Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43587 

18 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Exchange Act Release No. 19743 (May 9, 1983), 

48 FR 21690–01 (May 13, 1983) (SR–MSRB–82–11). 4Exchange Act Release No. 18959 (Aug. 13, 

1982), 47 FR 36737–03 (Aug. 23, 1982) (SR–MSRB– 

82–11). 5These eight items are contained in current Rule 

G–34(a)(i)(A)(4)(a) through (h) and were part of 

CUSIP Service Bureau’s original standards for 

issuing CUSIP numbers. These items are: 

(a) Complete name of issue and series 

designation, if any; 

(b) interest rate(s) and maturity date(s) (provided, 

however, that, if the interest rate is not established 

at the time of application, it may be provided at 

such time as it becomes available); 

(c) dated date; 

(d) type of issue (e.g., general obligation, limited 

tax or revenue); 

(e) type of revenue, if the issue is a revenue issue; 

(f) details of all redemption provisions; 

(g) the name of any company or other person in 

addition to the issuer obligated, directly or 

indirectly, with respect to the debt service on all or 

part of the issue (and, if part of the issue, an 

indication of which part); and 

(h) any distinction(s) in the security or source of 

payment of the debt service on the issue, and an 

indication of the part(s) of the issue to which such 

distinction(s) relate. 

6CUSIP Number Eligibility Standards and 

Requirements to Obtain CUSIP Numbers, MSRB 

Reports, Vol. 12, No. 2 (Jul. 1992) (emphasis in 

original). In this notice, the MSRB defined ‘‘private 

placement’’ to mean ‘‘any new issue of municipal 

securities that is ‘placed’ by a dealer, on an agency 

basis, with one or more investors.’’ 

7See Exchange Act Release No. 50773 (Dec. 1, 

2004), 69 FR 70731–02 (Dec. 7, 2004) (SR–MSRB– 

2004–08). 8 Id. See also MSRB Notice 2008–28 (Jun. 27, 

2008) (‘‘Rule G–34 defines ‘underwriter’ very 

broadly to include a dealer acting as a placement 

agent . . .’’). Note further that in MSRB Notice 

2008–23 (May 9, 2008), the MSRB filed a proposed 

rule change to amend Rule G–34 to require 

Continued 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–19709 Filed 9–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81595; File No. SR–MSRB– 

2017–06] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Notice of Filing of a Proposed 

Rule Change To Amend MSRB Rule 

G–34, on CUSIP Numbers, New Issue, 

and Market Information Requirements 

September 13, 2017. 

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

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on August 30, 2017 the 

Municipal Securities Rulemaking Board 

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

Securities and Exchange Commission 

(the ‘‘SEC’’ or ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the MSRB. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The MSRB filed with the Commission 

a proposed rule change to amend MSRB 

Rule G–34, on CUSIP numbers, new 

issue, and market information 

requirements, (the ‘‘proposed rule 

change’’) to more clearly express in the 

rule language the MSRB’s longstanding 

interpretation that brokers, dealers and 

municipal securities dealers 

(collectively, ‘‘dealers’’) when acting as 

a placement agent in a private 

placement of municipal securities are 

subject to the CUSIP number 

requirements under Rule G–34(a); to 

expand the application of the rule to 

cover not only dealer municipal 

advisors but also non-dealer municipal 

advisors in competitive sales of 

municipal securities; and to provide a 

limited exception from the requirements 

to apply for CUSIP numbers and to 

apply for depository eligibility. The 

MSRB requests that the proposed rule 

change be effective six months from the 

date of Commission approval. 

The text of the proposed rule change 

is available on the MSRB’s Web site at 

www.msrb.org/Rules-andInterpretations/SEC-Filings/2017- 

Filings.aspx, at the MSRB’s principal 

office, and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

MSRB included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. The MSRB has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

