[Federal Register Volume 86, Number 159 (Friday, August 20, 2021)]
[Notices]
[Pages 46890-46896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17830]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92677; File No. SR-MSRB-2021-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change Consisting of 
Amendments to Rule G-10, on Investor and Municipal Advisory Client 
Education and Protection, and Rule G-48, on Transactions With 
Sophisticated Municipal Market Professionals, To Amend Certain Dealer 
Obligations

August 16, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on August 2, 2021 the Municipal Securities 
Rulemaking Board (``MSRB'' or ``Board'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the MSRB. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change 
consisting of amendments to MSRB Rule G-10, on investor and municipal 
advisory client education and protection, and MSRB Rule G-48, on 
transactions with sophisticated municipal market professionals 
(``SMMPs'') (collectively, the ``proposed rule change''). The proposed 
rule change would clarify the scope of the requirements for brokers, 
dealers and municipal securities dealers (collectively, ``dealers'') to 
provide the required notifications under Rule G-10 to those customers 
who would best be served by the receipt of the information and make 
accompanying amendments to Rule G-48 to exclude SMMPs from certain 
requirements under Rule G-10.\3\
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    \3\ Under MSRB Rule D-9, a ``customer'' means ``any person other 
than a broker, dealer, or municipal securities dealer acting in its 
capacity as such or an issuer in transactions involving the sale by 
the issuer of a new issue of its securities.''
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    If the Commission approves the proposed rule change, the MSRB will 
announce the effective date of the proposed rule change no later than 
10 days following Commission approval. The effective date will be no 
later than 30 days following Commission approval.
    The text of the proposed rule change is available on the MSRB's 
website at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2021-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

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

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

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

1. Purpose
Background
    In 2017, the MSRB amended Rule G-10 with the goal of, among other 
things, modernizing the rule and extend the rule's application to 
municipal advisors.\4\ Prior to that time, the rule only applied to 
dealers and required dealers to provide a customer with a paper copy of 
the MSRB's investor brochure after a customer had made a complaint to 
the dealer.\5\ Recognizing this requirement did not afford customers 
the best use of the information in a timely manner, the 2017 amendments 
replaced the post-

[[Page 46891]]

