Federal Register / Vol. 87, No. 124 / Wednesday, June 29, 2022 / Notices 38795 

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

2 17 CFR 240.19b–4. 

3Under MSRB Rule D–15, on the term 

sophisticated municipal market professional, ‘‘[t]he 

term ‘sophisticated municipal market professional’ 

or ‘SMMP’ is generally defined by three essential 

requirements: the nature of the customer; a 

determination of sophistication by the broker, 

dealer or municipal securities dealer []; and an 

affirmation by the customer; as specified [therein].’’ 

See MSRB Rule D–15. 

4 17 CFR 240.15l–1; see also Exchange Act 

Release No. 86031 (June 5, 2019), 84 FR 33318 (July 

12, 2019) (File No. S7–07–18) (‘‘Regulation Best 

Interest Adopting Release’’). 

5Consistent with the definition set forth in MSRB 

Rule D–8, the term ‘‘bank dealer’’ as used herein 

means ‘‘a municipal securities dealer which is a 

bank or a separately identifiable department or 

division of a bank as defined in rule G–1 of the 

Board.’’ Such references in the proposed rule 

change shall be collectively to ‘‘Bank Dealers’’ or 

individually to a ‘‘Bank Dealer.’’ See also MSRB 

Rule D–11, which defines the term associated 

persons (indicating that the term bank dealer as 

used in MSRB rules shall generally refer to the 

associated persons of a bank dealer unless the 

context otherwise requires or a rule of the Board 

otherwise specifically provides). 

6The term ‘‘Institutional SMMP’’ is used herein 

as defined below under the discussion Background 

and Purpose of the Institutional SMMP 

Amendment. The Institutional SMMP definition 

used herein would not encompass any natural 

person customers who qualify as ‘‘retail customers’’ 

under the definitions of Regulation Best Interest, 

such as certain natural persons with significant 

total assets, who might otherwise meet the status 

requirements of an SMMP. 

7Exchange Act Release No. 88829 (May 4, 2022) 

(the ‘‘Notice’’), 87 FR 28084 (May 12, 2020) (MSRB– 

2022–02). 

of information to the Office of 

Management and Budget for extension 

and approval. 

The title for the collection of 

information is ‘‘Rule 204–3 (17 CFR 

275.204–3) under the Investment 

Advisers Act of 1940.’’ (15 U.S.C. 80b). 

Rule 204–3, the ‘‘brochure rule,’’ 

requires advisers to deliver their 

brochures and brochure supplements at 

the start of an advisory relationship and 

to deliver annually thereafter the full 

updated brochure or a summary of 

material changes to their brochure. The 

rule also requires that advisers deliver 

an amended brochure or brochure 

supplement (or just a statement 

describing the amendment) to clients 

only when disciplinary information in 

the brochure or supplement becomes 

materially inaccurate. The brochure 

assists the client in determining 

whether to retain, or continue 

employing, the adviser. The information 

that Rule 204–3 requires to be contained 

in the brochure is also used by the 

Commission and staff in its 

enforcement, regulatory, and 

examination programs. This collection 

of information is found at 17 CFR 

275.204–3 and is mandatory. 

The respondents to this information 

collection are certain investment 

advisers registered with the 

Commission. Our latest data indicate 

that there were 14,777 advisers 

registered with the Commission as of 

March 31, 2022. The Commission has 

estimated that compliance with Rule 

204–3 imposes a burden of 

approximately 3.9 hours annually based 

on advisers having a median of 92 

clients each. Based on this figure, the 

Commission estimates a total annual 

burden of 57,589 hours for this 

collection of information. 

Rule 204–3 does not require 

recordkeeping or record retention. The 

collection of information requirements 

under the rule are mandatory. The 

information collected pursuant to the 

rule is not filed with the Commission, 

but rather takes the form of disclosures 

to clients and prospective clients. 

Accordingly, these disclosures are not 

kept confidential. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid control number. 

Written comments are invited on: (a) 

whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information shall have practical utility; 

(b) the accuracy of the Commission’s 

estimate of the burden of the collection 

of information; (c) ways to enhance the 

quality, utility, and clarity of the 

information collected; and (d) ways to 

minimize the burden of the collection of 

information on respondents, including 

through the use of automated collection 

techniques or other forms of information 

technology. Consideration will be given 

to comments and suggestions submitted 

by August 29, 2022. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

under the PRA unless it displays a 

currently valid OMB control number. 

Please direct your written comments 

to: David Bottom, Acting Director/Chief 

Information Officer, Securities and 

Exchange Commission, c/o John 

Pezzullo, 100 F Street NE, Washington, 

DC 20549 or send an email to: PRA_

Mailbox@sec.gov. 

Dated: June 23, 2022. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–13810 Filed 6–28–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 95145; File No. SR–MSRB– 

2022–02] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Order Granting Approval of a 

Proposed Rule Change Consisting of 

Amendments to MSRB Rule G–19 

Regarding Regulation Best Interest for 

Certain Municipal Securities Activities 

of Bank Dealers and MSRB Rule G–48 

Regarding Quantitative Suitability for 

Institutional Sophisticated Municipal 

Market Professionals 

June 23, 2022. 

I. Introduction 

On April 29, 2022, the Municipal 

Securities Rulemaking Board (the 

‘‘MSRB’’ or ‘‘Board’’) filed with the 

Securities and Exchange Commission 

(the ‘‘SEC’’ or ‘‘Commission’’), pursuant 

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

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

19b–4 thereunder,2 a proposed rule 

change to consisting of amendments to: 

(i) MSRB Rule G–19, on suitability of 

recommendations and transactions, and 

(ii) MSRB Rule G–48, on transactions 

with sophisticated municipal market 

professionals (‘‘SMMPs’’) 3 (collectively, 

the ‘‘proposed rule change’’). 

The proposed rule change would 

align MSRB Rule G–19 to the 

Commission’s Rule 15l–1 under the 

Exchange Act (‘‘Regulation Best 

Interest’’) 4 for certain municipal 

securities activities of bank dealers 5

(the ‘‘Best Interest Amendments’’). In 

addition, the proposed rule change 

would amend MSRB Rule G–48 to 

modify the quantitative suitability 

obligation of brokers, dealers, and 

municipal securities dealers 

(collectively, ‘‘dealers’’ and, 

individually, each a ‘‘dealer’’) by 

eliminating the quantitative suitability 

obligation for recommendations in 

circumstances where a dealer does not 

have actual control or de facto control 

over the account of an Institutional 

SMMP (the ‘‘Institutional SMMP 

Amendment’’).6

The proposed rule change was 

published for comment in the Federal 

Register on May 10, 2022.7 The public 

comment period closed on May 31, 

2022, and no comment letters were 

received on the proposed rule change. 

As described further below, the 

Commission is approving the proposed 

rule change. 

II. Description of Proposed Rule Change 

As described further below, the 

proposed rule change consists of the 

Best Interest Amendments and the 

Institutional SMMP Amendment. 


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38796 Federal Register / Vol. 87, No. 124 / Wednesday, June 29, 2022 / Notices 

8Notice, 87 FR at 28084. 

