[Federal Register Volume 79, Number 203 (Tuesday, October 21, 2014)]
[Notices]
[Pages 63001-63003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24954]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73368; File No. SR-MSRB-2014-05]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change Consisting of 
Proposed Amendments to Rule G-3, on Professional Qualification 
Requirements, Regarding Continuing Education Requirements

October 15, 2014.

I. Introduction

    On July 22, 2014, 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 consisting of proposed 
amendments to Rule G-3, on professional qualification requirements, 
regarding continuing education requirements. The proposed rule change 
was published for comment in the Federal Register on August 5, 2014.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 34-72705 (July 29, 
2014), 79 FR 45529 (August 5, 2014) (the ``Notice'').
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    The Commission received four comment letters on the proposal.\4\ On 
October 3, 2014, the MSRB submitted a response to these comments.\5\ 
This order approves the proposed rule change.
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    \4\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from David L. Cohen, Managing Director and Associate General 
Counsel, Securities Industry and Financial Markets Association 
(``SIFMA''), dated August 13, 2014 (``SIFMA Letter''); Tamara K. 
Salmon, Senior Associate Counsel, Investment Company Institute 
(``ICI''), dated August 19, 2014 (``ICI Letter''); Michael Nicholas, 
Chief Executive Officer, Bond Dealers of America (``BDA''), dated 
August 26, 2014 (``BDA Letter''); and David T. Bellaire, Executive 
Vice President and General Counsel, Financial Services Institute 
(``FSI''), dated August 26, 2014 (``FSI Letter'').
    \5\ See Letter to Secretary, Commission, from Lawrence P. 
Sandor, Deputy General Counsel, MSRB, dated October 3, 2014 (``MSRB 
Response Letter''), available at http://www.sec.gov/comments/sr-msrb-2014-05/msrb201405-5.pdf.
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II. Description of the Proposed Rule Change

1. Proposed Rule Change

    According to the MSRB, the purpose of the proposed rule change is 
to improve the Firm Element continuing education requirement of MSRB 
Rule G-3(h)(ii) by requiring brokers, dealers and municipal securities 
dealers (collectively, ``dealers'') to conduct annual municipal 
securities training for registered representatives who regularly engage 
in, and municipal securities principals who regularly supervise, 
municipal securities activities.\6\ In addition to such annual 
securities training, the MSRB has stated that the proposed rule change 
would also expand the definition of covered registered persons who are 
required to participate in such training to include registered persons 
who engage in a variety of municipal securities activities, regardless 
of whether such activities are customer-facing.\7\
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    \6\ See supra note 3.
    \7\ Id.
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    The MSRB believes the proposed rule change addresses concerns that 
municipal securities professionals may not be receiving adequate 
training because dealers may not be placing a sufficiently high 
priority on municipal securities in their needs analysis.\8\ The MSRB 
believes that the municipal securities market possesses unique 
attributes that require particularized education and training.\9\ In 
addition, the MSRB has stated that dealers engaging in municipal 
securities activities are subject to, and as a result, must be familiar 
with MSRB rules that are distinct from the rules of other SROs and that 
are tailored to address the particularities of the municipal securities 
market.\10\ The MSRB believes that requiring dealers to conduct annual 
municipal securities training for registered persons who are regularly 
engaged in or who regularly supervise municipal securities activities 
would ensure the delivery of municipal securities content to those 
individuals who are active in the municipal securities market, while 
allowing dealers sufficient flexibility in delivering such content.\11\ 
According to the MSRB, under the proposed rule change, dealers would 
continue to determine the nature of the training and would have the 
discretion as to content based on the specific type of municipal 
securities activities conducted by the firm and the individual 
registered person.\12\
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    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ Id.
    \12\ Id.
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2. Technical and Conforming Amendments

