73658 Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 72956 

(September 2, 2014), 79 FR 53236 (September 8, 

2014) (the ‘‘Proposing Release’’). 

4See Letters from David L. Cohen, Managing 

Director and Associate General Counsel, Securities 

Industry and Financial Markets Association 

(‘‘SIFMA’’), dated September 29, 2014 (‘‘SIFMA 

Letter’’); Michael Nicholas, Chief Executive Officer, 

Bond Dealers of America (‘‘BDA’’), dated September 

29, 2014 (‘‘BDA Letter No. 1’’) and October 30, 2014 

(‘‘BDA Letter No. 2’’); Chris Melton, Executive Vice 

President, Coastal Securities (‘‘Coastal’’), dated 

September 29, 2014 (‘‘Coastal Letter’’); David T. 

Bellaire, Esq., Executive Vice President & General 

Counsel, Financial Services Institute (‘‘FSI’’), dated 

September 29, 2014 (‘‘FSI Letter’’); and Robert J. 

McCarthy, Director of Regulatory Policy, Wells 

Fargo Advisors, LLC (‘‘Wells Fargo’’), dated 

September 29, 2014 (‘‘Wells Letter’’). Staff from the 

Office of Municipal Securities met with 

representatives from BDA on October 23, 2014, and 

had a telephonic meeting with a representative from 

SIFMA on December 3, 2014, to discuss the 

proposed rule change. 

5See Letter to Secretary, Commission, from 

Michael L. Post, Deputy General 

Counsel, MSRB, dated November 21, 2014 

(‘‘MSRB Response Letter’’). 

6See supra note 3 at 2. 

7 Id. at 7. 

8 Id. 

9 Id. 

10See proposed Rule G–18(a). 

11 Id. 

12See proposed Rule G–18(b). 

13See supra note 3 at 10. 

14See proposed Rule G–18(c). 

15 Id. 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–EDGX– 

2014–29, and should be submitted on or 

before January 2, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–29009 Filed 12–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73764; File No. SR–MSRB– 

2014–07] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Order Granting Approval of a 

Proposed Rule Change Consisting of 

Rule G–18, on Best Execution of 

Transactions in Municipal Securities, 

and Amendments to Rule G–48, on 

Transactions With Sophisticated 

Municipal Market Professionals 

(‘‘SMMP’’), and Rule D–15, on the 

Definition of SMMP 

December 5, 2014. 

I. Introduction 

On August 20, 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 Rule G–18, on best 

execution of transactions in municipal 

securities, and amendments to Rule G– 

48, on transactions with SMMPs, and 

Rule D–15, on the definition of SMMP 

(the ‘‘proposed rule change’’). The 

proposed rule change was published for 

comment in the Federal Register on 

September 8, 2014.3

The Commission received six 

comment letters on the proposed rule 

change.4 On November 21, 2014, the 

MSRB submitted a response to these 

comments.5 This order approves the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

According to the MSRB, the 

establishment of a requirement that 

brokers, dealers and municipal 

securities dealers (‘‘dealers’’) seek best 

execution of retail customer transactions 

in municipal securities will have 

benefits for investors, promote fair 

competition among dealers, and 

improve market efficiency.6 The MSRB 

stated that the proposed rule change 

reflects the MSRB’s belief that a best 

execution rule should be generally 

harmonized with the Financial Industry 

Regulatory Authority’s (‘‘FINRA’’) bestexecution rule, FINRA Rule 5310 (Best 

Execution and Interpositioning), for 

purposes of regulatory efficiency but 

appropriately tailored to the 

characteristics of the municipal 

securities market.7 The MSRB further 

believes that, unlike FINRA Rule 5310, 

it is appropriate to provide an exception 

from the requirements of the bestexecution rule for all transactions with 

SMMPs.8 The MSRB represented that 

the proposed best-execution 

requirement generally would target the 

process by which dealers handle orders 

and execute transactions, and would 

complement and buttress the MSRB’s 

existing fair-pricing rules.9

1. Proposed Rule G–18 

Proposed Rule G–18(a) requires that, 

in any transaction in a municipal 

security for or with a customer or a 

customer of another dealer, a dealer 

must 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 

customer is as favorable as possible 

under prevailing market conditions.10

Paragraph (a) provides the following 

factors among the factors that will be 

considered in determining whether a 

dealer has used ‘‘reasonable diligence,’’ 

with no single factor being 

determinative: the character of the 

market for the security, the size and 

type of transaction, the number of 

markets checked, the information 

reviewed to determine the current 

market for the subject security or similar 

securities, the accessibility of 

quotations, and the terms and 

conditions of the customer’s inquiry or 

order, including any bids or offers, that 

result in the transaction, as 

communicated to the dealer.11

Proposed Rule G–18(b) prohibits a 

dealer from interjecting a third party 

between itself and the best market for 

the subject security in a manner 

inconsistent with paragraph (a).12 The 

MSRB stated that paragraph (b) would 

not prohibit the use of a broker’s broker, 

unless it was inconsistent with the bestexecution obligation in paragraph (a).13

Proposed Rule G–18(c) specifies that 

the obligations described in paragraphs 

(a) and (b) apply to transactions in 

which the dealer is acting as agent and 

transactions in which the dealer is 

acting as principal.14 Paragraph (c) 

expressly states that the best-execution 

obligations are distinct from the fairness 

and reasonableness of commissions, 

markups or markdowns, which are 

governed by Rule G–30.15

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16See proposed Rule G–18 Paragraph .01 of the 

Supplementary Material. 

17 Id. 

18See supra note 3 at 11. 

19See proposed Rule G–18 Paragraph .02 of the 

Supplementary Material. 

20 Id. 

21See proposed Rule G–18 Paragraph .03 of the 

Supplementary Material. 

22 Id. 

23See proposed Rule G–18 Paragraph .04 of the 

Supplementary Material. 

24 Id. 

25See supra note 3 at 12. 

26See proposed Rule G–18 Paragraph .05 of the 

Supplementary Material. 

27 Id. 

28See proposed Rule G–18 Paragraph .06 of the 

Supplementary Material. 

29 Id. 

30 Id. 

31See proposed Rule G–18 Paragraph .07 of the 

Supplementary Material. 

32 Id. 

33See proposed Rule G–18 Paragraph .08(a) of the 

Supplementary Material. 

34 Id. 

35 Id. 

36See proposed Rule G–18 Paragraph .08(b) of the 

Supplementary Material. 