9The term ‘‘Broker-Dealer’’ is used here as 

defined below under the following discussion 

Background on the Commission’s Regulation Best 

Interest. 

10See, generally, Regulation Best Interest 

Adopting Release. 

11 17 CFR 240.15l–1(b)(1) (‘‘Retail customer 

means a natural person, or the legal representative 

of such natural person, who (i) [r]eceives a 

recommendation of any securities transaction or 

investment strategy involving securities from a 

broker, dealer, or a natural person who is an 

associated person of a broker or dealer; and (ii) 

[u]ses the recommendation primarily for personal, 

family, or household purposes.’’) For discussion of 

what it means for a retail customer to ‘‘use’’ a 

recommendation, see the SEC staff’s Frequently 

Asked Questions on Regulation Best Interest, 

available at https://www.sec.gov/tm/faq-regulationbest-interest. 

12Regulation Best Interest Adopting Release, 84 

FR at 33319. 

13 17 CFR 240.15l–1(a)(1). Regulation Best Interest 

provides that this general obligation is satisfied 

only if a Broker-Dealer complies with four 

component obligations: (i) an obligation to make 

certain prescribed disclosures, before or at the time 

of the recommendation, about the recommendation 

and the relationship between the retail customer 

and the Broker-Dealer (the ‘‘Disclosure Obligation’’) 

(see 17 CFR 240.15l–1(a)(2)(i)); (ii) an obligation to 

exercise reasonable diligence, care, and skill in 

making a recommendation (the ‘‘Care Obligation’’) 

(see 17 CFR 240.15l–1(a)(2)(ii)); (iii) an obligation to 

establish, maintain, and enforce written policies 

and procedures reasonably designed to address 

conflicts of interest (the ‘‘Conflict-of-Interest 

Obligation’’) (see 17 CFR 240.15l–1(a)(2)(iii)); and 

(iv) an obligation to establish, maintain, and enforce 

written policies and procedures reasonably 

designed to achieve compliance with Regulation 

Best Interest (the ‘‘Compliance Obligation’’) (see 17 

CFR 240.15l-1(a)(2)(iv)). 

14See Exchange Act Release No. 88828 (May 6, 

2020), 85 FR 28082, File No. SR–MSRB–2020–02 

(hereinafter, the ‘‘Broker-Dealer Harmonization 

Filing’’), available at https://msrb.org/-/media/Files/ 

SEC-Filings/2020/MSRB-2020-02-Notice.ashx?. 

15See Exchange Act Release No. 89154 (June 25, 

2020), 85 FR 39613 (July 1, 2020), File No. SR– 

MSRB–2020–02, available at https://msrb.org/-/ 

media/Files/SEC-Filings/2020/MSRB-2020-02- 

Federal-Register.ashx?. 

16Notice, 87 FR at 28085. 

17See Broker-Dealer Harmonization Filing, 85 FR 

at 28083, n. 5 (discussing how Bank Dealers are not 

subject to Regulation Best Interest by the terms of 

the SEC’s rules and indicating the Board’s intent to 

issue a request for comment regarding extending the 

requirements of Regulation Best Interest to Bank 

Dealers). Notably, all Bank Dealer 

recommendations, including retail municipal 

recommendations, are presently subject to the 

longstanding suitability obligations provided by 

MSRB rules, including MSRB Rule G–19 and, when 

applicable, MSRB Rule G–48. Notice, 87 FR at 

28085, n. 13. 

18Notice, 87 FR at 28085. 

19 Id. 

20 17 CFR 240.15l–1(a)(2)(i). 

21 17 CFR 240.15l–1(a)(2)(ii). 

22 17 CFR 240.15l–1(a)(2)(iii). 

23 17 CFR 240.15l–1(a)(2)(iv). 

24Notice, 87 FR at 28085. 

A. Background and Purpose of the Best 

Interest Amendments 

The MSRB stated that the proposed 

Best Interest Amendments would 

amend MSRB Rule G–19 to extend the 

obligations of Regulation Best Interest to 

Bank Dealers when making 

recommendations to retail customers of 

municipal securities transactions or 

investment strategies involving 

municipal securities (collectively, 

‘‘retail municipal recommendations’’ 

and, individually, each a ‘‘retail 

municipal recommendation’’).8 The 

MSRB also stated that the Best Interest 

Amendments are intended to improve 

investor protection in the municipal 

securities market by ensuring that retail 

customers are afforded the investor 

protections provided by Regulation Best 

Interest, regardless of whether a retail 

municipal recommendation received by 

a retail customer is made by a BrokerDealer 9 or a Bank Dealer. 