complaint delivery requirement with more timely delivery requirements.
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    \4\ See Exchange Act Release No. 79801 (January 13, 2017), 82 FR 
7898 (January 23, 2017) (File No. SR-MSRB-2016-15). The 2017 
amendments created similar obligations for municipal advisors to 
provide their municipal advisory clients with certain notifications. 
The text of the amendments addressed the scope of Rule G-10 
obligations for municipal advisors by specifically defining 
``municipal advisory client'' for purposes of Rule G-10 to include 
``either a municipal entity or obligated person for whom the 
municipal advisor engages in municipal advisory activities, as 
defined in rule G-42(f)(iv), or a broker, dealer, municipal 
securities dealer, municipal advisor, or investment adviser (as 
defined in section 202 of the Investment Advisers Act of 1940) on 
behalf of whom the municipal advisor undertakes a solicitation of a 
municipal entity or obligated person, as defined in Rule 15Ba1-1(n), 
17 CFR 240.15Ba1-1(n), under the Act.''
    \5\ See Exchange Act Release No. 24764 (July 31, 1987), 52 FR 
29459 (August 7, 1987) (File No. SR-MSRB-87-6).
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    Rule G-10, as designed, serves to educate and protect investors and 
municipal advisory clients by providing them with information about the 
MSRB rules designed to protect them and the process for filing a 
complaint with the appropriate regulatory authority. The rule currently 
requires dealers and municipal advisors (collectively, ``regulated 
entities'') to provide certain notifications to customers and municipal 
advisory clients, respectively, once every calendar year. More 
specifically, Rule G-10 requires regulated entities to provide, in 
writing, which may be made electronically, the following information 
(``required notifications''):
    (i) A statement that the regulated entity is registered with the 
SEC and the MSRB;
    (ii) The website address for the MSRB; and
    (iii) A statement as to the availability to the customer or 
municipal advisory client of a brochure that is available on the MSRB's 
website that describes the protections that may be provided by MSRB 
rules, and how to file a complaint with an appropriate regulatory 
authority.\6\
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    \6\ See MSRB's ``Information for Municipal Securities 
Investors,'' available at https://www.msrb.org/~/media/Files/
Resources/MSRB-Investor-Brochure.ashx?la=en and ``Information for 
Municipal Advisory Clients,'' available at https://www.msrb.org/~/
media/Files/Resources/MSRB-MA-Clients-Brochure.ashx?la=.
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    Given there has been a reasonable implementation period to allow 
the MSRB time to obtain meaningful insight on the operation of the 
rule, the MSRB conducted a retrospective review of the obligations 
under Rule G-10. The MSRB identified an opportunity to reduce certain 
compliance burdens by re-evaluating the potential benefits of the rule 
to better align the scope of the rule's application. The proposed rule 
change is specific to the dealer obligations under Rule G-10 and the 
MSRB is not proposing to modify municipal advisors' obligations under 
the rule because the obligation municipal advisors have under Rule G-10 
is already limited in scope in that a municipal advisor must provide 
the required notifications promptly after the establishment of a 
municipal advisory relationship, as defined in MSRB Rule G-42(f)(v), or 
promptly, after entering into an agreement to undertake a solicitation, 
as defined in Rule 15Ba1-1(n), 17 CFR 240.15Ba1-1(n), under the Act, 
and then no less than once each calendar year thereafter during the 
course of that agreement. The obligation dealers currently have under 
Rule G-10 is broader in that each dealer must provide the required 
notifications to all customers, including SMMPs, even if those 
customers have not effected any transaction in municipal securities and 
may never effect a transaction in municipal securities.\7\ Recognizing 
that MSRB Rule G-48 underscores the differences between dealer 
obligations to non-SMMP customers and SMMP customers, the MSRB also 
assessed whether a modification to Rule G-48 was warranted.
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    \7\ On December 7, 2020, the MSRB issued MSRB Request for Input 
on Strategic Goals and Priorities, available at https://
www.msrb.org/~/media/Files/Regulatory-Notices/RFCs/2020-
19.ashx??n=1, with a comment period deadline of January 11, 2021. 
Two commenters recommended changes to certain dealer obligations 
under Rule G-10. See Letter from Mike Nicholas, Chief Executive 
Officer, Bond Dealers of America (BDA), dated January 11, 2021. See 
also Letter from Leslie Norwood, Managing Director and Associate 
General Counsel and Bernard Canepa, Vice President and Assistant 
General Counsel, Securities Industry and Financial Markets 
Association (SIFMA), dated January 11, 2021.
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Proposed Amendments to Rules G-10 and G-48: Dealer Obligation To Make 
Required Notifications
I. Customer Receipt of Required Notifications
    The proposed amendment to Rule G-10(a), would require dealers to 
provide the notifications to those customers for whom a purchase or 
sale of a municipal security was effected and to each customer who 
holds a municipal securities position. Narrowing the scope to those 
customers that engage in municipal securities transactions would reduce 
the burden of remitting the notifications unnecessarily to all 
customers, while ensuring that dealers remit the notifications to 
customers who would most benefit from receiving them. Customers who do 
not receive the notifications directly pursuant to Rule G-10(a) will 
still have access to them as section (b) of Rule G-10 would require 
each dealer to have the required notifications available on its website 
for the benefit of such customers. As a result, the MSRB does not 
believe there is a detrimental impact to such customers and believes 
that not receiving the notifications may avoid confusion for customers 
who currently receive such notifications even though they have not 
effected a municipal securities transaction or hold municipal 
securities.
    The proposed rule change would also amend Rule G-48 to modify a 
dealer's obligation under Rule G-10. Specifically, the proposed 
amendment to add section (f) to Rule G-48 would allow a dealer to make 
the notifications available on its website rather than remit the 
notifications to an SMMP pursuant to Rule G-10(a).\8\ The MSRB believes 
that customers who meet the definition of SMMPs under Rule D-15 are 
sophisticated in their understanding of the municipal market. In the 
event that an SMMP is seeking the information found in the required 
notifications, including the MSRB's website address, dealer 
registration status and how to file a complaint with the appropriate 
regulatory agency, a sophisticated customer is likely to know the 
information, or seek access to it from the dealer's or MSRB's website. 
The proposed amendment to Rule G-48 balances the burden on dealers to 
remit the required notifications to SMMPs against the usefulness of 
SMMPs receiving such notifications when the information is otherwise 
readily available. This modified obligation dealers have with respect 
to SMMPs is proposed section (f) of Rule G-48, in keeping with the 
placement of other modified obligations for transactions with SMMPs 
under Rule G-48.
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    \8\ In order for a customer to be deemed an SMMP, MSRB Rule D-15 
requires dealers to determine the nature of the customer, the 
customer's sophistication level, and also requires a customer 
affirmation, as specified in the rule.
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II. Exception for Dealers Subject to Carrying Agreements
    The proposed amendments to Rule G-10 would apply to all dealers, 
with two general exceptions: (i) A dealer that does not have customers, 
or (ii) a dealer that is a party to a carrying agreement in which the 
carrying dealer has agreed to comply with the requirement to provide 
notifications under the rule. The proposed amendment to section (c) of 
Rule G-10 would provide that any dealer that does not have customers, 
or who is a party to a carrying agreement in which the carrying dealer 
has agreed to comply with the required notification requirements, would 
be exempt from the Rule G-10(a) requirements. The MSRB recognizes that 
customer accounts may be held at other dealers, subject to a carrying 
agreement, and that the carrying dealers are responsible for providing 
account statements and trade confirmations. Therefore, the proposed 
amendment to Rule G-10(c) is meant to acknowledge common business 
practices and facilitate carrying dealers' compliance with the 
requirement to provide notifications under the rule, on behalf of other 
dealers.\9\ Additionally,