37See proposed Rule G–18 Paragraph .09 of the 

Supplementary Material. 

38See supra note 3 at 14. 

39See proposed amendments to Rule G–48. 

2. Supplementary Material to Proposed 

Rule G–18 

Paragraph .01 of the Supplementary 

Material specifies that the principal 

purpose of proposed Rule G–18 is to 

promote, for customer transactions, 

dealers’ use of reasonable diligence in 

accordance with paragraph (a).16

Paragraph .01 also specifies that ‘‘[a] 

failure to have actually obtained the 

most favorable price possible will not 

necessarily mean that the dealer failed 

to use reasonable diligence.’’17

According to the MSRB, Paragraph .01 

of the Supplementary Material indicates 

that Rule G–18 is not intended to be a 

substantive pricing standard but an 

order-handling standard for the 

execution of transactions.18

Paragraph .02 of the Supplementary 

Material provides that a dealer’s failure 

to maintain adequate resources (e.g., 

staff or technology) is not a justification 

for executing away from the best 

available market.19 This paragraph also 

states that the level of resources that a 

dealer maintains should take into 

account the nature of the dealer’s 

municipal securities business, including 

its level of sales and trading activity.20

Paragraph .03 of the Supplementary 

Material provides that a dealer must 

make every effort to execute customer 

transactions promptly, taking into 

account prevailing market conditions.21

In addition, in certain market 

conditions, a dealer may need more 

time to use reasonable diligence to 

ascertain the best market for the subject 

security.22

Paragraph .04 of the Supplementary 

Material defines the term ‘‘market’’ or 

‘‘markets’’ for purposes of proposed 

Rule G–18.23 The term is to be 

construed broadly and includes, but is 

not limited to, ‘‘alternative trading 

systems or platforms,’’ ‘‘broker’s 

brokers,’’ and ‘‘other counterparties, 

which may include the dealer itself as 

principal.’’24 The MSRB represented 

that the purpose of this language is to 

tailor the definition of ‘‘market’’ to the 

characteristics of the municipal 

securities market and to provide 

flexibility for future developments in 

both market structure and applied 

technology.25

Paragraph .05 of the Supplementary 

Material provides that a dealer’s duty to 

provide best execution in any 

transaction ‘‘for or with’’ ‘‘a customer of 

another dealer’’ does not apply in 

instances when the other dealer is 

simply executing a customer transaction 

against the dealer’s quote.26 In addition, 

a dealer’s duty to provide best execution 

to customer orders received from other 

dealers arises only when an order is 

routed from another dealer to the dealer 

for handling and execution.27

Paragraph .06 of the Supplementary 

Material addresses transactions 

involving securities for which there is 

limited pricing information or 

quotations.28 This paragraph requires 

each dealer to have written policies and 

procedures that address how the 

dealer’s best-execution determinations 

will be made for such securities in the 

absence of pricing information or 

multiple quotations, and to document 

its compliance with those policies and 

procedures.29 This paragraph also 

provides that a dealer generally should 

seek out other sources of pricing 

information and potential liquidity for 

such securities, including other dealers 

that the dealer previously has traded 

with in the security, and generally 

should, in determining whether the 

resultant price to the customer is as 

favorable as possible under prevailing 

market conditions, analyze other 

relevant data to which it reasonably has 

access.30

Paragraph .07 of the Supplementary 

Material provides that, if a dealer 

receives an unsolicited instruction from 

a customer designating a particular 

market for the execution of the 

customer’s transaction, the dealer is not 

required to make a best-execution 

determination beyond the customer’s 

specific instruction.31 Dealers are, 

however, still required to process that 

customer’s transaction promptly and in 

accordance with the terms of the 

customer’s bid or offer.32

Paragraph .08(a) of the Supplementary 

Material requires that a dealer must, at 

a minimum, conduct annual reviews of 

its policies and procedures for 

determining the best available market 

for the executions of its customers’ 

transactions.33 While no more frequent 

interval is specifically required, a dealer 

must conduct reviews at a frequency 

reasonably related to the nature of its 

municipal securities business.34 In 

conducting such periodic reviews, a 

dealer must assess whether its policies 

and procedures are reasonably designed 

to achieve best execution, taking into 

account the quality of the executions the 

dealer is obtaining under its current 

policies and procedures, changes in 

market structure, new entrants, the 

availability of additional pre-trade and 

post-trade data, and the availability of 

new technologies, and to make 

promptly any necessary modifications 

to such policies and procedures as may 

be appropriate in light of such 

reviews.35

Paragraph .08(b) of the 

Supplementary Material provides that a 

dealer that routes its customers’ 

transactions to another dealer that has 

agreed to handle those transactions as 

agent or riskless principal for the 

customer (e.g., a clearing firm or other 

executing dealer) may rely on that other 

dealer’s periodic reviews as long as the 

results and rationale of the review are 

fully disclosed to the dealer and the 

dealer periodically reviews how the 

other dealer’s review is conducted and 

the results of the review.36

Paragraph .09 of the Supplementary 

Material provides that the provisions of 

proposed Rule G–18 do not apply to 

transactions in municipal fund 

securities.37

3. Proposed Amendments to Rule G–48 

The MSRB stated that the bestexecution obligations under proposed 

Rule G–18 do not apply to transactions 

with customers that are SMMPs.38 The 

proposed amendments to Rule G–48 add 

a new section (e) to provide expressly 

that a 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.39 The MSRB noted 

that Rule G–48 is the new consolidated 

MSRB rule under which all modified 

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73660 Federal Register / Vol. 79, No. 238 / Thursday, December 11, 2014 / Notices 

40See supra note 3 at 14. 41Under existing Rule D–15, ‘‘SMMP’’ means a 

customer of a dealer that is: a bank, savings and 

loan association, insurance company, or registered 

investment company; or an investment adviser 

registered either with the SEC under Section 203 of 

the Investment Advisers Act of 1940 or with a state 

securities commission (or any agency or office 

performing like functions); or any other entity 

(whether a natural person, corporation, partnership, 

trust, or otherwise) with total assets of at least $50 

million; and, that the dealer has a reasonable basis 

to believe 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, and 

that affirmatively indicates that it is exercising 

independent judgment in evaluating the 

recommendations of the dealer. 

42See proposed amendments to Rule D–15. 

43The MSRB stated that the proposed 

amendments to Rule D–15 include non-substantive 

(e.g., technical, conforming and organizational) 

revisions to accommodate the substantive changes 

and improve the readability of the rule. See supra 

note 3 at 16–17 

44The SMMP customer affirmation contained in 

existing Rule D–15 requires that the customer 

affirmatively indicate that it is exercising 

independent judgment in evaluating the 

recommendations of the dealer. 

