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[Federal Register Volume 66, Number 125 (Thursday, June 28, 2001)]
[Notices]
[Pages 34499-34501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16256]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44464; File No. SR-MSRB-2001-04]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Municipal Securities Rulemaking Board Relating to In-Firm 
Delivery of the Regulatory Element of the Continuing Education 
Requirement

June 22, 2001.
    On June 14, 2001, the Municipal Securities Rulemaking Board 
(``Board'' or ``MSRB'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') a proposed rule change (File No. 
SR-MSRB-2001-04), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''), 15 U.S.C. 78s(b)(1), and Rule 19b-4 
thereunder. The proposed rule change is described in Items I, II, and 
III below, which Items have been prepared by the Board. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.

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

    The Board is filing herewith amendments to rules G-3, on 
professional qualifications, rule G-8, on books and records, G-9, on 
record retention, and G-27, on supervision. The proposed rule change 
will allow dealers to provide in-firm delivery of Regulatory Element of 
the continuing education requirement. The text of the proposed rule 
change is below.\1\
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    \1\ Proposed new language is in italicized and underlined; [  ] 
means deletions.
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Rule G-3. Classification of Principals and Representatives; Numerical 
Requirements; Testing; Continuing Education Requirements

    No broker, dealer or municipal securities dealer or person who 
is a municipal securities representative, municipal securities 
principal of financial and operations principal (as hereafter 
defined) shall be qualified for purposes of rule G-2 unless such 
broker, dealer or municipal securities dealer or person meets the 
requirements of this rule.
    (a) through (g) No change.

(h) Continuing Education Requirements

    This section (h) prescribes requirements regarding the 
continuing education of certain registered persons subsequent to 
their registration with a securities association with respect to a 
person associated with a member of such association, or the 
appropriation regulatory agency as defined in section 3(a)(34) of 
the Act with respect to a person associated with any other broker, 
dealer or municipal securities dealer (``the appropriate enforcement 
authority''). The requirements shall consists of a Regulatory 
Element and a Firm Element as set forth below.

(i) Regulatory Element

    (A) through (F) No change.

(G) In-Firm Delivery of the Regulatory Element

    Brokers, dealers and municipal securities dealers will be 
permitted to administer the continuing education Regulatory Element 
program to their registered persons by instituting an in-firm 
program acceptable to the Board.
    The following procedures are required:
    (1) Principal In-Charge. The broker, dealer or municipal 
securities dealer has designated a municipal securities principal or 
a general securities principal to be responsible for the in-firm 
delivery of the Regulatory Element.
    (2) Site Requirements.
    (a) The location of all delivery sites will be under the control 
of the broker, dealer or municipal securities dealer.
    (b) Delivery of Regulatory Element continuing education will 
take place in an environment conducive to training. (Examples: A 
training facility, conference room or other area dedicated to this 
purpose

[[Page 34500]]