    According to the MSRB, the proposed rule change includes certain 
technical amendments to conform other portions of Rule G-3 to the 
proposed rule change. First, the MSRB stated that the proposed rule 
change would amend Rule G-3(h)(ii)(C) to clarify that covered 
registered persons must participate in the Firm Element training as 
required by the dealer.\13\ Second, the MSRB stated that Rule G-
3(h)(ii)(B)(1) would be amended to clarify that, under the proposed 
rule change, supervisory training would be required for any registered 
principal who regularly supervises municipal securities activities.\14\ 
Lastly, the MSRB stated that Rule G-3(h)(ii)(B)(2) would be amended to 
explicitly require that a firm's training program include training on 
the municipal securities products, services and strategies offered by 
the dealer.\15\
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    \13\ Id.
    \14\ Id.
    \15\ Id.
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3. Effective Date

    The MSRB has proposed January 1, 2015 as the effective date for the 
proposed rule change to provide dealers with adequate time to include 
the training requirements of the proposed rule change into their annual 
needs analysis and written training plan.\16\
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    \16\ Id.
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III. Summary of Comments Received and the MSRB's Response

    As noted previously, the Commission received four comment letters 
on the proposed rule change and a response letter from the MSRB.\17\ 
The commenters generally support the proposed rule change.\18\ However, 
some commenters asked for further clarification and provided 
suggestions to the proposed rule change.\19\ The MSRB believes the 
proposed rule change is appropriately tailored and has responded to the 
commenters, as discussed below.\20\
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    \17\ See supra notes 4 and 5.
    \18\ Id.
    \19\ Id.
    \20\ See MSRB Response Letter.
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1. Determination of Who Is Regularly Engaged in Municipal Securities 
Activities

    FSI stated that the phrase ``regularly engage in municipal 
securities activities'' used to define the covered registered persons 
subject to the training is less clear than the phrase ``primarily 
engaged in municipal securities activities'' used in the MSRB's initial 
proposal.\21\ FSI also stated that the use of this phrase will lead to 
an overly broad application of the Firm Element continuing education 
requirements.\22\
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    \21\ See FSI Letter.
    \22\ Id.

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    The MSRB does not agree.\23\ The MSRB believes the new phrase 
provides dealers with the flexibility to determine who must participate 
in the Firm Element continuing education program, so long as the 
dealers have a reasonable basis for determining which registered 
persons regularly engage in or supervise municipal securities 
activities.\24\ Instead of promulgating a prescriptive rule, the MSRB 
believes that dealers should have the flexibility to tailor their 
municipal securities training based on their size, organizational 
structure, and scope of business activities.\25\ According to the MSRB, 
dealers are best suited to evaluate their municipal securities 
activities and determine who is regularly engaged in such activities 
and therefore must participate in the annual training.\26\
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    \23\ See MSRB Response Letter.
    \24\ Id.
    \25\ Id.
    \26\ Id.
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2. Documenting Methodology To Identify Covered Registered Persons

    ICI suggested that the MSRB expressly include in Rule G-3 a 
requirement that dealers maintain written documentation of their 
methodology for determining who must participate in the Firm Element 
continuing education.\27\
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    \27\ See ICI Letter.
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    The MSRB responded by noting that there is a current requirement in 
Rule G-3(h)(ii)(B) that dealers conduct a needs analysis and develop a 
written training plan.\28\ The MSRB would expect dealers, as part of 
such needs analysis, to evaluate their training needs and document in 
their written training plans their methodology for determining who 
should be trained.\29\
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    \28\ See MSRB Response Letter.
    \29\ Id.
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3. Harmonization of FINRA and MSRB Firm Element Requirements

    FSI and SIFMA raised concerns regarding the perceived de-
harmonization between the proposed amendments to Rule G-3(h)(ii) and 
FINRA Rule 1250(b).\30\ According to the MSRB, the proposed rule change 
would differ from FINRA's continuing education rule in that it would 
require annual municipal securities training for certain registered 
persons.\31\
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    \30\ See FSI Letter and SIFMA Letter.
    \31\ See MSRB Response Letter.
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    The MSRB believes such training is important because, currently, 
registered representatives who regularly engage in, and municipal 
securities principals who regularly supervise, municipal securities 
activities, may receive insufficient or no municipal securities 
training.\32\ According to the MSRB, the proposed rule change will help 
ensure the delivery of municipal securities content to such registered 
representatives.\33\ In addition, the MSRB believes the proposed rule 
change would better align the MSRB and FINRA Firm Element continuing 
education requirements with regard to registered individuals who do not 
have direct contact with customers.\34\ The MSRB stated that the 
proposed rule change would extend the MSRB Firm Element continuing 
education requirement to certain registered persons who do not have 
direct contact with customers, consistent with the approach taken by 
FINRA.\35\
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    \32\ Id.
    \33\ Id.
    \34\ Id.
    \35\ Id.
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4. Effective Date of the Proposed Rule Change