45See proposed amendments to Rule D–15. 

46See supra note 3 at 17. 

47 Id. 48See proposed amendments to Rule D–15. 49See supra note 3 at 8. 50 Id. 51 Id. 52See supra notes 4 and 5. 53 Id. 54See SIFMA Letter at 2, BDA Letter No. 1 at 3, 

and Wells Letter at 4. 55See SIFMA Letter at 2 and BDA Letter No. 1 

at 3. 56See Wells Letter at 4. 

57See BDA Letter No. 1 at 3. 

58See SIFMA Letter at 2 and BDA Letter No. 1 

at 3. 

59See Wells Letter at 4. 

60See MSRB Response Letter at 2. 

61 Id. 

62See MSRB Response Letter at 2–3. 

63See MSRB Response Letter at 3. 

64See BDA Letter No. 1 at 2. 

65 Id. 

66 Id. 

obligations of dealers are addressed 

when dealing with SMMPs.40

4. Proposed Amendments to Rule D–15 

Existing Rule D–15 contains the 

SMMP definition.41 The proposed 

amendments to Rule D–15 provide that 

an SMMP is defined by three essential 

requirements: the nature of the 

customer; a determination of 

sophistication by the dealer; and an 

affirmation by the customer.42 The 

proposed amendments to Rule D–15 do 

not change the nature of the customer 

and the determination of sophistication 

by the dealer, excluding minor, nonsubstantive revisions.43 The proposed 

amendments to Rule D–15, however, 

expand the existing customer 

affirmation 44 to require that the 

customer affirmatively indicate that it 

(1) 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 

certain non-recommended secondary 

market agency transactions; and (2) has 

timely access to material information 

that is available publicly through 

established industry sources.45 The 

MSRB stated that a dealer could not 

treat any customer as an SMMP after the 

proposed best-execution rule is 

implemented unless the dealer 

reasonably determined that the 

customer had given the broader 

affirmation required under the proposed 

amendments to Rule D–15.46 The MSRB 

believes that it is important that the 

definition of SMMP under the proposed 

amendments to Rule D–15 (as under the 

existing rule) is not self-executing, nor 

are the contingencies for its application 

in the unilateral control of the 

interfacing dealer.47

The proposed amendments to 

paragraph .02 of the Supplementary 

Material to Rule D–15 would provide 

that the SMMP customer affirmation 

may be given, in addition to the existing 

bases, on a type-of-transaction basis.48

5. Implementation Period 

The MSRB requested that the 

proposed rule change be approved with 

an implementation date one year after 

the Commission approval date.49

According to the MSRB, this 

implementation period would allow 

dealers sufficient time to develop or 

modify their policies and procedures 

and to acquire or adjust the level of their 

resources.50 The MSRB also stated that 

this one year implementation period 

would allow time for the MSRB to 

create educational materials and 

conduct outreach to the dealer 

community, as appropriate, regarding 

the proposed rule change.51

A full description of the proposed 

rule change is contained in the 

Proposing Release. 

III. Summary of Comments Received 

and the MSRB’s Response 

As noted previously, the Commission 

received six comment letters on the 

proposed rule change and a response 

letter from the MSRB.52 Commenters 

generally supported the proposed rule 

change, however, some asked for further 

clarification and provided suggestions 

to the proposed rule change.53

1. Use of Best Execution 

SIFMA, BDA and Wells Fargo do not 

support the use of the phrase ‘‘best 

execution’’ in the proposed rule 

change.54 SIFMA and BDA believe that 

regulatory examiners and enforcement 

staff will use the phrase to enforce 

standards that are not applicable to the 

municipal securities market.55 Also, 

Wells Fargo believes that the term best 

execution correlates with the equity 

securities market and is inconsistent 

with the fundamental goal expressed 

within proposed rule G–18.56 Similarly, 

BDA believes using a term borrowed 

from standards applicable to other 

markets that operate very differently 

from the municipal securities market is 

inappropriate.57 SIFMA and BDA 

suggest removing the word ‘‘best’’ in 

certain instances and replacing ‘‘best 

execution’’ with ‘‘execution diligence’’ 

in others.58 Wells Fargo recommends 

the term ‘‘best execution’’ be removed 

from the proposed rule language, 

including the title, and be replaced with 

the term ‘‘reasonable diligence.’’ 59

The MSRB responded by highlighting 

that paragraph .01 of the Supplementary 

Material indicates that proposed Rule 

G–18 is not intended to create a 

substantive pricing standard, but rather 

an order-handling standard for the 

execution of transactions.60 The MSRB 

noted that paragraph .01 of the 

Supplementary Material expressly 

provides that a failure to have actually 

obtained the most favorable price 

possible will not necessarily mean the 

dealer failed to use reasonable diligence 

under the circumstances.61 The MSRB 

represented that ‘‘best execution’’ is an 

established term for the concept of 

execution quality in customer securities 

transactions in other contexts, and the 

standard in those contexts is similarly 

not a most-favorable-price standard.62

The MSRB believes that concerns that 

regulatory examiners and enforcement 

staff will use the phrase ‘‘best 

execution’’ to enforce standards that are 

not applicable to the municipal 

securities market and that are 

inconsistent with the MSRB’s stated 

intent that ‘‘the most favorable price 

possible’’ will not necessarily be 

equated with the term ‘‘best execution’’ 

are speculative in nature, and do not 

warrant changes to the proposed rule 

language.63

2. Definition of Market 

BDA believes proposed Rule G–18 

broadens the concept of ‘‘market’’ well 

beyond FINRA Rule 5310.64 BDA 

believes there is no concept at all of 

limiting the market to market centers or 

what FINRA Rule 5310 considers 

venues.65 BDA believes any dealer or 

other counterparty in the country can 

potentially constitute a ‘‘market’’ that 

needs to be considered.66 BDA 

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67 Id. 

68See Coastal Letter at 2. 

69 Id. 

70See MSRB Response Letter at 3. 

71 Id. 

72See MSRB Response Letter at 3–4 and 

Paragraph .02 of the Supplementary Material to 

FINRA Rule 5310. 

73See MSRB Response Letter at 4. 

74 Id. 

75 Id. 76See SIFMA Letter at 4. 77 Id. 78 Id. 79 Id. 

80 Id. 

81 Id. 

82See MSRB Response Letter at 4–5. 

