Federal Register / Vol. 79, No. 203 / Tuesday, October 21, 2014 / Notices 63001 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 34–72705 

(July 29, 2014), 79 FR 45529 (August 5, 2014) (the 

‘‘Notice’’). 

4See 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’’). 

5See 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. 

6See supra note 3. 

7 Id. 

8 Id. 

9 Id. 

10 Id. 

11 Id. 

12 Id. 

13 Id. 

14 Id. 

15 Id. 

16 Id. 

17See supra notes 4 and 5. 

18 Id. 

19 Id. 

20See MSRB Response Letter. 

21See FSI Letter. 

22 Id. 

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

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. 

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

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

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

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

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

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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63002 Federal Register / Vol. 79, No. 203 / Tuesday, October 21, 2014 / Notices 

23See MSRB Response Letter. 

24 Id. 

25 Id. 

26 Id. 

27See ICI Letter. 

28See MSRB Response Letter. 

29 Id. 

30See FSI Letter and SIFMA Letter. 

31See MSRB Response Letter. 

32 Id. 

33 Id. 

34 Id. 

35 Id. 

36See SIFMA Letter. 

37See MSRB Response Letter. 

38 15 U.S.C. 78o–4(b)(2)(A). 

39 15 U.S.C. 78o–4(b)(2)(C). 

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

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

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

3. Harmonization of FINRA and MSRB 

Firm Element Requirements 

FSI and SIFMA raised concerns 

regarding the perceived deharmonization 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

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

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

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

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. 

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. 

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 

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Federal Register / Vol. 79, No. 203 / Tuesday, October 21, 2014 / Notices 63003 

40 15 U.S.C. 78s(b)(2). 

41 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 72945 

(August 28, 2014), 79 FR 52790 (‘‘Notice’’). 

4See proposed Rule 11.9(g). 

5See proposed Rules 21.1(i) and (j). 

6As defined in Rule 1.5(cc), a User is ‘‘any 

Member or Sponsored Participant who is 

authorized to obtain access to the System pursuant 

to Rule 11.3.’’ 

7As defined in Rule 1.5(t), applicable to BATS 

Equities, a ‘‘Protected Quotation’’ is ‘‘a quotation 

that is a Protected Bid or Protected Offer.’’ In turn, 

the term ‘‘Protected Bid’’ or ‘‘Protected Offer’’ 

means ‘‘a bid or offer in a stock that is (i) displayed 

by an automated trading center; (ii) disseminated 

pursuant to an effective national market system 

plan; and (iii) an automated quotation that is the 

best bid or best offer of a national securities 

exchange or association.’’ As defined in BATS Rule 

27.1, applicable to BATS Options, a ‘‘Protected 

Quotation’’ is ‘‘a Protected Bid or Protected Offer.’’ 

In turn, the term ‘‘Protected Bid’’ or ‘‘Protected 

Offer’’ means ‘‘a Bid or Offer in an options series, 

respectively, that: (A) Is disseminated pursuant to 

the OPRA Plan; and (B) Is the Best Bid or Best Offer, 

respectively, displayed by an Eligible Exchange.’’ 

An ‘‘Eligible Exchange’’ is defined in Rule 27.1 as 

means ‘‘a national securities exchange registered 

with the SEC in accordance with Section 6(a) of the 

Exchange Act that: (a) is a Participant Exchange in 

OCC (as that term is defined in Section VII of the 

OCC by-laws); (b) is a party to the OPRA Plan (as 

that term is described in Section I of the OPRA 

Plan); and (c) if the national securities exchange 

chooses not to become a party to this Plan, is a 

participant in another plan approved by the 

Commission providing for comparable TradeThrough and Locked and Crossed Market 

protection.’’ 

8See Rule 11.9(g)(1). 