    SIFMA requested clarification regarding the January 1, 2015 
effective date, and in particular whether dealers have until December 
2015 to complete the annual training requirement as provided in the 
proposed rule change.\36\
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    \36\ See SIFMA Letter.
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    The MSRB responded by clarifying that while the effective date of 
the proposed rule change would be January 1, 2015, dealers would be in 
compliance if they completed their Firm Element continuing education by 
December 31, 2015 and annually thereafter.\37\
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    \37\ See MSRB Response Letter.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as well as the comment letters. The Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to the MSRB. In particular, 
the proposed rule change is consistent with Section 15B(b)(2)(A) of the 
Act which provides that the MSRB's rules shall provide that no 
municipal securities broker or municipal securities dealer shall effect 
any transaction in, or induce or attempt to induce the purchase or sale 
of, any municipal security, and no broker, dealer, municipal securities 
dealer, or municipal advisor shall provide advice to or on behalf of a 
municipal entity or obligated person with respect to municipal 
financial products or the issuance of municipal securities, unless such 
municipal securities broker or municipal securities dealer meets such 
standards of operational capability and such municipal securities 
broker or municipal securities dealer and every natural person 
associated with such municipal securities broker or municipal 
securities dealer meets such standards of training, experience, 
competence, and such other qualifications as the Board finds necessary 
or appropriate in the public interest or for the protection of 
investors and municipal entities or obligated persons.\38\ The 
Commission believes the proposed rule change is consistent with Section 
15B(b)(2)(A) in that the proposed rule will ensure that registered 
persons who regularly engage in municipal securities activities and 
supervisors who regularly supervise municipal securities activities 
will receive annual municipal securities training.
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    \38\ 15 U.S.C. 78o-4(b)(2)(A).
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    Additionally, the proposed rule is consistent with Section 
15B(b)(2)(C) of the Act, which 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.\39\ The Commission believes that the 
proposed rule change is consistent with Section 15B(b)(2)(C) of the Act 
because requiring Firm Element continuing education for registered 
persons who regularly engage in municipal securities activities and 
supervisors who regularly supervise municipal securities activities is 
essential for the protection of investors, municipal entities and the 
public interest. Furthermore, continuing education will help ensure 
that individuals regularly participating in the municipal securities 
market will stay abreast of: new municipal securities features, 
products and risks; changes to applicable regulatory regimes; and 
innovations in market practices.
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    \39\ 15 U.S.C. 78o-4(b)(2)(C).
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    In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, and 
capital formation. Specifically, the Commission does not believe that 
the proposed rule change would impose any burden on

[[Page 63003]]

competition not necessary or appropriate in furtherance of the purposes 
of the Act since it would apply equally to all dealers who engage in 
municipal securities activities. The proposed rule change does nothing 
more than specify that, in developing an annual training plan based on 
the firm's need analysis, the dealer must include municipal securities 
training for those individuals who are regularly engaged in municipal 
securities activities and supervisors who regularly supervise municipal 
securities activities. The proposed rule change does not set forth any 
quantitative or qualitative requirements regarding the training that 
must be provided and grants dealers flexibility to develop Firm Element 
training based on the nature of their business activities. In addition, 
the Commission believes, that the proposed rule change addresses the 
need to ensure adequate training for municipal securities professionals 
and would likely improve the municipal securities market and its 
efficient operation. Furthermore, the Commission believes that the 
potential burdens created by the proposed rule change are to be likely 
outweighed by the benefits.
    For the reasons noted above, the Commission believes that the 
proposed rule change is consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\40\ that the proposed rule change (SR-MSRB-2014-05) be, and hereby 
is, approved.\41\
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    \40\ 15 U.S.C. 78s(b)(2).
    \41\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24954 Filed 10-20-14; 8:45 am]
BILLING CODE 8011-01-P