83 Id. at 5. 

84 Id. 

85 Id. 

86 Id. 

87 Id. 

88 Id. 

89See Coastal Letter at 1. 

90 Id. 

91 Id. 

92 Id. at 2. 

93See MSRB Response Letter at 6. 

expresses concern that the proposed 

definition requires dealers to use their 

reasonable diligence to locate the one 

counterparty that will pay the best 

price, not the best market center, and 

that such a duty is more expansive than 

the one under FINRA Rule 5310 and too 

burdensome to impose.67 Coastal 

believes the definition creates an undue 

burden not required by FINRA rules by 

defining each dealer as a market.68

Coastal recommends wording the 

proposed Rule G–18 language in line 

with existing FINRA rules.69

The MSRB responded by stating that 

it believes that the proposed definition 

of ‘‘market’’ is appropriate, even as 

compared to FINRA Rule 5310.70 The 

MSRB noted that FINRA states that its 

definition of ‘‘market’’ or ‘‘markets’’ in 

FINRA Rule 5310 also is to be construed 

broadly to encompass a variety of 

different venues, including, but not 

limited to, market centers.71 The MSRB 

further stated that FINRA Rule 5310 

provides that, in the absence of 

quotations, ‘‘members are not relieved 

from taking reasonable steps and 

employing their market expertise in 

achieving the best execution of 

customer orders,’’ and, ‘‘[i]n these 

instances, a member should generally 

seek out other sources of pricing 

information or potential liquidity, 

which may include obtaining quotations 

from other sources (e.g., other firms that 

the member previously has traded 

within the security).’’ 72

The MSRB does not believe the 

definition of ‘‘market’’ creates a duty for 

dealers to use reasonable diligence to 

locate the one counterparty that will pay 

the best price because, as previously 

noted above, proposed Rule G–18 is an 

order-handling and transactionexecution standard and does not contain 

any substantive pricing standard.73 In 

addition, the MSRB noted that 

paragraph .01 of the Supplementary 

Material to proposed Rule G–18 

expressly provides that a failure to have 

actually obtained the most favorable 

price possible will not necessarily mean 

that the dealer failed to use reasonable 

diligence under the circumstances.74

The MSRB believes that the number of 

counterparties and/or other markets the 

dealer should consider would depend 

on the analysis of the factors articulated 

in proposed Rule G–18(a), and any other 

facts and circumstances that would 

contribute to a dealer’s identification of 

the best market.75

3. Number of Markets Checked 

SIFMA requests that ‘‘the number of 

markets checked’’ factor be deleted from 

proposed Rule G–18(a).76 SIFMA 

believes this factor is more applicable to 

the equities market structure of 

exchanges with a central aggregator of 

bids and offers as well as constant 

liquidity.77 SIFMA further believes that, 

unlike equity markets, there is no direct 

continuously-quoted, bid-and-ask 

trading market between bond dealers in 

the municipal markets, so the mere act 

of contacting other dealers for quotes on 

fixed income securities does not 

necessarily result in a more timely or 

beneficial execution.78 SIFMA disagrees 

with any suggestion that the act of 

contacting other dealers would be the 

implicit or requisite procedure to 

evidence best execution.79 SIFMA also 

believes ‘‘the number of markets 

checked’’ is covered by another factor— 

‘‘the information reviewed to determine 

the current market for the subject 

security or similar security.’’ 80 SIFMA 

expresses concern that ‘‘the number of 

markets checked’’ factor is inconsistent 

with paragraph .04 of the 

Supplementary Material to proposed 

Rule G–18, which acknowledges that a 

dealer itself as principal may be the best 

market to satisfy best execution for the 

subject security.81

The MSRB noted that while the 

structure of the municipal securities 

market is different than the equity 

securities market structure of exchanges, 

that difference does not necessarily 

reduce the value of a dealer checking 

multiple markets, as defined by 

proposed Rule G–18, to ascertain the 

best market for executing customer 

transactions.82 The MSRB stated that 

‘‘the number of markets checked’’ factor 

is only one factor in the non-exhaustive 

list of factors to be considered, and no 

single factor is determinative.83 The 

MSRB further stated that, depending on 

the particular facts and circumstances, it 

could be consistent with the reasonablediligence standard for a dealer not to 

contact other dealers, however, it would 

be important, given the proposed rule’s 

emphasis on complying with policies 

and procedures, for a dealer to have 

written policies and procedures in place 

that address such circumstances.84

The MSRB believes it is important to 

explicitly include ‘‘the number of 

markets checked’’ factor to further the 

objective of promoting fair competition 

among dealers.85 The MSRB does not 

believe that ‘‘the number of markets 

checked’’ factor is inconsistent with the 

definition of ‘‘market’’ in paragraph .04 

of the Supplementary Material.86

According to the MSRB, although 

paragraph .04 explicitly states that the 

dealer itself as principal could be the 

best market, it does not indicate that 

such a dealer would always be the best 

market for purposes of best execution, 

and, depending on the facts and 

circumstances, the exercise of 

reasonable diligence to comply with the 

proposed rule likely would regularly 

require a dealer to check other markets 

in addition to its own inventory.87 As 

such, the MSRB decided not to delete 

this factor from the non-exhaustive list 

of factors in proposed Rule G–18(a).88

4. Securities With Limited Quotations or 

Pricing Information 

Coastal believes proposed Rule G–18 

erroneously presumes retail customers 

turn in market orders to purchase 

specific municipal bonds in the 

secondary market and, consequently, 

imposes unnecessary regulatory burdens 

on selling dealers.89 Coastal believes, on 

the sell side, there are no orders to 

speak of that would benefit from 

requiring a dealer to complete a process 

demonstrating best execution.90 Coastal 

questions the flexibility of the proposed 

best-execution standard and suggests 

that the requirements for securities with 

limited quotations or pricing 

information is unnecessary.91 Coastal 

recommends wording the proposed Rule 

G–18 language in line with existing 

FINRA rules.92

The MSRB responded by noting that 

the application of the proposed bestexecution standard does not hinge on 

whether a customer places a market 

order or on whether a customer has 

identified a particular municipal 

security.93 The MSRB believes that 

while many customer orders in the 

municipal securities market are placed 

in response to offerings made by sellers 

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94 Id. 

95 Id. 

96 Id. 

97 Id. 

98 Id. 

99See SIFMA Letter at 2, 4–5 and Wells Letter at 

3. 