B. Background on the Commission’s 

Regulation Best Interest 

On June 5, 2019, the SEC adopted 

Regulation Best Interest, which 

established a new standard of conduct 

for broker-dealers, and the natural 

persons who are associated persons of 

such broker-dealers (collectively, 

‘‘Broker-Dealers’’ and, individually, 

each a ‘‘Broker-Dealer’’), when making a 

recommendation to a retail customer of 

any securities transaction or investment 

strategy involving securities.10 As 

defined in Regulation Best Interest, the 

term ‘‘retail customer’’ generally refers 

to any natural person, or the legal 

representative of such person, who 

receives and uses a recommendation 

from a Broker-Dealer primarily for 

personal, family, or household 

purposes.11 Regulation Best Interest 

enhanced the Broker-Dealer standard of 

conduct beyond previously existing 

suitability obligations, such as those 

then required by MSRB Rule G–19, on 

suitability, for such retail customers and 

aligned the applicable standard of 

conduct with the reasonable 

expectations of retail customers.12

In this regard, Regulation Best Interest 

imposes the following ‘‘general 

obligation’’ on Broker-Dealers, stating a 

broker, dealer, or a natural person who 

is an associated person of a broker or 

dealer, when making a recommendation 

of any securities transaction or 

investment strategy involving securities 

(including account recommendations) to 

a retail customer, shall act in the best 

interest of the retail customer at the time 

the recommendation is made, without 

placing the financial or other interest of 

the broker, dealer, or natural person 

who is an associated person of a broker 

or dealer making the recommendation 

ahead of the interest of the retail 

customer.13

In response to the Commission’s 

adoption of Regulation Best Interest, on 

May 1, 2020, the MSRB filed a proposed 

rule change with the Commission to 

harmonize Regulation Best Interest with 

certain MSRB rules applicable to related 

municipal securities activities of BrokerDealers.14 The Commission approved 

these proposed amendments on June 25, 

2020.15

C. Discussion of Regulation Best 

Interest’s Current Applicability to Bank 

Dealers 

By its terms, Regulation Best Interest 

does not apply to retail municipal 

recommendations made by Bank 

Dealers, because Bank Dealers in 

exempted securities have an exception 

from Broker-Dealer status under the Act 

and Regulation Best Interest applies 

only to Broker-Dealers.16 As a result, 

Bank Dealers presently are not required 

to comply with Regulation Best Interest 

and, therefore, retail investors may not 

benefit from its enhanced standard of 

conduct when receiving 

recommendations from Bank Dealers.17

D. Application of Regulation Best 

Interest to Bank Dealers 

The MSRB stated that the proposed 

Best Interest Amendments would 

amend MSRB Rule G–19 to require a 

Bank Dealer to comply with Regulation 

Best Interest to the same extent as if it 

were a Broker-Dealer when making a 

retail municipal recommendation.18

Consequently, a Bank Dealer would 

have to act in the best interest of the 

retail customer at the time a retail 

municipal recommendation is made, 

without placing the financial or other 

interests of the Bank Dealer ahead of the 

interest of the retail customer.19

Correspondingly, the Bank Dealer 

would have to comply with the 

Commission’s component obligations of 

Regulation Best Interest to the same 

extent as if it were a Broker-Dealer, 

including Regulation Best Interest’s 

Disclosure Obligation,20 Care 

Obligation,21 Conflict-of-Interest 

Obligation,22 and Compliance 

Obligation.23

Under the proposed Best Interest 

Amendments, the component 

obligations of Regulation Best Interest 

would apply to those municipal 

securities activities associated with a 

retail municipal recommendation 

within the overall context of a Bank 

Dealer business model. The MSRB 

stated that it believes that any SEC 

guidance with respect to the 

understanding and application of 

Regulation Best Interest would be 

equally applicable to Bank Dealers.24


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Federal Register / Vol. 87, No. 124 / Wednesday, June 29, 2022 / Notices 38797 

25The MSRB offered the example that, if the 

applicable legal charter of a Bank Dealer only 

permits a Bank Dealer to conduct municipal 

securities activities or, in fact, a Bank Dealer’s 

business model is limited to municipal securities 

activities, then the Bank Dealer generally would be 

required to accurately disclose the fact that it only 

engages in transactions involving municipal 

securities and, therefore, will only make 

recommendations to a retail customer regarding 

transactions involving municipal securities. Notice, 

87 FR at 28085, n. 18. 

26Notice, 87 FR at 28085. 

27Notice, 87 FR at 28086. 

28 Id. 

29 Id. 

30 Id. 

31 Id. 

32 Id. 

33 Id. 

34 Id. 

35 Id. 

36 Id. 

E. Application of the Disclosure 

Obligation to Bank Dealers 

Consistent with Regulation Best 

Interest’s Disclosure Obligation, the 

proposed Best Interest Amendments 

would require a Bank Dealer, prior to or 

at the time of the retail municipal 

recommendation, to provide to its retail 

customer, in writing, full and fair 

disclosure of: (a) all material facts 

relating to the scope and terms of the 

relationship with the retail customer, 

including: (i) that the Bank Dealer is 

acting as a municipal securities dealer 

with respect to the retail municipal 

recommendation; (ii) the material fees 

and costs that apply to the retail 

customer’s transactions, holdings, and 

accounts; and (iii) the type and scope of 

services provided to the retail customer, 

including any material limitations on 

the securities or investment strategies 

involving securities that may be 

recommended to the retail customer; 25

and (b) all material facts relating to 

conflicts of interest that are associated 

with the retail municipal 

recommendation.26

F. Application of the Care Obligation to 

Bank Dealers 

Consistent with Regulation Best 

Interest’s Care Obligation, the proposed 

Best Interest Amendments would 

require a Bank Dealer to exercise 

reasonable diligence, care, and skill to: 

(a) understand the potential risks, 

rewards, and costs associated with any 

retail municipal recommendation, and 

have a reasonable basis to believe that 

a retail municipal recommendation 

could be in the best interest of at least 

some retail customers; (b) have a 

reasonable basis to believe that the retail 

municipal recommendation is in the 

best interest of a particular retail 

customer, based on that retail 

customer’s investment profile and the 

potential risks, rewards, and costs 

associated with the recommendation, 

and does not place the financial or other 

interest of the Bank Dealer ahead of the 

interest of the retail customer; (c) have 

a reasonable basis to believe that a series 

of retail municipal recommendations, 

even if in the retail customer’s best 

interest when viewed in isolation, is not 

excessive and is in the retail customer’s 

best interest when taken together in 

light of the retail customer’s investment 

profile and does not place the financial 

or other interest of the Bank Dealer 

ahead of the interest of the retail 

customer.27

G. Application of the Conflict-of-Interest 

Obligation to Bank Dealers 

Consistent with Regulation Best 

Interest’s Conflict-of-Interest Obligation, 

the proposed Best Interest Amendments 

would require a Bank Dealer to 

establish, maintain, and enforce written 

policies and procedures reasonably 

designed to: (a) identify and at a 

minimum disclose, in accordance with 

its Disclosure Obligation, or eliminate, 

all conflicts of interest associated with 

such retail municipal recommendations; 

(b) identify and mitigate any conflicts of 

interest associated with such retail 

municipal recommendations that create 

an incentive for a natural person who is 

an associated person of the Bank Dealer 

to place the interests of the Bank Dealer 

or such associated person ahead of the 

interest of the retail customer; (c)(i) 

identify and disclose any material 

limitations placed on the securities or 

investment strategies involving 

securities that may be recommended to 

a retail customer and any conflicts of 

interest associated with such 

limitations, in accordance with its 

Disclosure Obligation, and (ii) prevent 

such limitations and associated conflicts 

of interest from causing the Bank Dealer 

to make retail municipal 

recommendations that place the interest 

of the Bank Dealer ahead of the interest 

of the retail customer; and (d) identify 

and eliminate any sales contests, sales 

quotas, bonuses, and non-cash 

compensation that are based on the 

sales of specific municipal securities or 

specific types of municipal securities 

within a limited period of time.28

H. Application of the Compliance 

Obligation to Bank Dealers 

Consistent with Regulation Best 

Interest’s Compliance Obligation, the 

proposed Best Interest Amendments 

would require a Bank Dealer to 

establish, maintain, and enforce written 

policies and procedures reasonably 

designed to achieve compliance with 

Regulation Best Interest.29

I. Purpose and Intent of the Best Interest 

Amendments 

The MSRB stated that it proposed the 

Best Interest Amendments to MSRB 

Rule G–19 for purposes of enhancing 

the standard of investor protection in 

the municipal securities market and 

enhancing fairness and efficiency in the 

municipal securities market by 

promoting regulatory parity among Bank 

Dealers and Broker-Dealers.30 Specific 

to enhancing the standard of investor 

protection, the MSRB noted that it 

believes that all retail customers 

receiving a retail municipal 

recommendation should benefit from 

the enhanced investor protections 

afforded by Regulation Best Interest, 

regardless of whether such a retail 

customer is a customer of a BrokerDealer or a Bank Dealer. 31 Currently, 

retail customers of Bank Dealers are not 

afforded the protections of Regulation 

Best Interest when receiving a retail 

municipal recommendation from a Bank 

Dealer.32 The MSRB also stated that, as 

the proposed Best Interest Amendments 

would require a Bank Dealer to comply 

with the enhanced standard of conduct 

required by Regulation Best Interest, the 

MSRB believes that the Best Interest 

Amendments would improve overall 

investor protection in the municipal 

securities market.33

Specific to promoting regulatory 

parity, the MSRB stated that it believed 

that the proposed Best Interest 

Amendments would establish a uniform 

regulatory standard in the municipal 

securities market by requiring the same 

standard of conduct for Bank Dealers 

and Broker-Dealers when making retail 

municipal recommendations.34 The 

MSRB noted that this uniform standard 

would enhance the fairness and 

efficiency of the municipal securities 

market by ensuring Bank Dealers have 

regulatory obligations and burdens 

when engaging in retail municipal 

recommendations that are equivalent to 

the regulatory obligations and burdens 

of Broker-Dealers when engaging in the 

same municipal securities activities.35

The MSRB stated that this uniformity 

would better ensure that Bank Dealers 

do not have a competitive advantage in 

the municipal securities market by 

operation of a less burdensome 

regulatory standard of conduct and, 

thereby, mitigate the potential for 

regulatory arbitrage.36


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38798 Federal Register / Vol. 87, No. 124 / Wednesday, June 29, 2022 / Notices 