CUSIP Number Requirements 

Applicable to Dealers in Private 

Placements 

In 1983, the SEC approved MSRB 

Rule G–34, on CUSIP numbers, new 

issue and market information 

requirements.3 The MSRB adopted Rule 

G–34 to improve efficiencies in the 

processing and clearance activities of 

the municipal securities industry, 

noting that ‘‘if all eligible municipal 

securities have CUSIP numbers assigned 

to and printed on them, dealers will be 

able to place greater reliance on the 

CUSIP identification of these securities 

in receiving, delivering, and 

safekeeping’’ them.4 Rule G–34(a)(i) 

requires a dealer, whether acting as 

agent or principal, that acquires an 

issuer’s securities ‘‘for the purpose of 

distributing such new issue,’’ and a 

dealer acting as a financial advisor in a 

competitive sale of a new issue, to apply 

for a CUSIP number for the new issue 

by a particular point in time in the 

transaction process. The rule requires, 

among other things, that underwriters, 

and financial advisors in competitive 

sales, make application for a CUSIP 

number based on eight specified items 

of information about the new issue.5

Rule G–34(a)(i)(A)(5) addresses the 

obligations to update application 

information that has changed, for 

example, when the structure of an 

issuance changes after the CUSIP 

number has been assigned. 

The MSRB has become aware of 

confusion over the application of Rule 

G–34(a)(i) among dealers in municipal 

securities. Some industry participants 

have questioned whether the obligation 

to apply for a CUSIP number pursuant 

to Rule G–34(a)(i) is conditioned on the 

underwriter’s intent to conduct a 

distribution of the new issue, and 

therefore, applies only to public 

offerings and not private placements. 

The MSRB has publicly stated the view, 

however, that private placements of 

municipal securities ‘‘generally are 

eligible for CUSIP numbering and thus 

are subject to the requirements of [R]ule 

G–34.’’ 6 Similarly, the MSRB has 

indicated that, unless otherwise noted, 

‘‘references to ‘underwriter’ in the 

context of Rule G–34 are meant to 

include placement agents as well as 

dealers that purchase securities from the 

issuer as principal,’’ 7 and that 

‘‘references to ‘syndicate and selling 

group members’ in this context are 

meant to include managers of syndicates 

as well as sole underwriters or 

placement agents in non-syndicated 

offerings.’’ 8


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43588 Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 

underwriter registration and testing with DTCC’s 

New Issue Information Dissemination System 

(NIIDS). The proposed amendment required all 

dealers underwriting municipal securities with nine 

months or greater effective maturity to register to 

participate in NIIDS and required the dealers to 

successfully test NIIDS prior to acting as 

underwriter on a new issue of municipal securities. 

The MSRB noted that ‘‘underwriter’’ in this context 

was defined ‘‘very broadly to include a dealer 

acting as a placement agent . . . .’’ 

9When a dealer or municipal advisor works with 

a municipal securities issuer on a financial 

transaction to raise capital for the issuer, the 

regulated entity should have reasonably designed 

policies and procedures in place to make a 

determination as to whether the transaction 

involves a municipal security that results in the 

application of MSRB rules. If the transaction is not 

an issuance of a municipal security (e.g., a 

commercial loan), there is no Rule G–34 

requirement to apply for a CUSIP number. The draft 

amendments do not affect the necessity for this 

determination. The Supreme Court set forth the 

relevant guidance in Reves v. Ernst & Young, Inc., 

494 U.S. 56 (1990), and the MSRB has reminded the 

industry of the requirement to conduct the 

appropriate analysis in an offering prior to applying 

for a CUSIP number. See MSRB Notice 2011–52 

(Sept. 12, 2011) and MSRB Notice 2016–12 (Apr. 4, 

2016) (noting that the placement of what might be 

referred to as a ‘‘bank loan’’ may, as a legal matter, 

involve a municipal security and therefore trigger 

the application of various federal securities laws, 

including MSRB rules such as Rule G–34). 

10The term ‘‘distributing’’ as used in the rule is 

not defined, and, based on general industry 

perception, market participants might interpret it to 

mean that the Rule G–34(a)(i) requirements apply 

only in public offerings and not to private 

placements. For example, the SEC in its explanatory 

comment to Rule 144 of the Securities Act of 1933, 

on persons deemed not to be engaged in a 

distribution and therefore not underwriters, noted 

that: 

A person satisfying the applicable conditions of 

the Rule 144 safe harbor is deemed not to be 

engaged in a distribution of the securities and 

therefore not an underwriter of the securities for 

purposes of [Securities Act of 1933] section 2(a)(11). 