100See SIFMA Letter at 4. 

101 Id. 

102 Id. at 4–5. 

103 Id. at 5. 

104See MSRB Response Letter at 6. 

105 Id. at 6–7. 

106 Id. at 7. 

107 Id. 

108 Id. 

109See Wells Letter at 3. 

110See MSRB Response Letter at 7. 

111 Id. 

112See BDA Letter No. 1 at 3–4, BDA Letter No. 

2 at 1, FSI Letter 2–3, and Wells Letter 2–3 and 5. 

113See MSRB Response Letter at 7. 

114 Id. at 7–8. 

115 Id. at 8. 

116See SIFMA Letter at 2 and 6 and Wells Letter 

at 2. 

117See SIFMA Letter at 9–10 and Wells Letter at 

4. 

118See Wells Letter at 4. 

119See MSRB Response Letter at 8. 

out of their own inventories, there are 

customer-initiated orders in the market 

as well.94 The MSRB believes that a 

significant benefit of the flexible bestexecution standard embodied in 

proposed Rule G–18 is the ability to 

apply to an evolving market over time.95

The MSRB also believes that 

paragraph .06 of the Supplementary 

Material of proposed Rule G–18, which 

requires written policies and procedures 

that address how a dealer would make 

its best-execution determinations in 

cases of limited quotations or pricing 

information, is consistent with FINRA 

Rule 5310.96 The MSRB stated that the 

FINRA rule, with which the MSRB has 

generally harmonized, does not contain 

further prescriptions than proposed 

Rule G–18 in this area.97 The MSRB 

believes that including additional 

language would not materially add to 

proposed Rule G–18, which already 

contains the core requirement that 

dealers use reasonable diligence and is 

tailored to the characteristics of the 

municipal securities market.98

5. Enforcement Concerns 

SIFMA and Wells Fargo express 

concerns with how proposed rule G–18 

would be enforced.99 SIFMA believes 

that the non-exhaustive list of factors to 

be considered by dealers creates a de 

facto enforcement checklist for 

FINRA.100 SIFMA questions how 

compliance with ‘‘the number of 

markets checked’’ factor can be 

proved.101 SIFMA members are 

concerned that enforcement regulators 

will challenge a dealer’s trade price 

because the regulators will have the 

benefit of hindsight and may be able to 

show other trades for the same CUSIP at 

marginally better prices and will assert 

that the dealer therefore did not provide 

best execution.102 SIFMA suggests 

codifying the MSRB’s view that 

proposed Rule G–18 is not intended to 

create a trade-through rule by adding 

the following to paragraph .01 of the 

Supplementary Material: ‘‘[a] failure to 

consider a superior price available on 

another market would not necessarily 

constitute a violation of the rule.’’ 103

The MSRB responded by stating that 

the mandatory factors in proposed Rule 

G–18(a) would be considered in any 

examination and/or enforcement 

activities by regulators, but no single 

factor would be determinative, and 

other facts and circumstances could be 

considered as well in determining 

whether a dealer has used reasonable 

diligence.104 The MSRB noted that it 

would be important, given proposed 

rule G–18’s emphasis on complying 

with sound policies and procedures, for 

a dealer to have written policies and 

procedures in place that articulate how 

the dealer would exercise reasonable 

diligence, which should, at a minimum, 

include consideration of the number of 

markets checked factor, as well as the 

others listed in the proposed rule.105

Also, according to the MSRB, under the 

broad standard in proposed Rule G–18, 

the subsequent discovery of a market 

that had better prices than the market in 

which a dealer executed a customer 

transaction would inform a dealer’s 

development of its policies and 

procedures and periodic review of them 

under Paragraph .08 of the 

Supplementary Material.106 The MSRB 

noted, however, a failure to consider 

such a market would not necessarily 

constitute a violation of the proposed 

rule, and, as provided in proposed 

Supplementary Material .01, a failure to 

have actually obtained the most 

favorable price possible would not 

necessarily mean that the dealer failed 

to use reasonable diligence.107 As such, 

the MSRB does not believe revision of 

the proposed rule language is necessary 

at this time.108

Wells Fargo believes that the 

proposed rule language regarding a 

dealer’s failure to maintain adequate 

resources (set forth in paragraph .02 of 

the Supplementary Material of proposed 

Rule G–18) may create confusion over 

enforcement as proposed rule G–18 

could be applied inconsistently and 

arbitrarily based on the activity level 

and number of ATSs to which a 

particular dealer subscribes.109

The MSRB responded by stating that 

proposed Rule G–18 establishes only 

one best execution standard for all 

dealers in the municipal securities 

market.110 According to the MSRB, 

paragraph .02 of the Supplementary 

Material, similar to FINRA Rule 5310(c), 

addresses the need for dealers to devote 

adequate resources towards meeting 

their best-execution obligations, while 

acknowledging that a ‘‘one-size-fits-all’’ 

approach to staffing is not required.111

6. Request for Clarification/Guidance 

BDA, FSI and Wells Fargo request 

guidance and/or clarification on how to 

comply with the proposed rule change 

generally, as well as in more particular 

circumstances, and how to evidence 

compliance to regulators.112

The MSRB responded by stating, at 

this time, it is not revising proposed 

Rule G–18 to include any more 

prescriptive provisions because doing so 

could negate the benefits of a principlesbased rulemaking approach.113 The 

MSRB stated that while it understands 

the desire on the part of dealers for 

concrete steps to follow for their 

particular business models, such a 

prescriptive rule might undermine the 

flexibility the rule is designed to 

provide.114 The MSRB represented that, 

if the proposed rule change is approved, 

the MSRB plans to provide practical 

guidance on complying with the bestexecution standard prior to 

implementation of the proposed rule 

change, in coordination with FINRA.115

7. Proposed Amendments to Rules G–48 

and D–15 

(a) Public Comment 

SIFMA and Wells Fargo express 

concerns that the MSRB did not request 

public comment on the proposed 

amendments to Rule D–15 prior to filing 

the proposed rule change with the 

SEC.116 Additionally, SIFMA and Wells 

Fargo believe the SEC should have 

provided a lengthier comment 

period.117 Wells Fargo believes this 

aspect of the proposed rule change 

should be withdrawn until additional 

time is provided.118

The MSRB responded by noting that 

the SEC determines the length of the 

public comment period and it provided 

21 days for comment on the proposed 

rule change, specifically soliciting 

comment on the proposed amendments 

to Rules G–48 and D–15.119 The MSRB 

stated that any additional solicitation of 

comments, prior to the SEC’s 

publication of a proposed rule change, 

by a self-regulatory organization, such 

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120 Id. 