[[Page 46892]]

the proposed amendments would expressly clarify that the dealer would 
not be subject to the notifications requirement, under Rule G-10(a), in 
cases where dealers conduct a limited business and are not considered 
to have customers.
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    \9\ The proposed rule change promotes regulatory consistency 
with section (b)(2) of FINRA Rule 2267, on Investor Education and 
Protection, which provides that any member that does not have 
customers or is a party to a carrying agreement where the carrying 
firm member complies with the rule is exempt from the requirements 
of the rule.
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III. Supplementary Material to Rule G-10
    The proposed rule change would include supplementary material under 
Rule G-10 that would provide clarity on the timeframe for delivery of 
the required notifications. Supplementary Material .01 of Rule G-10 
would make clear that the obligation to provide the required 
notifications once each calendar year to applicable customers would be 
deemed satisfied if dealers deliver the required notifications at a 
given point in each calendar year so long as any customers that 
effected a transaction in municipal securities or held municipal 
securities after that given date in each calendar year receive the 
notifications within the following rolling 12-month period. More 
explicitly, after a dealer provides the required notifications to the 
applicable customers, the ensuing notifications must be provided within 
12 months from the date of the preceding notifications, but may be 
provided within a shorter time period.\10\ The MSRB believes that the 
proposed amendments would foster greater flexibility with respect to 
the timing of the required notifications, and would also ensure that 
each applicable customer receives the required notification within a 
rolling 12-month period; and thereby, ease operational concerns.
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    \10\ A dealer may, of course, elect to provide the required 
notification more frequently than a rolling 12-month basis.
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    For example, assume a dealer opts to remit the required 
notifications on June 30, 2022, and in September 2002 a non-SMMP 
customer who has never held municipal securities effects a transaction 
in municipal securities for the first time. The dealer would not be 
required to remit the notifications to that customer in calendar year 
2022, but the dealer would be obligated to remit the notification to 
that customer, and all other applicable customers, on or before June 
30, 2023. In no event may a dealer exceed 12 months without remitting 
the notifications to a non-SMMP customer who has effected a transaction 
in municipal securities or who holds municipal securities.
    The proposed rule change makes technical amendments to streamline 
the required notifications by deleting the current provision (a)(ii) of 
Rule G-10 and placing the reference to the website address for the 
Municipal Securities Rulemaking Board within the proposed amended 
provision that re-numbers provision (a)(iii) of Rule G-10 to provision 
(a)(ii). The proposed amendments also re-numbers the remainder of Rule 
G-10, accordingly.
2. Statutory Basis
    Section 15B(b)(2)(C) of the Exchange Act \30\ provides that the 
MSRB's rules shall:

    be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in municipal securities and 
municipal financial products, to remove impediments to and perfect 
the mechanism of a free and open market in municipal securities and 
municipal financial products, and, in general, to protect investors, 
municipal entities, obligated persons, and the public interest.