37See supra note 11 for the applicable definition 

of ‘‘retail customer’’ and related citation. Any 

customer meeting such definition of retail customer 

pursuant to Regulation Best Interest would not be 

considered an Institutional SMMP for the purposes 

of the proposed Institutional SMMP Amendment 

and its modification to MSRB Rule G–48. For 

purposes of MSRB rules, such a customer meeting 

the definition of a ‘‘retail customer’’ would receive 

the protections afforded by Regulation Best Interest. 

38Notice, 87 FR at 28086. 

39 Id. 

40 Id.; see also Broker-Dealer Harmonization 

Filing, 85 FR at 28082, n. 4. The MSRB notes that 

it has had a long held prohibition against 

‘‘churning,’’ and the MSRB formally ‘‘recast’’ this 

prohibition as quantitative suitability through an 

amendment to MSRB Rule G–19 approved by the 

SEC in 2014. See also Exchange Act Release No. 

71665 (Mar. 7, 2014), 79 FR 2432 (Mar. 13, 2014), 

File No. SR–MSRB–2013–07 (discussing the thenexisting MSRB prohibition on churning and a 

proposed rule change to recast this prohibition 

using the phrase ‘‘quantitative suitability’’), 

available at http://www.msrb.org/∼/media/Files/

SEC-Filings/2013/MSRB-2013-07-Fed-RegApproval.ashx?la=en&hash=AEDA0

B5509630E25473E9F6F3A3F9C34. 

41Notice, 87 FR at 28086–87. See also MSRB Rule 

G–48(c). 

42MSRB Rule G–19. 

43See the Broker-Dealer Harmonization Filing, 85 

FR at 28084. The Broker-Dealer Harmonization 

Filing amended MSRB Rule G–19 to provide that 

the rule does not apply to recommendations subject 

to Regulation Best Interest. Notice, 87 FR at 28087, 

n. 23. 

44Notice, 87 FR at 28087. 

45MSRB Rule G–19, Supplementary Material 

.05(c). 

46 Id. 

47Stated differently, as of June 30, 2020, if the 

obligations of MSRB Rule G–19 attach to a dealer’s 

recommendation, then the investor protections 

regarding quantitative suitability apply regardless of 

whether the dealer making the recommendation 

exercises any actual control or de facto control over 

the customer’s account. Notice, 87 FR at 28087, n. 

26. The Broker-Dealer Harmonization Filing 

amended this language of Supplementary Material 

.05(c) to eliminate such control requirements, 

effectively extending the requirements of 

quantitative suitability to any customer account. 

See Broker-Dealer Harmonization Filing, 85 FR at 

28084. June 30, 2020 was the compliance date for 

the amendments enacted by the Broker-Dealer 

Harmonization Filing. See Broker-Dealer 

Harmonization Filing, 85 FR at 28082, n. 4. 

Pursuant to the Broker-Dealer Harmonization 

Filing, the MSRB also notes that this quantitative 

suitability obligation applies uniformly to any 

dealer (i.e., the same regulatory obligations apply to 

both Broker-Dealers and Bank Dealers). Notice, 87 

FR at 28087, n. 26. 

48Notice, 87 FR at 28087. 

49 Id. See MSRB Rule D–15(c) (requiring an 

Institutional SMMP to ‘‘affirmatively indicate,’’ 

among other things, that it is exercising 

independent judgment in evaluating (A) the 

recommendations of the dealer and (B) the quality 

of execution of the customer’s transactions by the 

dealer). 

50MSRB Rule G–48. 

51MSRB Rule G–48(a) (‘‘The broker, dealer, or 

municipal securities dealer shall not have any 

obligation under Rule G–47 to ensure disclosure of 

material information that is reasonably accessible to 

the market.’’) 

52MSRB Rule G–48(b). 