121 Id. at 8–9. 

122 Id. at 9. 

123 Id. 

124See SIFMA Letter at 8. 

125 Id. 

126 Id. at 8–9. 

127See FSI Letter at 3. 

128See MSRB Response Letter at 9. 

129 Id. 

130 Id. 

131 Id. 

132 Id. 

133 Id. 

134See SIFMA Letter at 2, 6 and 9 and Wells 

Letter at 4. 

135See BDA Letter No. 2 at 1. 

136 Id. 

137See Wells Letter at 4 and BDA Letter No. 1 at 

3. 

138See MSRB Response Letter at 10. 

139 Id. 

140 Id. 

141 Id. 

142 Id. 

143See SIFMA Letter at 2, 6–7, and 9, BDA Letter 

No. 1 at 3–4 and Wells Letter at 2 and 4–5. 

144See Wells Letter at 4. 

145See SIFMA Letter at 7. 

146 Id. at 6. 

147 Id. at 7. 

148 Id. at 8. 

as the MSRB, is not required.120 The 

MSRB also noted that it provided two 

rounds of public comment, focusing 

first on the concept of applying a best 

execution standard to customer 

transactions in municipal securities 

and, second, evaluating specific rule 

language articulating such standard.121

According to the MSRB, the issues 

related to the proposed amendments to 

Rules G–48 and D–15 are derivative of 

changes in response to comments and 

are consistent with well-established 

requirements applicable to qualification 

as an SMMP.122 As such, the MSRB 

does not believe the proposed 

amendments to Rules G–48 and D–15 

warrant another round of comment in 

this rulemaking matter.123

(b) Economic Analysis 

SIFMA believes the MSRB did not 

discuss any economic analysis as it 

relates to the proposed amendments to 

Rule D–15.124 SIFMA expresses concern 

that the proposed amendments to Rule 

D–15 fundamentally alter how a dealer 

determines if a customer qualifies as an 

SMMP.125 SIFMA suggests that the 

MSRB should have conducted an 

economic analysis consistent with its 

Policy for Integrating Economic 

Analysis in MSRB Rulemaking 

(‘‘Policy’’) in proposing the amendments 

to Rule D–15.126 FSI believes that, prior 

to approving the proposed rule change, 

the MSRB should publish a cost-benefit 

analysis to determine whether the 

proposed rule change would have 

consequences for liquidity in the 

municipal securities market which 

would impact retail investors.127

The MSRB responded by clarifying 

that the Policy does not apply to 

rulemaking initiatives, like this one, that 

were initially presented to the MSRB 

Board of Directors before September 26, 

2013.128 The MSRB represented that it 

had been particularly mindful of 

potential costs and burdens of the 

proposed rule change, and that the 

proposed exemption for transactions for 

or with SMMPs is one such example.129

The MSRB noted that although no 

economic analysis of the proposed 

amendments to Rule D–15 is required 

pursuant to the Policy, the MSRB, as 

appropriate, has provided additional 

analysis in the MSRB Response Letter in 

response to the commenters’ 

concerns.130 The MSRB, however, does 

not believe that the proposed 

amendments fundamentally alter the 

conclusions of its preliminary economic 

analysis.131 The MSRB further stated 

that some of the costs associated with 

compliance with proposed Rule G–18 

would be reduced in the aggregate due 

to the exemption for transactions with 

SMMPs, as compared to an alternative 

approach in which there was no such 

exemption.132 The MSRB believes the 

costs associated with the amendments 

to Rule D–15 must be evaluated in light 

of the overall cost mitigation that flows 

from the existence of the SMMP 

exemption.133

(c) SMMP Customer Affirmation 

SIFMA and Wells Fargo express 

concerns regarding the invalidation of 

existing SMMP customer affirmations 

after the effective date of the proposed 

rule change.134 BDA states that its 

members believe that some if not many 

institutional investors will be unwilling 

to provide an affirmation that has the 

effect of excluding them from the 

application of a best execution rule on 

the dealer.135 BDA recommends that the 

SMMP customer affirmation should be 

bifurcated into two affirmations: (1) The 

existing SMMP customer affirmation 

and, if an institutional investor provides 

such affirmation, the investor should be 

treated as an SMMP for all purposes 

other than for the application of the best 

execution rule; and (2) an affirmation 

tailored just to the best execution 

rule.136 Wells Fargo believes there is no 

benefit to invalidating existing SMMP 

customer affirmations and BDA does not 

see the value in expanding the existing 

SMMP customer affirmations.137

According to the MSRB, it is 

important for the SMMP customer 

affirmation to be unified and speak to 

all of the modified dealer obligations.138

The MSRB believes that unnecessary 

inefficiencies and additional burdens on 

dealers would result from a piecemeal 

approach, under which dealers would 

potentially have different customers that 

are SMMPs only with respect to several 

different permutations of modified 

dealer obligations.139 The MSRB 

believes this belief is supported by 

SIFMA’s statement that, if the SEC 

approves the proposed amendments to 

Rule D–15 as is, or even if the 

affirmation did not need to be unified, 

some of SIFMA’s members would prefer 

a unified affirmation, as it would be 

much easier to implement and 

administer.140 Further, the MSRB 

believes the unified approach to the 

SMMP customer affirmation provides 

greater protection to investors, as it 

would help ensure that dealer 

obligations would be modified only for 

transactions with customers that are 

knowingly willing to have their dealer 

subject to the several reduced 

obligations provided in Rule G–48.141

The MSRB believes that this added 

investor protection, as well as the 

mitigated costs of compliance with the 

best execution obligation provided by 

the SMMP exemption, would justify the 

costs of requiring dealers to obtain new 

affirmations from all SMMP customers, 

including existing SMMPs.142

SIFMA, BDA and Wells Fargo express 

concerns regarding the operational 

impact of deharmonizing the SMMP 

qualification process from the FINRA 

Rule 2111 process and precluding 

dealers from satisfying the SMMP 

affirmation requirement by receiving a 

FINRA Rule 2111 affirmation.143 Wells 

Fargo believes this aspect of the 

proposed rule change contradicts the 

MSRB’s previously stated goal to seek 

harmony with FINRA rules.144 SIFMA 

believes an SMMP customer affirmation 

that mirrors FINRA’s affirmation 

process as closely as possible makes the 

most economic sense, encourages crossover investors, and eases dealer 

compliance regimes.145 SIFMA believes 

the costs of maintaining separate 

affirmation systems for institutional 

accounts across product lines will be 

unduly burdensome.146 SIFMA 

proposes an alternative revision to Rule 

D–15 which would require dealers to 

have a reasonable basis to believe that 

an SMMP would like to avail itself to 

the conveniences of SMMP status.147 As 

an alternative approach, SIFMA 

suggests a negative consent letter sent to 

institutional customers.148 BDA and 

Wells Fargo also favor a negative 

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149See BDA Letter No. 1 at 4 and Wells Letter at 

4. 