    The MSRB believes that the proposed rule change is consistent with 
Sections 15B(b)(2) \11\ and 15B(b)(2)(C) \12\ of the Exchange Act. Rule 
G-10 would continue to be designed to prevent fraudulent and 
manipulative acts and the proposed rule change does not diminish such 
protections. The proposed rule change would help promote just and 
equitable principles of trade, and protect investors, municipal 
entities, obligated persons and the public interest by ensuring that 
customers who have effected a transaction in municipal securities or 
hold a municipal securities position, during the requisite period, 
receive information that would be useful to them in understanding the 
regulatory framework. The proposed rule change may also avoid confusion 
because dealers would not have to provide notifications to customers 
who have not effected any municipal securities transactions. More 
specifically, the proposed rule change is designed to ensure that 
applicable customers receive beneficial information, through the MSRB's 
investor brochure, on how to file a complaint about dealers with the 
appropriate regulatory authority and an overview of the investor 
protections provided by MSRB rules. The required notifications, which 
would be provided once each calendar year, are in support of curbing 
potential fraudulent and manipulative practices, by creating an 
awareness amongst customers of the SEC and MSRB.
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    \11\ 15 U.S.C. 78o-4(b)(2).
    \12\ 15 U.S.C. 78o-4(b)(2)(C).
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    Additionally, for all other customers, including SMMPs, while 
dealers will not have to provide the required notifications pursuant to 
Rule G-10(a), such dealers would have to make the required 
notifications available on their websites in accordance with the rule, 
and other applicable MSRB rules and federal securities laws, which is 
in furtherance of the public interest. The MSRB believes that the 
proposed amendments to Rule G-48 to effectuate the exemption for 
remitting notifications to SMMPs, so long as the SMMPs have access to 
such notifications on a dealer's website, will facilitate transactions 
in municipal securities and help perfect the mechanism of a free and 
open market in municipal securities by avoiding the imposition of 
regulatory burdens upon dealers where they appear to be unnecessary. 
The MSRB currently understands that SMMPs are generally knowledgeable 
about the registration status of a dealer and how to file a complaint 
if warranted and can access the information on a dealer's website as 
needed.

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

    Section 15B(b)(2)(C) of the Exchange Act requires that MSRB rules 
not be designed to impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.\13\ The 
MSRB has considered the economic impact associated with the proposed 
rule change, including a comparison to reasonable alternative 
regulatory approaches, relative to the baseline.\14\ The MSRB does not 
believe that the proposed rule change would impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.
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    \13\ 15 U.S.C. 78o-4(b)(2)(C).
    \14\ See Policy on the Use of Economic Analysis in MSRB 
Rulemaking, available at http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx. In evaluating whether there was a 
burden on competition, the Board was guided by its principles that 
required the Board to consider costs and benefits of a rule change, 
its impact on capital formation and the main reasonable alternative 
regulatory approaches.
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    The purpose of amending Rule G-10 is to better refine the 
requirement for dealers to provide the required notifications to 
specified customers. Rule G-10 was originally designed to protect 
investors by providing them with the information necessary through the 
investor brochure to file a complaint about their dealers with the 
appropriate

[[Page 46893]]