J. Background and Purpose of the 

Institutional SMMP Amendment 

The MSRB stated that the proposed 

Institutional SMMP Amendment would 

amend MSRB Rule G–48 to modify the 

current obligation to perform a 

quantitative suitability analysis for 

recommendations where the dealer does 

not have actual control or de facto 

control over the account of an SMMP 

who is not a retail customer 37 under 

Regulation Best Interest (collectively, 

‘‘Institutional SMMPs’’ and, 

individually, each an ‘‘Institutional 

SMMP’’).38

As is the case with the reduced 

customer-specific suitability obligations 

currently afforded to Institutional 

SMMPs under MSRB Rule G–48(c), the 

MSRB stated that it believes that dealers 

transacting with Institutional SMMPs 

should have similarly reduced 

quantitative-suitability obligations in 

instances where the dealer does not 

have actual control or de facto control 

over the account of an Institutional 

SMMP.39 The MSRB noted that this 

modification would effectively revert 

the quantitative suitability standard for 

Institutional SMMPs back to the 

previously existing standard that was in 

place under MSRB rules prior to June 

30, 2020.40 The MSRB stated that the 

proposed Institutional SMMP 

Amendment is intended to improve the 

efficiency of the municipal securities 

market without eroding investor 

protection by aligning the compliance 

burden associated with certain 

recommendations made by dealers to 

the reasonable expectations and 

capabilities of Institutional SMMPs— 

who by their nature are more 

sophisticated, non-natural-person 

customers and must affirmatively 

indicate their capacity to (i) exercise 

independent judgment and (ii) access 

material information.41

K. Background on MSRB Rule G–19’s 

Quantitative Suitability Requirements 

MSRB Rule G–19 sets the MSRB’s 

baseline investor protection standards 

regarding the suitability of 

recommendations made by dealers to 

their customers of purchases, sales, or 

exchanges of municipal securities that 

are not subject to Regulation Best 

Interest.42 Among other requirements, 

Supplementary Material .05 of MSRB 

Rule G–19 enumerates three 

components of a dealer’s suitability 

analysis when recommending a 

transaction or investment strategy 

involving a municipal security or 

municipal securities to a non-retail 

customer (i.e., a recommendation that is 

not subject to Regulation Best 

Interest).43 As further defined in the text 

of the rule, MSRB Rule G–19 provides 

that a dealer’s suitability obligation is 

composed of (i) reasonable-basis 

suitability, (ii) customer-specific 

suitability, and (iii) quantitative 

suitability.44 Most relevant to the 

proposed Institutional SMMP 

Amendment of this proposed rule 

change, quantitative suitability requires 

a dealer to have a reasonable basis for 

believing that a series of recommended 

transactions, even if suitable when 

viewed in isolation, are not excessive 

and unsuitable for the customer when 

taken together in light of the customer’s 

investment profile, as delineated in 

MSRB Rule G–19.45 No single test 

defines excessive activity, but factors 

such as the turnover rate, the cost-equity 

ratio, and the use of in-and-out trading 

in a customer’s account may provide a 

basis for a finding that a dealer has 

violated the quantitative suitability 

obligation.46

Pursuant to the amendments 

effectuated by the Broker-Dealer 

Harmonization Filing, discussed above 

and effective as of June 30, 2020, the 

quantitative suitability obligation of 

MSRB Rule G–19 no longer incorporates 

an element of control in relation to a 

customer’s account.47 As a result, 

dealers are currently obligated to 

conduct a quantitative suitability 

analysis under MSRB Rule G–19 when 

making recommendations to 

Institutional SMMPs, even in instances 

where the dealer does not have actual 

control or de facto control over the 

account.48 The obligation applies 

notwithstanding the fact that 

Institutional SMMPs self-identify under 

MSRB Rule G–48 and MSRB Rule D–15 

as having the willingness and requisite 

investment sophistication to, for 

example, independently evaluate the 

recommendations of a dealer and the 

quality of a dealer’s execution, as 

further discussed below.49

L. Background on MSRB Rule G–48 and 

Modified Regulatory Obligations 

MSRB Rule G–48 provides for 

modified dealer regulatory obligations 

under MSRB rules when dealing with 

certain customers that meet the 

definition of a Sophisticated Municipal 

Market Participant (i.e., an SMMP).50

More specifically, when transacting 

with an SMMP customer, Rule G–48 

modifies aspects of a dealer’s baseline 

regulatory obligations in terms of: (i) 

time of trade disclosures,51 (ii) 

transaction pricing,52 (iii) bona fide 


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53MSRB Rule G–48(d) (‘‘The broker, dealer, or 

municipal securities dealer disseminating an 

SMMP’s ‘quotation’ as defined in Rule G–13, which 

is labeled as such, shall apply the same standards 

regarding quotations described in Rule G–13(b) as 

if such quotations were made by another broker, 

dealer, or municipal securities dealer.’’) 

54MSRB Rule G–48(e) (‘‘The broker, dealer, or 

municipal securities dealer shall not have any 

obligation under Rule G–18 to use reasonable 

diligence to ascertain the best market for the subject 

security and buy or sell in that market so that the 

resultant price to the SMMP is as favorable as 

possible under prevailing market conditions.’’) 

55MSRB Rule G–48(c). 

56See, e.g., Exchange Act Release No. 67064 (May 

25, 2012), 77 FR 32704 (June 1, 2012), File No. SR– 

MSRB–2012–05 (May 25, 2012) (approving an 

MSRB proposed rule change to relax certain 

qualifications for a dealer to afford a customer 

SMMP status in light of market developments 

regarding the increased availability of municipal 

securities market information and the desire of 

certain institutional customers to access alternative 

trading systems). 

57 Id. The amendments to MSRB Rule G–48 

enacted by the Broker-Dealer Harmonization Filing 

carved out recommendations to customers that are 

subject to Regulation Best Interest from the rule’s 

modified standards. See Broker-Dealer 

Harmonization Filing, 85 FR at 28084–85. 

58MSRB Rule G–48(c). 

59See Exchange Act Release No. 71665 (Mar. 7, 

2014), 79 FR 14321 (Mar. 13, 2014), File No. SR– 

MSRB–2013–07 (Sept. 17, 2013) (codifying the 

relaxed customer-specific suitability obligation for 

recommendations made to SMMPs in MSRB Rule 

G–48 and the actual control or de facto control 

requirement, thereafter eliminated in 2020 as 

described herein, for the applicability of 

quantitative suitability to recommendations made 

to customers in MSRB Rule G–19). 

60MSRB Rule G–48. 

61MSRB Rule D–15(a) (a customer is only eligible 

to be treated as an SMMP if the customer is: (i) a 

bank, savings and loan association, insurance 

company, or registered investment company, (ii) a 

registered investment advisor, or (iii) a person or 

entity with total assets of at least $50 million). 

62MSRB Rule D–15(b) (a customer is only eligible 

to be treated as an SMMP if the dealer has 

developed a reasonable basis to believe that the 

customer is capable of evaluating investment risks 

and market value independently, both in general 

and with regard to particular transactions and 

investment strategies in municipal securities. In 

addition, Supplementary Material .01 of MSRB Rule 

D–15 states that, as part of the reasonable-basis 

analysis, the dealer should consider the amount and 

type of municipal securities owned or under 

management by the customer). 

63MSRB Rule D–15(c). 

64See MSRB Rule D–15(c)(1) (‘‘The customer 

must affirmatively indicate that it: (1) is exercising 

independent judgment in evaluating: (A) the 

recommendations of the dealer; (B) the quality of 

execution of the customer’s transactions by the 

dealer; and (C) the transaction price for nonrecommended secondary market agency 

transactions as to which (i) the dealer’s services 

have been explicitly limited to providing 

anonymity, communication, order matching and/or 

clearance functions and (ii) the dealer does not 

exercise discretion as to how or when the 

transactions are executed . . .’’). 

65See MSRB Rule D–15(c)(2) (‘‘The customer 

must affirmatively indicate that it . . . (2) has 

timely access to material information that is 

available publicly through established industry 

sources as defined in Rule G–47(b)(i) and (ii).’’) 

66Notice, 87 FR at 28088. 

67 Id. 

68See MSRB Rule D–15(b) and Rule D–15 

Supplementary Material .01. 