150See MSRB Response Letter at 11. 

151See MSRB Response Letter at 11 (quoting from 

Securities Exchange Act Release No. 66772 (April 

9, 2012)). 

152See MSRB Response Letter at 11. 

153 Id. 

154 Id. 

155 Id. 

156 Id. 

157 Id. 

158 Id. 

159See SIFMA Letter at 9. 

160 Id. 

161See MSRB Response Letter at 12. 

162 Id. 

163 15 U.S.C. 78o-4(b)(2)(C). 

consent approach for SMMPs effectively 

to opt out of SMMP status.149

The MSRB does not believe the 

proposed amendments to Rule D–15 

would inappropriately deharmonize the 

rule from FINRA’s affirmation or 

contradict the MSRB’s established 

position on SMMP customer 

affirmations.150 Previously, the MSRB 

stated that it ‘‘considers it desirable 

from the standpoint of reducing the cost 

of dealer compliance to maintain 

consistency with FINRA rules, absent 

clear reasons for treating transactions in 

municipal securities differently.’’ 151

According to the MSRB, consistent with 

this goal, the proposed amendments to 

Rule D–15 are aligned to harmonize 

with FINRA Rule 2111 but with 

adjustments associated with the SMMP 

exemption from the best-execution 

obligation, as well as the other modified 

dealer obligations currently covered by 

Rule G–48.152 The MSRB noted that 

FINRA Rule 2111(b) and paragraph .07 

of the Supplementary Material thereto 

provide an institutional investor 

exemption to the suitability obligation 

under that rule, which is similar to the 

existing exemption dealers have from 

the suitability requirement of MSRB 

Rule G–19 under Rule G–48(c), 

however, neither FINRA Rule 2111 nor 

any other FINRA rule provides a similar 

exemption from best execution or any 

other obligations for its member firms 

comparable to those included in Rule 

G–48.153 The MSRB further noted that 

no commenter expressed an objection to 

the proposed exemption from best 

execution under Rule G–48, and BDA 

and SIFMA have explicitly endorsed the 

exemption in comment letters relating 

to the proposed rule change.154 The 

MSRB believes clear reasons exist for 

the proposed amendments to Rule D–15 

to vary from FINRA’s affirmation under 

FINRA Rule 2111, as the amendments 

would facilitate the exemption 

supported by commenters and mitigate 

the burden of compliance with 

proposed Rule G–18 by reducing the 

number of customers to which the 

obligation would apply.155

The MSRB believes that the proposed 

amendments to Rule D–15 would 

enhance protections to customers by 

addressing the full scope of modified 

obligations that dealers would be 

relieved of performing, providing clear 

disclosure to SMMPs regarding the 

modified dealer obligations and 

obtaining affirmative statements that 

SMMPs can, for example, exercise 

independent judgment in performing 

the evaluations related to best 

execution, suitability and the other 

modified dealer obligations.156 The 

MSRB also believes that any changes to 

dealer affirmation systems made in an 

effort to comply with the proposed 

amendments to Rule D–15 would be 

justified by the need to tailor the rule to 

the particular interests and 

characteristics of the municipal 

securities market, which are not 

reflected in FINRA rules.157

Additionally, according to the MSRB, a 

negative consent letter to institutional 

customers would not be an appropriate 

alternative, as it would be important for 

customers to take affirmative action to 

be treated as an SMMP.158

8. Implementation Period 

SIFMA supports the one-year 

implementation period for proposed 

Rule G–18 and the proposed 

amendments to Rule G–48.159 If the SEC 

approves the proposed amendments to 

Rule D–15, however, SIFMA requests an 

additional six-month implementation 

period.160

The MSRB believes a one-year 

implementation period would be 

sufficient for dealers to comply with the 

proposed rule change, including 

amendments to Rule D–15.161

According to the MSRB, one year would 

be adequate for dealers to develop 

systems, establish policies and 

procedures, conduct training and obtain 

the expanded SMMP customer 

affirmations.162

IV. Discussion and Commission 

Findings 

The Commission has carefully 

considered the proposed rule change, 

the comments received, and the MSRB’s 

response to the comments, and 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 Commission finds that 

the proposed rule change is consistent 

with Section 15B(b)(2)(C) of the Act,163

which requires, among other things, that 

the rules of the MSRB be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in municipal securities and municipal 

financial products, to remove 

impediments to and perfect the 

mechanism of a free and open market in 

municipal securities and municipal 

financial products, and, in general, to 

protect investors, municipal entities, 

obligated persons, and the public 

interest. 

The Commission notes that its Report 

on the Municipal Securities Market, 

issued July 31, 2012, recommended that 

the MSRB consider a rule that would 

require municipal bond dealers to seek 

‘‘best execution’’ of customer orders for 

municipal securities. The Commission 

believes that the establishment of a 

requirement that dealers seek best 

execution of customer transactions in 

municipal securities, as required by the 

proposed rule change, will have benefits 

for investors, improve market efficiency 

and promote fair competition among 

dealers. The Commission believes that 

the new order-handling obligations of 

dealers will complement the MSRB’s 

existing substantive pricing standards, 

helping to ensure that investors receive 

a price that is as favorable as possible 

under prevailing market conditions. The 

proposed rule change is appropriately 

designed to buttress existing dealer 

pricing obligations and promote better 

execution quality for investors in 

municipal securities. 

Moreover, the Commission believes 

that the proposed amendments to Rule 

G–48 and Rule D–15 to effectuate the 

exemption for transactions with SMMPs 

will facilitate transactions in municipal 

securities and help perfect the 

mechanism of a free and open market in 

municipal securities by avoiding the 

imposition of regulatory burdens if they 

are not needed. In addition, the 

Commission believes that the proposed 

rule change will protect investors by 

helping to ensure that the exemption for 

dealers from the best-execution 

obligation for transactions with SMMPs 

(as well as the reduced dealer 

obligations related to time-of-trade 

disclosure and pricing) will apply only 

to transactions with SMMPs. The 

Commission believes it is important that 

the definition of SMMP is not selfexecuting nor in the unilateral control of 

the interfacing dealer. The Commission 

also believes that the proposed rule 

change is beneficial to the municipal 

securities market and that the changes 

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164See 15 U.S.C. 78c(f). 