regulatory authority. As discussed above, prior to the 2017 rule 
amendments, Rule G-10 only required dealers to send a paper copy of the 
brochure outlining protections under MSRB rules to investors who had 
already complained to a dealer. The 2017 amendments replaced the post-
complaint delivery requirement with an annual written notification 
requirement to all customers of a dealer regardless of whether a 
customer ever effects a municipal securities transaction or owns 
municipal securities in the account.\15\ To reduce the compliance 
burden on dealers and ensure the greatest utility to customers 
receiving the notifications, the MSRB proposes to amend Rule G-10(a) to 
narrow the obligation of dealers to provide the required notifications 
to only customers who traded municipal securities or held a municipal 
securities position at the dealer during each calendar year. For all 
other customers, dealers would be permitted to make such notifications 
available on their websites in accordance with the rule. Similarly, the 
MSRB is proposing related amendments to Rule G-48, so that all SMMPs 
would be exempt as long as dealers make such notifications available on 
their websites.
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    \15\ See supra note 4.
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    The MSRB assessed other regulatory alternatives and determined that 
the proposed amendments to Rule G-10 and Rule G-48 are superior to 
these alternatives. One alternative would be to revert the rule back to 
the pre-2017 version that contained a post-complaint delivery 
requirement and adding the electronic delivery option. By rolling back 
the 2017 changes, a dealer would no longer have to provide the 
notifications to all customers, regardless of whether they transacted 
in municipal securities or own municipal securities. This alternative 
would alleviate the burden to dealers of sending out thousands of 
notifications to investors but would still not solve the problem of 
providing investors with more timely access to information about how to 
file a complaint and the protections provided under MSRB rules. Another 
alternative would be to amend Rule G-10 to eliminate the annual 
notifications delivery requirement. The MSRB already requires dealers 
to communicate certain information to investors under Rule G-15, on 
customer confirmations.\16\ By amending Rule G-10 to require dealers to 
also provide a hyperlink to MSRB.org and a statement that the dealer is 
registered with the SEC and the MSRB, dealers would be able to minimize 
their direct outreach to investors by utilizing an existing required 
form of communication (i.e., customer confirmations). However, with 
this alternative, only customers who have recently transacted in a 
municipal security would be notified of the information, but not 
customers who hold municipal securities in their accounts.
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    \16\ Under Rule G-15(a)(i)(D)(4), the dealer is required to 
provide a hyperlink to EMMA[supreg] for publicly available 
information on a specific security.
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Benefits and Costs
    The MSRB believes by amending the rule to limit the scope of the 
delivery obligation to customers who either held or transacted in 
municipal securities during a 12-month period, compliance burdens to 
dealers would be lessened. The volume of notifications sent by dealers 
to customers, many of those who do not own or transact in municipal 
securities, and therefore receive no utility from such notifications, 
would be reduced. Additionally, other customers of dealers who do not 
own or transact in municipal securities would not be subjected to 
receipt of additional unnecessary communications, which could create 
noise and confusion for these customers. Furthermore, in striving to 
focus communications that are appropriate to the customer, the 
resulting effect may be that customers pay more attention to 
communications from dealers. Finally, dealers may incur savings from 
sending out less correspondence to customers due to the narrowed scope 
of the dealers' obligations; and due to the flexibility provided 
pursuant to the rule and related proposed amendments to Rule G-48 that 
exempt other customers and SMMPs.
    To evaluate the potential costs to customers, the MSRB divided all 
dealer customers into four segments to separately compare the future 
expected state to the current baseline state of each group.
    <bullet> Customers who currently hold municipal securities and plan 
to transact again in the future. These customers would not be impacted 
by the proposed amendments to Rule G-10 since they are expected to 
receive the required notifications the same way as they receive the 
notifications now;
    <bullet> Customers who have never held municipal securities and do 
not plan to transact in them in the foreseeable future. These customers 
are currently receiving the notifications even though they do not hold 
any municipal securities nor effect any municipal securities 
transactions. The proposed amendments to Rule G-10 would not impact 
these customers since the notifications are, likely, not relevant to 
these customers;
    <bullet> New customers of a dealer. These customers are currently 
receiving the notifications by the end of each calendar year 
irrespective of their holding of municipal securities or effecting a 
transaction in municipal securities. The proposed amendments to Rule G-
10 would impact these customers, as they would not receive a 
notification unless they effected a transaction in municipal securities 
or held municipal securities at the time the dealer remitted the 
notifications that calendar year. However, these customers would 
receive the notification the next calendar year and in no event more 
than 12 months from the time such customers effected a transaction in 
municipal securities or held municipal securities;
    <bullet> Existing customers who have never transacted in municipal 
securities before but may do so in the future. These customers 
currently receive notifications even though they have not transacted or 
held a position in municipal securities. Under the proposed amendments 
to Rule G-10, these customers would not receive the notifications, 
required to be delivered once every calendar year, until such time as 
they have a municipal securities transaction or hold a position in 
municipal securities. The MSRB has been careful to balance the stated 
objective of utility of information to customers against the slight 
risk that could be born out of not providing such required 
notifications to all customers, once every calendar year. The MSRB 
notes that such customers would be able to avail themselves of the 
information provided in the notifications by reviewing a dealer's 
website. The MSRB also notes that the anecdotal evidence provided by a 
commenter shows less than one percent of all existing customers who had 
previously not transacted or owned any municipal security would effect 
a transaction in municipal securities; \17\ and lastly,
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    \17\ Letter from Leslie M. Norwood, Managing Director and 
Associate General Counsel, the Securities Industry and Financial 
Markets Association (``SIFMA Letter'' or ``SIFMA'') dated June 28, 
2021: ``SIFMA members state that their estimated percentage of 
customers that effect a municipal securities transaction that have 
not previously effected a transaction in municipal securities is 
anecdotally reported to be less than 1%.''
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    <bullet> SMMPs who have traded municipal securities or hold a 
municipal securities position. All SMMPs currently receive annual 
notifications, but under the proposed amendments to Rule G-48, these 
customers would not receive the notifications; instead, SMMPs would

[[Page 46894]]