would be appropriate. Inappropriate locations would include a 
personal office or any location that is not or cannot be secured 
from traffic and interruptions).
    (c) Where multiple delivery terminals are placed in a room, 
adequate separation between terminals will be maintained.
    (3) Technology Requirements. The communication links and firm 
delivery computer hardware must comply with standards defined by the 
Board or its designated vendor.
    (4) Supervision.
    (a) The broker, dealer or municipal securities dealer's written 
supervisory procedures must contain the procedures implemented to 
comply with the requirements of in-firm delivery of the Regulatory 
Element continuing education.
    (b) The broker, dealer or municipal securities dealer's written 
supervisory procedures must identify the municipal securities 
principal or general securities principal designated pursuant to 
section (h)(i)(G)(1) of this rule and contain a list of individuals 
authorized by the broker, dealer or municipal securities dealer to 
serve as proctors.
    (c) Firm locations for delivery of the Regulatory Element 
continuing education will be specifically listed in the broker, 
dealer or municipal securities dealer's written supervisory 
procedures.
    (5) Proctors.
    (a) All sessions will be proctored by an authorized person 
during the entire Regulatory Element session. Proctors must be 
present in the session room or must be able to view the person(s) 
sitting for Regulatory Element continuing education through a window 
or by video monitor.
    (b) The individual responsible for proctoring at each 
administration will sign a certification that required procedures 
have been followed, that no material from Regulatory Element 
continuing education has been reproduced, and that no candidate 
received any assistance to complete the session. Such certification 
may be part of the sign-in log required under section 
(h)(i)(G)(6)(c) of this rule.
    (c) Individuals serving as proctors must be persons registered 
with a self-regulatory organization and supervised by the designated 
principal for purposes of in-firm delivery of the Regulatory Element 
continuing education.
    (d) Proctors will check and verify the identification of all 
individuals taking Regulatory Element continuing education.
    (6) Administration.
    (a) All appointments will be scheduled in advance using the 
procedures and software specified by the Board to communicate with 
the Board's system and designated vendor.
    (b) The broker, dealer or municipal securities dealer and its 
proctor will conduct each session in accordance with the 
administrative appointment scheduling procedures established by the 
Board or its designated vendor.
    (c) A sign-in log will be maintained at the delivery facility. 
Logs will contain the date of each session, the name and social 
security number of the individual taking the session, the fact that 
required identification was checked, the sign-in time, the sign-out 
time, and the name of the individual proctoring the session. Such 
logs are required to be retained pursuant to rules G-8 and G-9.
    (d) No material will be permitted to be utilized for the session 
nor may any session-related material be removed.
    (e) Delivery sites will be made available for inspection by the 
appropriate enforcement authority.
    (f) Before commencing the in-firm delivery of the Regulatory 
Element continuing education, brokers, dealers and municipal 
securities dealers are required to file with the Board a letter of 
attestation (as specified below) signed by a municipal securities 
principal or general securities principal attesting to the 
establishment of required procedures addressing principal in-charge, 
supervision, site, technology, proctors, and administrative 
requirements. Letters filed with the Board should be sent to the 
Municipal Securities Rulemaking Board, Professional Qualifications 
Department, 1900 Duke Street, Suite 600, Alexandria, Virginia, 
22314.

Letter of Attestation for In-Firm Delivery of Regulatory Element 
Continuing Education

    {Name of broker, dealer or municipal securities dealer} has 
established procedures for delivering Regulatory Element continuing 
education on its premises. I have determined that these procedures 
are reasonably designed to comply with SRO requirements pertaining 
to in-firm delivery of Regulatory Element continuing education, 
including that such procedures have been implemented to comply with 
principal in-charge, supervision, site, technology, proctors, and 
administrative requirements.
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Signature
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Printed name
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Title (Must be signed by a municipal securities principal or general 
securities principal of the broker, dealer or municipal securities 
dealer)
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Date

Rule G-8. Books and Records To Be Made by Brokers, Dealers and 
Municipal Securities Dealers

    (a) Description of Books and Records Required to be Made. Except 
as otherwise specifically indicated in this rule, every broker, 
dealer and municipal securities dealer shall make and keep current 
the following books and records, to the extent applicable to the 
business of such broker, dealer or municipal securities dealer:
    (i)-(xx) No change.
    (xxi) Records Concerning Sign-In Logs for In-Firm Delivery of 
the Regulatory Element Continuing Education. If applicable, each 
broker, dealer and municipal securities dealer shall maintain the 
records required by rule G-3(h)(i)(G)(6)(c).
    (b)-(e) No change.
    (f) Compliance with Rule 17a-3. Brokers, dealers and municipal 
securities dealers other than bank dealers which are in compliance 
with rule 17a-3 of the Commission will be deemed to be in compliance 
with the requirements of this rule, provided that the information 
required by subparagraph (a)(iv)(D) of this rule as it relates to 
uncompleted transactions involving customers; paragraph (a)(viii); 
and paragraphs (a)(xi) through [(a)(xx)] (a)(xxi) shall in any event 
be maintained.

Rule G-9. Preservation of Records

    (a) No change.
    (b) Records to be Preserved for Three Years. Every broker, 
dealer and municipal securities dealer shall preserve the following 
records for a period of not less than three years:
    (i) through (xi) No change.
    (xii) the authorization required by rule G-8(a)(xix)(B); 
however, this provision shall not require maintenance of copies of 
negotiable instruments signed by customers [and]
    (xiii) each advertisement from the date of each use [.];
    (xiv) the records to be maintained pursuant to rule G-8(a)(xx); 
and (x)(v) the records to be maintained pursuant to rule G-
8(a)(xxi).