69Notice, 87 FR at 28088 

70 Id. 

quotations,53 (iv) best execution,54 and 

(vi) suitability.55 The modified 

regulatory obligations afforded to 

SMMPs under MSRB rules are intended 

to account for the distinct capabilities of 

certain sophisticated, non-retail 

customers and the varied types of 

dealer-customer relationships occurring 

in the municipal securities market.56

Most relevant to the proposed 

Institutional SMMP Amendment, Rule 

G–48(c) currently modifies the 

suitability requirements of MSRB Rule 

G–19 by eliminating the requirement for 

dealers to conduct a customer-specific 

suitability analysis for 

recommendations made to an 

Institutional SMMP.57 The operative 

provision of MSRB Rule G–48 provides 

that, ‘‘[w]hen making a recommendation 

subject to Rule G–19 and not Regulation 

Best Interest, Rule 15l–1 under the Act, 

a broker, dealer, or municipal securities 

dealer shall not have any obligation 

under Rule G–19 to perform a customerspecific suitability analysis.’’ 58 This 

relaxed customer-specific suitability 

obligation is generally aligned with the 

‘‘independent judgment’’ affirmations a 

customer seeking SMMP status makes 

under MSRB Rule D–15. The proposed 

Institutional SMMP Amendment would 

likewise relax the quantitative 

suitability obligation for similar reasons, 

as further described in the following 

sections.59

M. Background on MSRB Rule D–15 and 

SMMP Affirmation Requirements 

MSRB Rule G–48 incorporates the 

definition of SMMP under MSRB Rule 

D–15 for purposes of defining which 

customers do (or do not) qualify as an 

SMMP for purposes of Rule G–48 and, 

therefore, MSRB Rule D–15 establishes 

the scope of potential customers who 

might qualify for MSRB Rule G–48’s 

modified obligations.60 The SMMP 

definition in MSRB Rule D–15 

enumerates three components, which 

separately address: (i) the minimum 

qualifying traits and characteristics of 

an SMMP customer; 61 (ii) that a dealer 

must develop a reasonable basis for 

determining whether a customer has the 

requisite level of expertise and 

sophistication to be deemed an SMMP 

customer (the ‘‘SMMP Reasonable Basis 

Determination’’); 62 and (iii) the 

affirmations that a customer must 

communicate to the dealer regarding its 

own investment judgment and access to 

information in order to be appropriately 

deemed an SMMP customer (the 

‘‘SMMP Customer Affirmations’’).63

With respect to the SMMP Customer 

Affirmations, MSRB Rule D–15(c) 

provides that the customer must 

affirmatively indicate to the dealer that 

(i) it is exercising independent judgment 

in evaluating the recommendations of 

the dealer; the quality of execution of 

the customer’s transactions by the 

dealer; and the transaction price for 

non-recommended secondary market 

agency transactions as to which the 

dealer’s services have been explicitly 

limited to providing anonymity, 

communication, order matching and/or 

clearance functions and the dealer does 

not exercise discretion as to how or 

when the transactions are executed; 64

and (ii) it has timely access to material 

information that is available publicly 

through established industry sources as 

defined in MSRB Rule G–47(b)(i) and 

MSRB Rule G–47(b)(ii) (i.e., ‘‘material 

information’’ from ‘‘established industry 

sources,’’ such as EMMA website 

information and rating agency 

reports).65

The MSRB noted that an institutional 

customer who self-identifies as an 

SMMP has freely affirmed to a dealer its 

willingness to be treated as a 

sophisticated customer with the 

capacity and resources to exercise its 

own independent judgment.66 The 

MSRB stated that, in this way, the 

SMMP Customer Affirmations are 

designed to ensure that any customer 

treated as an SMMP has affirmatively 

and knowingly provided the grounds on 

which a dealer may afford such SMMP 

customer lesser protections under 

certain MSRB rules.67 As an additional 

investor protection safeguard beyond 

the requirement for SMMP Customer 

Affirmations, the SMMP Reasonable 

Basis Determination also requires a 

dealer to have a reasonable basis to 

believe that an SMMP customer is 

capable of evaluating investment risks 

and market value independently, both 

in general and with regard to particular 

transactions and investment strategies 

in municipal securities.68 The MSRB 

noted that, in this way, the SMMP 

Reasonable Basis Determination further 

ensures that an Institutional SMMP does 

in fact possess a more sophisticated 

understanding of the municipal 

securities market.69 The MSRB noted 

that the proposed Institutional SMMP 

Amendment would not alter the SMMP 

Customer Affirmations, the SMMP 

Reasonable Basis Determination, nor 

any of the other definitional elements of 

MSRB Rule D–15 that must be satisfied 

for a customer to qualify as an SMMP.70


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71 Id. 

72Where a dealer exercises actual control or de 

facto control over an Institutional SMMP’s account, 

the dealer would still be required to perform a 

quantitative suitability analysis in accordance with 

Supplementary Material .05 of MSRB Rule G–19. 

Relatedly, if an Institutional SMMP limitedly 

provides its customer affirmation on a trade-bytrade basis, then the dealer would be required to 

comply with all aspects of MSRB Rule G–19, 

including both the quantitative suitability 

requirement and the customer-specific suitability 

requirement, for those recommendations for which 

the Institutional SMMP did not provide the 

applicable customer affirmation. See 

Supplementary Material .02 of MSRB Rule D–15 

(discussing trade-by-trade affirmations). 

73Notice, 87 FR at 28088. 

74 Id. 

75 Id. 

76Notice, 87 FR at 28088–89. For example, the 

MSRB believes that the obligation to perform 

quantitative suitability analyses under MSRB rules 

remains appropriate, regardless of the potential for 

such duplication, in circumstances of 

recommendations made to retail customers; nonretail, institutional customers who fail to meet the 

characteristics of an SMMP; and/or non-retail 

customers who have declined to make the 

affirmations necessary to be appropriately deemed 

an SMMP. Notice, 87 FR at 28089, n. 46. 

77Notice, 87 FR at 28089. 

78 Id. 

79 Id. 

80 15 U.S.C. 78o-4(b)(2)(C). 

81 Id. 

82Regulation Best Interest Adopting Release, 84 

FR at 33318. 

83Notice, 87 FR at 28085. 

N. Purpose and Intent of the 

Institutional SMMP Amendment to 

MSRB Rule G–48 

The MSRB stated that the proposed 

Institutional SMMP Amendment would 

amend MSRB Rule G–48 to modify the 

quantitative suitability obligations of 

dealers when effecting transactions for 

their Institutional SMMPs.71 The 

proposed Institutional SMMP 

Amendment would require a dealer to 

conduct a quantitative suitability 

analysis only in situations where the 

dealer has actual control or de facto 

control over an Institutional SMMP’s 

account.72 As stated above, the 

proposed amendments to MSRB Rule 

G–48 would narrowly reinstate the 

scope of suitability protections afforded 

to Institutional SMMPs in effect prior to 

the amendments effectuated by the 

Broker-Dealer Harmonization Filing, 

and so should be a familiar regulatory 

concept to dealers and Institutional 

SMMPs alike.73

More importantly, because each 

Institutional SMMP must self-identify as 

an SMMP by making the SMMP 

Customer Affirmations, as well as fulfill 

the requirements associated with a 

dealer’s SMMP Reasonable Basis 

Determination, the MSRB stated that the 

proposed Institutional SMMP 

Amendment would ease a regulatory 

burden on dealers that effectively 

replicates the sort of analysis an 

Institutional SMMP is willing and 

capable of performing itself.74 As a 

result, the MSRB noted that the 

proposed Institutional SMMP 

Amendment would align the 

compliance burden associated with 

certain recommendations made by 

dealers to the reasonable expectations 

and capabilities of Institutional 

SMMPs.75

Although the MSRB noted that 

investor protection benefits associated 

with requiring dealers to perform a 

potentially duplicative suitability 

analysis can be appropriate in other 

circumstances,76 the MSRB stated that 

the compliance burden associated with 

performing a quantitative suitability 

analysis on recommendations made to 

Institutional SMMPs outweighs the 

potential marginal investor protection 

benefits.77 The MSRB noted that the 

proposed Institutional SMMP 

Amendment would promote efficiency 

in the municipal securities market by 

eliminating a regulatory burden on 

dealers that potentially provides a 

duplicative or unneeded analyses in 

supplement of an Institutional SMMPs’ 

own independent and informed 

judgment.78 The MSRB stated that the 

proposed Institutional SMMP 

Amendment would allow dealers to 

redirect the resources associated with 

this regulatory burden to other more 

productive market activities.79

III. Discussion and Commission 

Findings 

The Commission has carefully 

considered the proposed rule change. 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Exchange Act 

and the rules and regulations 

thereunder applicable to the MSRB. 