still be able to avail themselves of the information provided in the 
notifications by reviewing a dealer's website. Since SMMPs affirm to 
having a level of sophistication, knowledge and familiarity with the 
municipal securities market, these notifications add little benefit for 
SMMPs, if any. By exempting the requirement to send notifications to 
SMMPs, the proposed amendments would reduce the time and cost burdens 
for dealers with minimal reduction in benefits for SMMPs.
    In addition to any costs to customers, dealers would likely incur 
some minor costs, relative to the baseline state, to meet the standards 
of conduct and duties contained in the proposed rule change. These 
changes may include a one-time upfront cost related to revising 
policies and procedures, as well as ongoing costs such as compliance 
costs associated with limiting the receipt to only the relevant 
municipal securities customers for targeted communication outreach. 
However, the MSRB believes these costs would be minimal, as firms would 
be able to leverage their existing customer database to swiftly 
identify the relevant pool of customers eligible for the required 
notifications under the proposed rule change.
    As to the overall scale of cost reduction to dealers, as well as 
potential costs to some customers who may no longer receive the 
notifications unless they initiate a transaction in municipal 
securities, the MSRB is currently unable to quantify these economic 
effects precisely because not all the information necessary to provide 
a reasonable estimate is available. For example, the MSRB is interested 
in the percentage of dealers' customers who trade or hold municipal 
securities for a given calendar year, which would be helpful for the 
MSRB to assess the impact of the draft rule amendments. The MSRB sought 
the data during the Request for Comment process but was unable to 
obtain it. Therefore, the MSRB has considered these benefits and costs 
in qualitative terms.
Effect on Competition, Efficiency, and Capital Formation
    The MSRB believes that the proposed rule change would neither 
impose a burden on competition nor hinder capital formation, as the 
proposed rule change would reduce burdens to dealers of remitting the 
notifications to all customers by narrowing the scope of the 
application of the rule. The MSRB believes that the proposed rule 
change would improve the municipal securities market's operational 
efficiency by clarifying existing regulatory obligations, further 
promoting fair dealings between market participants.
    The MSRB does not expect that the proposed rule change would change 
the competitive landscape of the municipal securities dealer community, 
as the proposed amendments to Rule G-10 and Rule G-48 would be 
applicable to all dealers; therefore, the expected benefits and minor 
costs would be proportionate to the size and business activities of 
each dealer.

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

    As previously noted, on May 14, 2021, the MSRB published a Request 
for Comment, which sought comment on the matters included in the 
proposed rule change for a period of 45 days. The MSRB received four 
comment letters.\18\ These comments, along with the MSRB's responses, 
are discussed below.
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    \18\ See Letter from Christopher A. Iacovella, Chief Executive 
Officer, American Securities Association (``ASA Letter'' or 
``ASA''), dated June 28, 2021; Letter from Michael Decker, Senior 
Vice President, Bond Dealers of America (``BDA Letter'' or ``BDA''), 
dated June 28, 2021; SIFMA Letter; and Letter from Jennifer Szaro 
(``Szaro Letter'' or ``Szaro''), dated May 17, 2021.
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Narrowing the Scope of Customers Receiving the Dealer Notifications
    The MSRB sought comment on whether to narrow the scope of customers 
who receive the required notifications once every calendar year to 
include only those customers of the dealer who have effected 
transactions in municipal securities within the prior one-year or who 
hold a municipal securities position. All four commenters noted that 
the MSRB's draft amendments would ensure that the customers who would 
most benefit from receiving the required information would receive the 
notifications. Commenters also noted that no longer requiring dealers 
to provide such notifications unnecessarily to other customers would 
mitigate the compliance burden on dealers.
    One commenter, BDA, recommended that the MSRB exempt dealers from 
providing issuers the required notifications, stating that ``issuers 
are financial professionals who understand the municipal market well 
enough to know about the MSRB and do not require additional annual 
reminders.'' As a threshold matter, the MSRB does not agree with the 
premise that all issuers have the same level of market sophistication 
and should have a wholesale exclusion. Pursuant to Rule D-9, an issuer 
is a ``customer'' except in the case of a sale by the issuer of a new 
issue of its securities. Therefore, in these instances, dealers would 
not be required to provide the required notifications to an issuer.\19\ 
If an issuer is otherwise a customer, a dealer would continue to be 
obligated to provide the notifications pursuant to Rule G-10(a) unless 
the issuer customer is an SMMP, which would be determined based on the 
nature of the issuer, a determination of sophistication by the dealer 
and an affirmation by the issuer.\20\ As noted above, with respect to 
an SMMP, the proposed amendment to Rule G-48 would allow a dealer to 
make the notifications available on its website rather than remit the 
notifications to an SMMP pursuant to Rule G-10(a).
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    \19\ The MSRB did solicit feedback in the RFC on whether Rule G-
10 should require dealers to provide notifications to issuer clients 
at the earliest stage of the underwriter's relationship with such 
issuer client when an issuer client has not otherwise engaged a 
municipal advisor. A summary of the comments received in response to 
this question is discussed in Section C. below.
    \20\ See Rule D-15 on the definition of the term ``Sophisticated 
Municipal Market Professional.'' In order to deem a customer an 
SMMP, a dealer is required to determine the nature of the customer 
and the customer's sophistication level, and also requires the 
customer's affirmation, as specified in Rule D-15. In addition, this 
determination must be reasonable, including an analysis of the 
amount or type of securities owned or under management by the 
customer. See Rule D-15, Supplementary Material .01.
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    BDA also requested that the MSRB eliminate the annual requirement 
to provide notifications to customers who do not hold a municipal 
securities position at the dealer at calendar year-end. BDA stressed 
that modifying the proposed rule language in such a way would diminish 
the burden on dealers of looking through stock records to identify 
municipal securities customers for whom dealers no longer hold 
positions because they were either transferred, sold or matured 
entirely prior to the stock record review. The MSRB believes that the 
proposed rule change requiring the notifications to those customers who 
effected transactions in municipal securities or who hold a municipal 
securities position, coupled with the supplementary material on the 
sequencing of such notifications, strikes the right balance in 
providing investor protections and reducing regulatory burdens. The 
MSRB does not believe the rule should be narrowed further as BDA 
suggests.
    Additionally, BDA suggested that municipal advisors should not be 
obligated to provide municipal advisory clients with the required 
notifications promptly after the establishment of a municipal advisory 
relationship or