G-27. Supervision

    (a) No change.
    (b) Designation of principals.
    (i) through (ii) No change.
    (iii) Appropriate principal. Each dealer shall designate a 
municipal securities principal as responsible for its supervision 
under sections (a) and (c) of this rule, except as provided in this 
section. A non-bank dealer shall designate a financial and 
operations principal as responsible for the financial reporting 
duties specified in rule G-3(d)(i)(A-E) and with primary 
responsibility for books and records under section (c)(v) below; 
provided however, that a non-bank dealer meeting the requirements of 
Securities Exchange Act rule 15c3-1(a)(2)(iv), (v) or (vi) or the 
exemption under rule 15c3-1(b)(3) may, but is not required to, 
designate a financial and operations principal as responsible for 
such financial reporting duties and with primary responsibility for 
such books and records. In addition, a municipal securities sales 
principal may be designated as responsible for supervision under 
section (c)(ii),(iii) and (vii) of this rule, to the extent the 
activities pertain to sales to or purchases from a customer; a 
general securities principal may be designated as responsible for 
supervision under sections (c)(v) and (vii)(A) of this rule and 
under rules G-3(h)(i)(G)(1), G-7(b) and G-21(e); and a financial and 
operations principal may be designated as responsible for 
supervision under section (c)(vi) of this rule.
    (c) through (e) No change.

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 Board 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 
texts of these

[[Page 34501]]

statements may be examined at the places specified in Item IV below. 
The Board has prepared summaries, set forth in Sections (A), (B), and 
(C) below, for the most significant aspects of such statements.

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

1. Purpose
    The Regulatory Element is a three and one-half hour computer-based 
training program that previously had only been administered to 
registered persons at the location of an outside vendor. Rule G-
3(h)(i)(A)(1) requires that each registered person, who is not exempt 
from the rule, complete the Regulatory Element on the occurrence of his 
or her second registration anniversary and every three years 
thereafter. On each occasion, the training must be completed within 120 
days after the registered person's anniversary date. A registered 
person who has not completed the Regulatory Element within the 
prescribed time periods is deemed to be inactive until the Regulatory 
Element has been fulfilled, and may not conduct, or be compensated for, 
activities requiring a securities registration.
    The Securities Industry/Regulatory Council on Continuing Education 
(``Council'') is responsible for the oversight of the continuing 
education program for the securities industry. The Council's duties 
include recommending and helping to develop specific content and 
questions for the Regulatory Element, and minimum core curricula for 
the Firm Element. The Council is comprised of 14 representatives from a 
broad cross section of broker/dealers and six self-regulatory 
organizations, including the MSRB. The Council, working with 
representatives from the North American Securities Administrators 
Association, and with the knowledge of the Council's Securities and 
Exchange Commission liaisons, has developed a model under which 
brokers, dealers and municipal securities dealers may deliver the 
Regulatory Element computer-based training on firm premises. The model 
requires that the broker, dealer or municipal securities dealer meet 
certain conditions for in-firm delivery relating to computer hardware 
and to the security of the training delivery environment. The proposed 
rule change encapsulates the delivery requirements as specified by the 
Council. Brokers, dealers and municipal securities dealers of any size 
may take advantage of the in-firm delivery procedures.
2. Statutory Basis
    The Board believes the proposed rule change is consistent with 
section 15B(b)(2)(C) of the Securities Exchange Act of 1934 (``Act''), 
which provides that the Board's rules shall:

be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade * * * 
to remove impediments to and perfect the mechanism of a free and 
open market in municipal securities, and, in general, to protect 
investors and the public interest.

The Board believes that the proposed rule change is consistent with the 
Act in that it will facilitate registered persons satisfying their 
obligations to meet the Regulatory Element of the continuing education 
requirement.

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

    The Board does not believe that the proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, since it would apply equally to 
all brokers, dealers and municipal securities dealer.

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

    Written comments were neither solicited nor received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date 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 such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested people are invited to submit written data, views, and 
arguments concerning the foregoing. People making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
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 inspection and copying in the 
Commission's Public Reference Room. Copies of the filing will also be 
available for inspection and copying at the Board's principal offices. 
All submissions should refer to File No. SR-MSRB-2001-04 and should be 
submitted by July 19, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\2\
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    \2\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-16256 Filed 6-27-01; 8:45 am]
BILLING CODE 8010-01-M
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