Therefore, such a person is deemed not to be an 

underwriter when determining whether a sale is 

eligible for the [Securities Act of 1933] Section 4(1) 

exemption for ‘transactions by any person other 

than an issuer, underwriter, or dealer.’ 

Preliminary note to 17 CFR 230.144. 

11 17 CFR 240.15c2–12(f)(8). 

12Exchange Act Release No. 26985 (Jun. 28, 

1989), 54 FR 28799–01 (Jul. 10, 1989) (Final rule 

adopting Exchange Act Rule 15c2–12). The MSRB 

believes its prior interpretations of Rule G–34 

regarding the need for CUSIP numbers in private 

placements of municipal securities are consistent 

with the SEC’s position. See e.g., CUSIP Number 

Eligibility Standards and Requirements to Obtain 

CUSIP Numbers, MSRB Reports, Vol. 12, No. 2 (Jul. 

1992), Exchange Act Release No. 50773 (Dec. 1, 

2004), 69 FR 70731–02 (Dec. 7, 2004) (SR–MSRB– 

2004–08) and MSRB Notice 2008–28 (Jun. 27, 

2008). 

13Exchange Act Release No. 22730 (Dec. 19, 

1985), 50 FR 53046–01 (Dec. 27, 1985) (SR–MSRB– 

85–20). 14Public Law 111–203, H.R. 4173 (2010). The 

MSRB amended Rule G–34(a) in 1986 to apply the 

CUSIP requirements to dealers acting as financial 

advisors in competitive sales of a new issue. 

Exchange Act Release No. 22730 (Dec. 19, 1985), 50 

FR 53046–01 (Dec. 27, 1985) (SR–MSRB–85–20). 

Despite the guidance, there have been 

questions in the industry regarding the 

application of Rule G–34(a)(i) to private 

placements of municipal securities, 

including direct purchase transactions 

in which a dealer acts as a placement 

agent.9 A contributing factor in the issue 

over the application of Rule G–34(a)(i) 

to private placements has been the 

definition of the term ‘‘underwriter’’ as 

it is used in the rule and the reference 

to ‘‘distributing’’ in that definition.10

Rule G–34(a)(i) defines ‘‘underwriter’’ as 

each broker, dealer or municipal securities 

dealer who acquires, whether as principal or 

agent, a new issue of municipal securities 

from the issuer of such securities for the 

purpose of distributing such new issue. 

However, other MSRB rules define 

underwriter by reference to Rule 15c2– 

12(f)(8) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’),11 which 

defines an underwriter as 

any person who has purchased from an 

issuer of municipal securities with a view to, 

or offers or sells for an issuer of municipal 

securities in connection with, the offering of 

any municipal security, or participates or has 

a direct or indirect participation in any such 

undertaking, or participates or has a 

participation in the direct or indirect 

underwriting of any such undertaking; 

except, that such term shall not include a 

person whose interest is limited to a 

commission, concession, or allowance from 

an underwriter, broker, dealer, or municipal 

securities dealer not in excess of the usual 

and customary distributors’ or sellers’ 

commission, concession, or allowance. 

It is well-understood that this 

definition of ‘‘underwriter’’ includes a 

dealer in both a public offering and a 

private placement of a municipal 

security and is therefore not limited to 

public distributions. Indeed, when 

adopting Rule 15c2–12, to ensure 

private placements of municipal 

securities were included, the SEC 

changed its originally proposed 

definition of ‘‘underwriter’’ to refer to 

‘‘offerings’’ of municipal securities, as 

opposed to ‘‘distributions’’ of municipal 

securities. The SEC explained the 

reason for this change as follows: 

Some commentators suggested that since 

the term ‘underwriter’ in the Proposed Rule 

was defined as a broker, dealer, or municipal 

securities dealer who participated in a 

‘distribution’ the Commission had created an 

implicit private placement exception. 