[[Page 46895]]

entering into an agreement to undertake a solicitation and annually 
thereafter during the course of the agreement. BDA asserts that 
municipal advisors are already providing such notifications as part of 
the municipal advisor engagement letter. While this comment is outside 
the scope of the current proposal, MSRB notes the MSRB's municipal 
advisory client brochure summarizes key principles of the MSRB rules 
designed to protect municipal advisory clients as well as information 
on how on how to file a complaint against a municipal advisor with the 
appropriate federal regulatory authority--information that is not 
customarily provided as part of the municipal advisor engagement 
letter. The MSRB continues to believe that requiring municipal advisors 
to provide the Rule G-10 notifications to municipal advisory clients 
creates an awareness of the protections afforded by the regulatory 
framework governing municipal advisory activities.
Exclusion of SMMPs
    The MSRB sought comment on whether to exclude SMMPs from receiving 
the required notifications, so long as dealers provide such 
notifications on their websites (``website-only notifications''). Both 
ASA and SIFMA specifically expressed support for the draft amendments, 
indicating that the placement of the notifications on dealers' websites 
is also in keeping with the modern approach to seek and find electronic 
resources on dealers' websites, and provides adequate notice to SMMPs. 
SIFMA remarked that SMMPs are, by definition, sophisticated investors 
that should not require ``hand-holding'' in order to find information 
on the investor brochure on the dealer's website, or elsewhere, or to 
otherwise require guidance as to how to file a complaint with the 
appropriate regulatory authority. SIFMA also noted that placement of 
the customer notifications on dealers' websites provides adequate 
notice to SMMPs that have engaged in a municipal securities transaction 
or that maintain a municipal securities position.
    The MSRB has had the opportunity to evaluate the implementation of 
the requirement to provide notifications once every calendar year, 
which was adopted in 2017,\21\ has considered these comments as well as 
recent stakeholder comments,\22\ and has determined that allowing 
dealers to make the required notifications available on their websites 
is appropriate for SMMP customers.
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    \21\ See supra note 4.
    \22\ See supra note 7.
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Dealer Notifications to Issuer Clients Who Are Not Represented by 
Municipal Advisors
    The MSRB sought comment on whether an issuer in transactions 
involving the sale by the issuer of a new issue of its securities who 
are not otherwise represented by a municipal advisor should receive the 
required notifications from dealers. BDA and SIFMA commented, arguing 
strongly against providing such notifications to such issuers, noting 
that dealer disclosures to issuers in transactions involving the sale 
by the issuer of a new issue of its securities are made in the Bond 
Purchase Agreement and engagement letters and that requiring the annual 
notifications will add to the complexity of dealer compliance without 
greater benefit to such issuer. SIFMA further opined that any such 
required notifications should be made in the context of underwriter 
disclosures, under Rule G-17. After review of the comments, the MSRB 
has determined not to place the additional requirement on dealers to 
provide the required notifications to such issuers who are not 
otherwise represented by municipal advisors.
529 Plan Customers
    The MSRB sought comment on whether to provide an exception to the 
notifications requirement that excludes investors in 529 savings plans 
from receipt of ongoing notifications after their initial purchase of 
units in a 529 savings plan. SIFMA indicated support for the draft 
amendments to exclude ongoing notifications to investors of 529 savings 
plan. The Szaro letter noted that providing the required notifications 
to such customers entails dealer work and expenses that are not 
balanced proportionately to the benefit to a customer in receiving the 
information. SIFMA and Szaro both favored website-only notifications as 
a sensible and reasonable option for dealers who have websites. Given 
that 529 savings plans (and other municipal fund securities) are 
offered and serviced as a benefit to customers that typically hold 
other securities in their brokerage accounts, unintended operational 
challenges may be introduced by establishing a different requirement 
for the delivery of the required notifications for municipal fund 
securities. In reviewing the comments received, the MSRB does not 
believe there is compelling information to warrant a change from the 
current requirements under Rule G-10.
Website-Only Notifications for All Customers
    The proposed amendments to Rule G-10 exclude the required 
notifications to customers that have not, and may never, engage in 
municipal securities transactions, so long as the dealer has the 
notifications available to such customers on its website. Szaro and ASA 
suggested removing the requirement for the notifications to be remitted 
to customers of the dealer who effected a transaction in municipal 
securities or who held a municipal securities position in favor of 
making such notifications available to all customers by having the 
notifications available only on the dealer's website. Szaro and ASA 
stated that customers today prefer to review information about dealers 
from dealers' websites and that individualized annual notifications 
could be eliminated without threatening investor protections.
    The MSRB believes that the proposed rule change strikes the correct 
balance by requiring the notifications only to those customers who 
would most benefit by their receipt (i.e., customers of the dealer who 
effected a transaction in municipal securities or who hold a municipal 
securities position) and permitting the notifications to be available 
to all customers on a dealer's website. Moreover, the MSRB believes 
that receipt of such push notifications is in furtherance of investor 
protection, and that such information would not be as easily 
ascertained by a customer having to undergo a search for the 
information on a dealer's website.\23\
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    \23\ SIFMA suggested extending website-only notifications 
delivery to municipal advisory clients. As previously mentioned, the 
MSRB limited the scope of the RFC to dealer obligations to their 
customers and is not modifying municipal advisor's obligations under 
the Rule G-10.
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Clarify Timeframe for Delivery of Notifications
    SIFMA and BDA stated that the MSRB should clarify the timeframe for 
delivery of the annual notifications by modifying the draft proposed 
rule language from ``once every calendar year'' to prescribe that 
delivery of such notifications should be made ``at least annually'' or 
``at least once a year.'' BDA noted that the change in the delivery 
timeframe would reduce dealer printing burdens as they may couple these 
notifications with other required disclosures.
    The MSRB acknowledges that it has previously indicated in the form 
of FAQs \24\ that the obligation to provide