165 15 U.S.C. 78s(b)(2). 

166 17 CFR 200.30–3(a)(12). 

1 12 U.S.C. 5465(e)(1). 

2 17 CFR 240.19b–4(n)(1)(i). 

3NSCC and DTC filed Amendment Nos. 1 to 

provide additional description of the changes 

proposed in advance notices SR–NSCC–2014–811 

and SR–DTC–2014–812, respectively. 

4FICC withdrew Amendment No. 1 to advance 

notice SR–FICC–2014–810 due to an error in filing 

the amendment. FICC filed Amendment No. 2 to 

advance notice SR–FICC–2014–810 in order to 

provide additional description of the changes 

proposed in the advance notice. 

will enhance investor confidence and 

protection. 

In approving the proposed rule 

change, the Commission has considered 

the proposed rule change’s impact on 

efficiency, competition, and capital 

formation.164 The Commission believes 

that the proposed rule change includes 

accommodations that help promote 

efficiency because the proposed rule 

change is designed to allow flexibility 

for each dealer to adapt its policies and 

procedures to be reasonably related to 

the nature of its business, including its 

level of sales and trading activity and 

the type of customer transactions at 

issue. The Commission also believes 

that the reasonable diligence standard 

and the SMMP customer affirmation are 

sufficiently flexible to be met by a 

diverse population of dealers and allows 

a dealer to evidence compliance in a 

manner that may be different from that 

used by another dealer. The 

Commission does not believe that the 

proposed rule change would impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act since it would apply 

to all dealers who engage in municipal 

securities transactions. The Commission 

also believes that the proposed rule 

change takes into account competitive 

concerns that could arise from the 

diversity of dealer characteristics 

because proposed Rule G–18 embodies 

a broad and flexible principles-based 

standard. The Commission has 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. 

As noted above, the Commission 

received six comment letters on the 

filing. The Commission believes that the 

MSRB considered carefully and 

responded adequately to comments and 

concerns regarding the proposed rule 

change. While commenters suggested 

changes to the filing or opposed certain 

aspects of the proposed rule change, the 

Commission notes that no commenters 

argued that the proposed rule change 

was inconsistent with the applicable 

provisions of the Act. 

For the reasons noted above, 

including those discussed in the MSRB 

Response Letter, 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,165 that the 

proposed rule change (SR–MSRB–2014– 

07) be, and hereby is, approved. 

For the Commission, pursuant to delegated 

authority.166

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–29023 Filed 12–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73755; File Nos. SR–FICC– 

2014–810; SR–NSCC–2014–811; SR–DTC– 

2014–812] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; National 

Securities Clearing Corporation; The 

Depository Trust Company; Notice of 

Filing of Advance Notices, as 

Amended, To Amend and Restate the 

Third Amended and Restated 

Shareholders Agreement, Dated as of 

December 7, 2005 

December 5, 2014. 

Pursuant to Section 806(e)(1) of Title 

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 1

(‘‘Clearing Supervision Act’’) and Rule 

19b–4(n)(1)(i) 2 under the Securities 

Exchange Act of 1934, notice is hereby 

given that on November 5, 2014, Fixed 

Income Clearing Corporation (‘‘FICC’’), 

National Securities Clearing Corporation 

(‘‘NSCC’’), and The Depository Trust 

Company (‘‘DTC,’’ together with FICC 

and NSCC, ‘‘Operating Subsidiaries’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

advance notices SR–FICC–2014–810, 

SR–NSCC–2014–811 and SR–DTC– 

2014–812 (‘‘Advance Notices’’), 

respectively, as described in Items I and 

II below, which Items have been 

prepared primarily by the Operating 

Subsidiaries. On November 17, 2014, 

the Operating Subsidiaries each filed 

Amendments No. 1 to the Advance 

Notices.3 On November 17, 2014 FICC 

withdrew Amendment No. 1 and filed 

Amendment No. 2 to advance notice 

SR–FICC–2014–810.4 The Commission 

is publishing this notice to solicit 

comments on the Advance Notices, as 

amended, from interested persons. 

I. Clearing Agencies’ Statement of the 

Terms of Substance of the Advance 

Notices 

The Advance Notices, as amended, 

were filed by the Operating Subsidiaries 

in connection with the amendment and 

restatement of the Third Amended and 

Restated Shareholders Agreement, dated 

as of December 7, 2005 (‘‘Existing 

Shareholders Agreement’’), by and 

among The Depository Trust & Clearing 

Corporation (‘‘DTCC’’), Operating 

Subsidiaries, and the other parties 

thereto (such Existing Shareholders 

Agreement as so proposed to be 

amended and restated, ‘‘Revised 

Shareholders Agreement’’), as more 

fully described below. 

II. Clearing Agencies’ Statement of the 

Purpose of, and Statutory Basis for, the 

Advance Notices 

In their filings with the Commission, 

the Operating Subsidiaries included 

statements concerning the purpose of 

and basis for the Advance Notices, as 

amended, and discussed any comments 

received on the Advance Notices, as 

amended. The text of these statements 

may be examined at the places specified 

in Item IV below. The Operating 

Subsidiaries have prepared summaries, 

set forth in sections (A) and (B) below, 

of the most significant aspects of these 

statements. 

(A) Clearing Agencies’ Statement on 

Comments on the Advance Notices 

Received From Members, Participants, 

or Others 

Beginning in June 2014, DTCC has 

conducted outreach to users of the 

services and facilities of the Operating 

Subsidiaries in order to provide them 

with advance notice of the proposed 

changes and the impact on a firm-byfirm basis. The outreach efforts have 

included providing individual 

shareholder firms with statements of 

their projected potential impact. As of 

the date of this filing, no written 

comments relating to the proposed 

changes have been received in response 

to this outreach. The Commission will 

be notified of any written comments 

received. 

(B) Advance Notices Filed Pursuant to 

Section 806(e) of the Payment, Clearing 

and Settlement Supervision Act 

Description of Change 

The Existing Shareholders Agreement 

is proposed to be amended to: (1) 

Update and simplify the formulas used 

to allocate shares of the common stock 

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