Specifically, they noted that persons selling 

securities in an offering that did not involve 

a distribution would not be subject to the 

Rule. The word ‘distribution,’ which was 

used in the definition of ‘‘underwriter’’ in the 

Proposed Rule, has been replaced with the 

term ‘offering’. This change is intended to 

clarify that a broker, dealer or municipal 

securities dealer may be acting as 

underwriter, for purposes of the Rule, in 

connection with a private offering.12

CUSIP Number Requirements 

Applicable to Dealer Municipal 

Advisors in Competitive Sales 

In 1986, the MSRB amended Rule G– 

34(a) to require a dealer acting as a 

financial advisor (‘‘dealer municipal 

advisor’’) in a competitive sale of a new 

issue of municipal securities to apply 

for CUSIP numbers ‘‘in sufficient time 

to allow for assignment of a number 

prior to the date of award.’’ 13 This 

application of the CUSIP number 

requirement only to dealer municipal 

advisors is largely the result of Rule 

G–34 pre-dating the municipal advisor 

regulatory regime mandated by the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act.14 Financial 

advisory activities are now generally 

defined also as municipal advisory 

activities, though a significant number 

of the now broadly defined municipal 

advisors are not dealers (‘‘non-dealer 

municipal advisor’’). As a result, nondealer municipal advisors are not 

subject to the CUSIP number 

application requirements under the 

current rule, which creates the potential 

for regulatory inefficiencies where a 

non-dealer municipal advisor is 

retained in a competitive sale. 

Proposed Amendments to Rule G–34 

As set forth in more detail below, the 

proposed rule change would: 

• Clarify the application of the CUSIP 

number requirements to dealers in 

private placements. 

As noted above, the MSRB is aware 

that, despite guidance issued in this 

area, there continues to be confusion 

and inconsistency in the application of 

the CUSIP number requirements under 

Rule G–34(a)(i). To alleviate these 

issues, the proposed rule change would 

amend paragraph (a)(i)(A) to delete the 

definition of ‘‘underwriter’’ from the 

rule text and would add a new 

definition of ‘‘underwriter’’ in new 

section (e) on definitions. Subsection 

(e)(vii) would cross reference the term 

‘‘underwriter’’ to the same term as it is 

defined in Exchange Act Rule 15c2– 

12(f)(8). This proposed rule change 

would codify existing interpretations 

and clarify in the text of the rule that 

dealers acting as placement agents in 

private placement transactions, 

including direct purchases of municipal 

securities, are subject to the CUSIPrelated requirements set forth in Rule 

G–34(a). 

• Apply the CUSIP number 

requirements to all municipal advisors 

advising on a competitive sale of 

municipal securities. 

Many non-dealer municipal advisors 

advise issuers with respect to 


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Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43589 

15Exchange Act Release No. 22730 (Dec. 19, 

1985), 50 FR 53046–01 (Dec. 27, 1985) (SR–MSRB– 

85–20). 

16CUSIP Number Eligibility Standards and 

Requirements to Obtain CUSIP Numbers, MSRB 

Reports, Vol. 12, No. 2 (Jul. 1992). 

17 Id. 

18The MSRB notes that a ‘‘bank’’ for purposes of 

the proposed exception would not include a 

‘‘separately identifiable department or division’’ of 

a bank, within the meaning of Rule G–1(a). 

19MSRB Rule D–1 states: 

Unless the context otherwise specifically 

requires, the terms used in the rules of the 

Municipal Securities Rulemaking Board shall have 

the respective meanings set forth in the Securities 

Exchange Act of 1934 (15 U.S.C. 78a et seq.) and 

the rules and regulations of the Securities and 

Exchange Commission thereunder. 

Exchange Act Section 3(a)(6) defines ‘‘bank’’ to 

mean: 

(A) a banking institution organized under the 

laws of the United States or a Federal savings 

association, as defined in section 2(5) of the Home 

Owners’ Loan Act, (B) a member bank of the 

Federal Reserve System, (C) any other banking 

institution or savings association, as defined in 

section 2(4) of the Home Owners’ Loan Act, 

whether incorporated or not, doing business under 

the laws of any State or of the United States, a 

substantial portion of the business of which 

consists of receiving deposits or exercising 

fiduciary powers similar to those permitted to 

national banks under the authority of the 

Comptroller of the Currency pursuant to the first 

section of Public Law 87–722 (12 U.S.C. 92a), and 

which is supervised and examined by State or 

Federal authority having supervision over banks or 

savings associations, and which is not operated for 

the purpose of evading the provisions of this title, 

and (D) a receiver, conservator, or other liquidating 

agent of any institution or firm included in clauses 

(A), (B), or (C) of this paragraph. 

