealer, by permitting them to seek a waiver from re-examination, lends 
itself to a greater understanding of the financial services industry. 
Further, the proposed rule change would allow individuals to maintain 
their knowledge base while working in areas ancillary to the municipal 
securities market, thereby providing such market professionals 
additional securities knowledge, which, in turn, promotes confidence in 
market professionals. The proposed rule change would also expand the 
scope of permissive qualifications, which, among other things, would 
allow dealers to develop a depth of associated persons with 
qualifications to respond to unanticipated personnel changes and would 
encourage a greater understanding of the municipal securities markets. 
As proposed, by allowing individuals to function in a principal 
capacity for a limited period of time before having to pass a 
principal-level examination would

[[Page 29861]]

minimize operational disruptions to a dealer.
    Lastly, under the proposed rule change, allowing associated persons 
that volunteer for or are called into active U.S. military service to 
be placed in an inactive status allows for regulatory consistency and 
promotes the public interest.

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

    The MSRB does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change 
reflects the MSRB's belief that its registration requirements should be 
generally harmonized with FINRA's consolidated rule change for purposes 
of regulatory efficiency and that such changes do not attach additional 
burdens on dealers, and as applicable, municipal advisors. In addition, 
the MSRB's restructuring of its qualification examination program to 
better align with the functions and associated tasks currently 
performed by a municipal securities representative makes for a more 
effective qualification examination.

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

    The Board did not solicit comment on the proposed change. 
Therefore, there are no comments on the proposed rule change received 
from members, participants or others.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \32\ and Rule 19b-
4(f)(6) thereunder.\33\
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d8aaadb4bdf5bbb7b5b5bdb6acab98abbdbbf6bfb7ae"><span class="__cf_email__" data-cfemail="8dfff8e1e8a0eee2e0e0e8e3f9fecdfee8eea3eae2fb">[email protected]</span></a>. Please include 
File Number SR-MSRB-2018-04 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2018-04. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the MSRB. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MSRB-2018-04 and should be submitted on 
or before July 17, 2018.

    For the Commission, pursuant to delegated authority.\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13619 Filed 6-25-18; 8:45 am]
 BILLING CODE 8011-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>