In particular, the Commission 

believes that the proposed rule change 

is consistent with the provisions of 

Exchange Act Section 15B(b)(2)(C), 

which provides, in part, 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, and 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.80

A. Commission Findings for the Best 

Interest Amendments 

The Commission finds that the 

proposed Best Interest Amendments are 

consistent with Section 15B(b)(2)(C) of 

the Act 81 because the amendments 

would: (i) prevent fraudulent and 

manipulative acts and practices; (ii) 

promote just and equitable principles of 

trade; (iii) 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; (iv) remove impediments to 

and perfect the mechanism of a free and 

open market in municipal securities and 

municipal financial products; and (v) 

protect investors, municipal entities, 

obligated persons, and the public 

interest. 

i. Prevent Fraudulent and Manipulative 

Acts and Practices 

The Commission finds that the 

proposed Best Interest Amendments 

would prevent fraudulent and 

manipulative acts and practices by 

extending the enhanced standards of 

conduct required by Regulation Best 

Interest to the retail municipal 

recommendations of Bank Dealers. As 

noted by the Commission in the 

adopting release for Regulation Best 

Interest, Regulation Best Interest 

enhances the broker-dealer standard of 

conduct beyond existing suitability 

obligations.82 Specifically, the proposed 

Best Interest Amendments would 

mandate Bank Dealers act in the best 

interest of the retail customer at the time 

the recommendation is made (without 

placing the financial or other interest of 

the Broker-Dealer ahead of the interest 

of the retail customer).83 As such, the 

Commission finds that the proposed 

Best Interest Amendments would 

enhance the quality of Bank Dealer 

retail municipal recommendations. 

The Commission further finds that the 

proposed Best Interest Amendments 

would address conflicts of interest in 

connection with Bank Dealer retail 

municipal recommendations, by 

establishing, maintaining, and enforcing 

policies and procedures reasonably 

designed to identify and fully and fairly 

disclose material facts about conflicts of 

interest (and in instances where it is 

determined that disclosure is 

insufficient to reasonably address the 

conflict, to mitigate, or in certain 


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84Notice, 87 FR at 28086. 

85Regulation Best Interest Adopting Release, 84 

FR at 33318. 

86Notice, 87 FR at 28086. 

87Notice, 87 FR at 28085. 

88 Id. 

89 Id. 

90 15 U.S.C. 78o–4(b)(2)(C). 

91Notice, 87 FR at 28088. 

instances, eliminate the conflict).84

Therefore, the Commission finds that 

reducing the potential harm to retail 

customers that may be caused by 

conflict of interest in connection with 

Bank Dealer retail municipal 

recommendations. 

By enhancing the quality of Bank 

Dealer recommendations to retail 

customers and mitigating harm to retail 

customers from potential conflict of 

interest, the Commission believes that 

the proposed Best Interest Amendments 

would prevent potential fraudulent and 

manipulative acts and practices and 

promote the protection of the retail 

customers of Bank Dealers.85

ii. Promote Just and Equitable Principles 

of Trade 

The Commission finds that the 

proposed Best Interest Amendments’ 

mandate of a uniform standard among 

Broker-Dealers and Bank Dealers when 

making recommendations to retail 

customers in municipal securities 

would promote just and equitable 

principles of trade within the municipal 

securities market. Specifically, the 

proposed Best Interest Amendments 

would ensure Bank Dealers have 

regulatory obligations and burdens 

when engaging in retail municipal 

recommendations that are generally 

equivalent to the regulatory obligations 

and burdens of Broker-Dealers (when 

engaging in the same municipal 

securities activities).86 The Commission 

notes that this uniformity would better 

ensure that Bank Dealers do not have a 

competitive advantage in the municipal 

securities market by operation of a less 

burdensome regulatory standard of 

conduct. Therefore, the Commission 

finds that the proposed Best Interest 

Amendments will mitigate the potential 

for regulatory arbitrage and thereby 

promote just and equitable principles of 

trade. 

iii. 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 

The Commission finds that the 

proposed Best Interest Amendments 

would foster cooperation and 

coordination between the MSRB, SEC, 

and other regulators by aligning the 

suitability obligations of MSRB Rule G– 

19 with the suitability obligations of 

Regulation Best Interest. 87 The 

Commission notes that such alignment 

would establish a uniform standard of 

suitability obligations among BrokerDealers and Bank Dealers when making 

retail municipal recommendations, 

creating regulatory clarity regarding 

retail municipal recommendations. As 

such, the Commission finds that the 

proposed Best Interest Amendments 

will foster greater cooperation and 

coordination among the authorities that 

examine Broker-Dealers and Bank 

Dealers for compliance with MSRB 

rules, as well as authorities that enforce 

those rules. 

iv. Remove Impediments to and Perfect 

the Mechanism of a Free and Open 

Market in Municipal Securities and 

Municipal Financial Products 

The Commission finds that the 

proposed Best Interest Amendments 

would remove impediments to, and 

perfect the mechanism of, a free and 

open market in municipal securities by 

creating a uniform regulatory standard 

for retail municipal recommendations. 

By establishing one standard for retail 

municipal recommendations, the 

Commission finds that the proposed 

Best Interest Amendments would 

eliminate confusion about duties Bank 

Dealers (with retail customers and nonretail customers) owe to retail customers 

regarding municipal securities 

recommendations.88 The Commission 

further notes that having one standard 

of retail municipal recommendations 

would also eliminate confusion about 

the duties retail customers (who have 

accounts with both Bank Dealers and 

Broker-Dealers) can expect from Bank 

Dealers and Broker-Dealers regarding 

municipal securities recommendations. 

The Commission finds that the Best 

Interest Amendments would reduce 

Bank Dealers’ and retail customers’ 

confusion regarding the duties 

associated with providing retail 

municipal recommendation. As such, 

the Commission holds that the proposed 

Best Interest Amendments remove 

impediments to the municipal security 

market, removing uncertainty 

surrounding retail municipal 

recommendations. 

v. Protect Investors, Municipal Entities, 

Obligated Persons, and the Public 

Interest 

The Commission believes that the 

proposed Best Interest Amendments’ 

revision to MSRB Rule G–19 will 

protect investors by ensuring Bank 

Dealers comply with the heightened 

regulatory requirements of the 

Commission’s Regulation Best Interest 

rather than current MSRB G–19.89 By 

uniformly applying the investor 

protections provided by Regulation Best 

Interest, the proposed Best Interest 

Amendments would ensure that a retail 

customer will receive the enhanced 

investor protections of Regulation Best 

Interest, regardless of whether a BrokerDealer or a Bank Dealer makes retail 

municipal recommendation. In doing 

so, the Commission finds that the 

proposed Best Interest Amendments 

thereby protect investors, municipal 

entities, obligated persons, and the 

public interest. 