[[Page 46896]]

the required notifications ``once every calendar year'' has meant by 
the end of each calendar year. The MSRB does not propose to move away 
from the current rule text that states the required notifications must 
be made ``once every calendar year,'' because this language is 
consistent with the language governing the obligations of municipal 
advisors to provide the same required notifications to municipal 
advisory clients. The MSRB believes that proposed amendments will 
provide clarification and flexibility on the sequencing of the required 
notifications. Specifically, proposed Supplementary Material .01 allows 
a dealer to provide the notifications to the applicable customers at 
any given point in each calendar year, but also recognizes that there 
may be additional customer(s) that effect a purchase or sale of a 
municipal security or hold a municipal security after the notifications 
have been delivered that calendar year. Accordingly, Supplementary 
Material .01 allows such customers to receive the notifications within 
the following rolling 12-month period. The MSRB would revise existing 
compliance resources, including the FAQs, as necessary to be aligned 
with the proposed rule change.
---------------------------------------------------------------------------

    \24\ See FAQs on MSRB Rules on Investor and Municipal Advisory 
Client Education and Protection (September 2017).
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Permitting Notifications by Clearing Firms Per Agreement
    The MSRB sought comment on draft amendments that proposed to 
exclude a dealer that is a party to a carrying agreement, where the 
carrying dealer provides such required notifications, from the 
requirements under Rule G-10. Both SIFMA and BDA generally supported 
this provision but suggested clarifying language to reflect the 
agreement to undertake the obligation to provide the required 
notifications. The MSRB is clarifying the proposed rule language to 
reflect firms' agreement about which party will undertake the Rule G-10 
notifications obligation.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period of up to 90 days (i) as 
the Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#e597908980c8868a8888808b9196a5968086cb828a93"><span class="__cf_email__" data-cfemail="bbc9ced7de96d8d4d6d6ded5cfc8fbc8ded895dcd4cd">[email protected]</span></a>. Please 
include File Number SR-MSRB-2021-04 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-2021-04. 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-2021-04 and should be submitted on 
or before September 10, 2021.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.\25\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-17830 Filed 8-19-21; 8:45 am]
BILLING CODE 8011-01-P


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