9The Exchange notes that BATS Post Only Orders 

are permitted to remove liquidity from the BATS 

Book if the value of price improvement associated 

with such execution equals or exceeds the sum of 

fees charged for such execution and the value of 

any rebate that would be provided if the order 

posted to the BATS Book and subsequently 

provided liquidity. See Rule 11.9(c)(6). Similarly, 

Partial Post Only at Limit Orders are permitted to 

remove price improving liquidity as well as a Userselected percentage of the remaining order at the 

limit price if, following such removal, the order can 

post at its limit price. See Rule 11.9(c)(7). 

10See proposed Rule 11.9(g)(2)(A). 

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

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 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73363; File No. SR–BATS– 

2014–038] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Order Granting 

Approval of a Proposed Rule Change 

to Rules 11.9 and 21.1 of BATS 

Exchange, Inc. To Add Price Adjust 

Functionality 

October 15, 2014. 

I. Introduction 

On August 26, 2014, BATS Exchange, 

Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed 

with the Securities and Exchange 

Commission (‘‘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 amend Exchange Rules 11.9 

and 21.1 to add Price Adjust 

functionality to the Exchange’s equities 

and options trading platforms. The 

proposed rule change was published for 

comment in the Federal Register on 

September 4, 2014.3 The Commission 

did not receive any comments on the 

proposed rule change. This order 

approves the proposed rule change. 

II. Description of the Proposal 

The Exchange has proposed to amend 

BATS Rule (‘‘Rule’’) 11.9 to add a new, 

optional Price Adjust functionality to 

the Exchange’s cash equities trading 

platform (‘‘BATS Equities’’).4 Consistent 

with its practice of offering similar 

functionality for the Exchange’s equity 

options trading platform (‘‘BATS 

Options’’) as it does for BATS Equities, 

the Exchange also has proposed to 

amend Rule 21.1 to add Price Adjust 

functionality to BATS Options.5 On 

both BATS Equities and BATS Options, 

the Price Adjust functionality would 

have to be elected by a User 6 in order 

to be applied by the Exchange. 

BATS Equities 

Currently, the Exchange offers price 

sliding to ensure compliance with 

Regulation NMS and Regulation SHO 

for BATS Equities, as well as price 

sliding for BATS Options to ensure 

compliance with rules analogous to 

Regulation NMS adopted by the 

Exchange and other options exchanges. 

With respect to price sliding offered to 

ensure compliance with Regulation 

NMS (‘‘display-price sliding’’), under 

the Exchange’s current rules for BATS 

Equities, if, at the time of entry, a nonroutable order would lock or cross a 

Protected Quotation 7 displayed by 

another trading center, the Exchange 

ranks (and in the case of a cross, reprices) such order at the locking price, 

and displays such order at one 

minimum price variation below the 

NBO for bids and above the NBB for 

offers.8 The Exchange currently offers 

display-price sliding functionality to 

avoid locking or crossing other markets’ 

Protected Quotations, but does not price 

slide to avoid executions on the 

Exchange’s order book (‘‘BATS Book’’). 

Specifically, when the Exchange 

receives an incoming order that could 

execute against resting displayed 

liquidity but an execution does not 

occur because such incoming order is 

designated as an order that will not 

remove liquidity (e.g., a BATS Post Only 

Order), then the Exchange will cancel 

the incoming order unless it is 

permitted to remove liquidity upon 

entry.9

Under the proposed Price Adjust 

process, by contrast, an order eligible for 

display by the Exchange that, at the time 

of entry, would create a violation of 

Rule 610(d) of Regulation NMS by 

locking or crossing a Protected 

Quotation of an external market or the 

Exchange will be ranked and displayed 

at one minimum price variation below 

the current NBO (for bids) or to one 

minimum price variation above the 

current NBB (for offers).10 Thus, the 

proposed Price Adjust process differs 

from the Exchange’s current displayprice sliding process in two main ways. 

First, the Price Adjust process would 

both rank and display such an order at 

one minimum price variation below the 

current NBO or above the current NBB 

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