B. Commission Findings for the 

Institutional SMMP Amendment 

The Commission finds that the 

proposed Institutional SMMP 

Amendment is consistent with Section 

15B(b)(2)(C) 90 of the Act in that such 

amendment would remove impediments 

to and perfect the mechanism of a free 

and open market in municipal securities 

and municipal financial products, 

without materially diminishing the 

prevention of fraudulent and 

manipulative acts and practices; or the 

protect investors, municipal entities, 

obligated persons, and the public 

interest. 

Specifically, the Commissions finds 

that the proposed Institutional SMMP 

Amendment would remove 

impediments to and perfect the 

mechanism of a free and open market in 

municipal securities and municipal 

financial product by eliminating the 

current requirement to perform a 

quantitative suitability analysis for 

recommendations in circumstances 

where the dealer does not have actual 

control or de facto control over an 

Institutional SMMP’s account.91 The 

Commission notes that ending this 

requirement could eliminate potentially 

duplicative analyses undertaken by 

dealers on behalf of Institutional 

SMMPs. In particular, the Commission 

notes that Institutional SMMPs have 

already affirmed their capacity and 

expertise to conduct such analyses for 

themselves, and presumably, the 

Institutional SMMPs presumably have 

taken upon themselves to perform such 

analyses. 

Therefore, the Commission believes 

that the proposed Institutional SMMP 

Amendment would facilitate 

transactions in municipal securities and 

remove impediments to and perfect the 

mechanism of a free and open market in 


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92Notice, 87 FR at 28088. 

93Notice, 87 FR at 28090. 

94 15 U.S.C. 78c(f). 

95 15 U.S.C. 78o–4(b)(2)(C). 

96 15 U.S.C. 78s(b)(2). 

97 17 CFR 200.30–3(a)(12). 

municipal securities by reducing a 

compliance burden. 

The Commission further believes that 

proposed Institutional SMMP 

Amendment would not materially 

diminish the prevention of fraudulent 

and manipulative acts and practices 

under MSRB Rule G–19, as amended by 

the proposed Best Interest Amendments, 

by incorporating the concepts of actual 

control or de facto control.92

Specifically, the Commission believes 

that reinstating control elements would 

help address potential scenarios in 

which the ability of an Institutional 

SMMP to exercise independent 

judgment is undermined or 

circumvented. Such a situation may 

occur when a dealer may not have 

formal discretionary authority over an 

Institutional SMMP’s account, but 

nevertheless exercises de facto control 

over the account (to, for example, 

engage in churning activity in clear 

contravention of an Institutional 

SMMP’s investment interests). The 

Commission further finds that the 

proposed Institutional SMMP 

Amendment’s incorporating the actual 

control or de facto control elements 

maintains baseline investor protections 

for Institutional SMMPs in such 

scenarios of greater dealer impropriety 

or intentional wrongdoing. 

Similarly, the Commission believes 

that the proposed Institutional SMMP 

Amendment will not materially 

diminish the protection of investors, 

municipal entities, and obligated 

person, and the public interest provided 

by MSRB Rule G–19, as amended by the 

proposed Best Interest Amendments. 

Specifically, under the proposed 

Institutional SMMP Amendment, new 

institutional customers, who otherwise 

would qualify as SMMPs but desire the 

additional investor protections afforded 

by quantitative suitability under MSRB 

Rule G–19, may decline to provide the 

required affirmations under MSRB Rule 

D–15.93 The Commission notes that, 

under the proposed rule change, 

existing Institutional SMMPs could 

withdraw their SMMP status and obtain 

the suitability protections afforded by 

MSRB Rule G–19. The Commission 

believes this ability to self-identify as an 

Institutional SMMP will help ensure 

that those institutional customers who 

desire additional investor protection can 

secure them under MSRB rules, which 

would then require a dealer to 

undertake a quantitative suitability 

analysis. Accordingly, the Commission 

finds that the proposed Institutional 

SMMP Amendment would not 

materially diminish essential safeguards 

for investor protection. 

In approving the proposed rule 

change, the Commission has considered 

the proposed rule change’s impact on 

efficiency, competition, and capital 

formation.94 Exchange Act Section 

15B(b)(2)(C) 95 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. 

The Commission does not believe that 

the proposed Best Interest Amendments 

would impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act because 

the proposed rule change would align 

MSRB rules with the requirements of 

Regulation Best Interest. As such, the 

proposed Best Interest Amendments 

will reduce the potential for regulatory 

arbitrage and any attendant disruption it 

could have caused in the competitive 

landscape between Broker-Dealers and 

Bank Dealers regarding retail municipal 

recommendations. Consequently, the 

proposed Best Interest Amendments 

will not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act, because 

it establishes a uniform regulatory 

environment for all retail municipal 

recommendations. 

The Commission further believes that 

the proposed Institutional SMMP 

Amendment would not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act because 

the proposed rule change would be 

equally applicable to all dealers. As 

such, the Commission finds that any 

benefits or burdens to competition 

would be evenly applied to all such 

firms transacting with institutional 

customers. Therefore, neither the 

proposed Best Interest Amendments nor 

the proposed Institutional SMMP 

Amendment do not impose any burden 

on competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. 

The Commission has also reviewed 

the record for the proposed rule change 

and notes that the record does not 

contain any information to indicate that 

the proposed rule change would have a 

negative effect on capital formation. 

Further, the Commission finds that the 

possible increased investor protection 

offered by the proposed Best Interest 

Amendments and the possible 

operational efficiency proposed 

Institutional SMMP Amendments could 

foster greater faith in the integrity of the 

municipal security market, increasing 

participation in this market, thereby 

increase capital formation. 

The Commission also finds that the 

proposed rule change includes 

provisions that help promote efficiency. 

In particular, the Commission believes 

the proposed Best Interest Amendments 

may improve Broker Dealers and Bank 

Dealers’ effectiveness in providing retail 

municipal recommendations by 

promoting a uniform standard of 

suitability requirements (for example, 

increasing compliance efficiency for 

firms who have both Broker-Dealer and 

Bank Dealer subsidiaries). The 

Commission also notes that the 

proposed Institutional SMMP 

Amendment may improve the 

operational efficiency of the municipal 

securities market. By reintroducing the 

element of actual control or de facto 

control with respect to Institutional 

SMMP accounts that would trigger a 

dealer’s quantitative suitability 

obligation, the Commission finds that 

the proposed Institutional SMMP 

Amendment could eliminate potentially 

duplicative analyses undertaken by 

dealers on behalf of Institutional 

SMMPs. 

The Commission received no 

comment letters on the proposed rule 

change. 

For the reasons noted above, the 

Commission believes that the proposed 

rule change is consistent with the 

Exchange Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,96

that the proposed rule change (SR– 

MSRB–2022–02) be, and hereby is, 

approved. 

For the Commission, pursuant to delegated 

authority.97

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–13814 Filed 6–28–22; 8:45 am] 

BILLING CODE 8011–01–P 


lotter on DSK11XQN23PROD with NOTICES1