20See footnote 18, supra. 

competitive sales of new issues of 

municipal securities. As a result, Rule 

G–34(a)(i)(A), in its current form, may 

create inefficiencies in the market where 

a non-dealer municipal advisor is 

retained and yet not required to apply 

for a CUSIP number when advising on 

a competitive sale of a new issue of 

municipal securities. This leaves a 

dealer to make application only after the 

notification of award is given, 

potentially delaying related market 

activity. 

Paragraph (a)(i)(A) would be amended 

to apply the CUSIP number 

requirements to all municipal advisors 

(whether dealers or non-dealers) 

advising on a competitive sale of a new 

issue of municipal securities. As noted 

above, in 1986, the MSRB amended 

Rule G–34(a)(i)(A) to require a dealer 

‘‘acting as a financial advisor’’ in a 

competitive sale of a new issue to apply 

for CUSIP numbers so as to allow 

assignment of the number prior to the 

date of award.15 From a policy 

standpoint, the market efficiencies 

served by the 1986 amendments would 

also be served by these amendments 

because a dealer no longer would be the 

first party to begin the process to obtain 

the CUSIP number after the award in a 

competitive sale where a non-dealer 

municipal advisor has been engaged. 

Subparagraph (a)(i)(A)(3) clarifies the 

timeframe within which municipal 

advisors advising on a competitive sale 

must make application for a CUSIP 

number. The current provision indicates 

that the financial advisor must make 

application by no later than one 

business day after dissemination of a 

notice of sale. The proposed rule change 

would amend that paragraph to include 

‘‘or other such request for bids.’’ This 

additional language would ensure the 

timing of the application for a CUSIP 

number in those instances where a 

municipal advisor seeks bids in a 

competitive sale of municipal securities 

using documentation other than a 

traditional notice of sale. 

• Provide an exception from the 

CUSIP number and depository eligibility 

requirements in certain circumstances. 

The MSRB understands that banks in 

direct purchase transactions are 

reluctant to engage in certain financing 

transactions if a CUSIP number is 

required. While a dealer may determine 

from its perspective that a transaction 

involves a municipal security for 

securities law purposes, the bank 

purchaser may consider the transaction 

to be a loan for certain banking or 

accounting purposes, thus making the 

bank less likely to engage in the 

financing where the new issue has a 

CUSIP number. As a result, dealers, on 

behalf of their municipal issuer clients, 

may be hindered in their ability to 

directly place municipal securities with 

banks and issuers may have fewer 

financing options or providers from 

which to choose. 

In July 1992, the MSRB sought 

comment on possible exemptions from 

Rule G–34, including in sales of smaller 

issues, short-term issues and issues sold 

to a limited number of customers (i.e., 

private placements).16 The MSRB noted 

that in many of these instances, CUSIP 

numbers are not obtained because the 

dealer or financial advisor believes the 

securities will not trade in the 

secondary market. While the MSRB 

sought comment on a possible 

exemption, it noted that, at the time, it 

‘‘strongly believe[d] that whenever 

municipal securities are offered for sale 

in the market or must be processed 

through financial intermediaries, CUSIP 

numbers should be available to identify 

the securities accurately.’’ 17

The MSRB continues to believe that 

obtaining CUSIP numbers is generally a 

necessary aspect of, for example, 

tracking the trading, recordkeeping, 

clearance and settlement, customer 

account transfers and safekeeping of 

municipal securities, including those 

issued in private placements. The MSRB 

also is of the view that the increase in 

the number of direct purchase 

transactions between municipal issuers 

and banks as an alternative to letters of 

credit and other similar types of 

financings supports a limited exception 

from the blanket requirement to apply 

for CUSIP numbers in all private 

placements. 

The proposed rule change would 

amend Rule G–34(a)(i) to add paragraph 

(F). This paragraph would add an 

exception from the CUSIP number 

requirement for situations where 

municipal securities are purchased 

directly by a bank,18 any entity directly 

or indirectly controlled by the bank or 

under common control with the bank, 

other than a dealer registered under the 

Exchange Act (‘‘non-dealer control 

affiliate’’), or a consortium of the 

entities described above, and the dealer 

reasonably believes (based on, for 

example, a written representation from 

the purchaser) that the purchaser is 

purchasing the new issue of municipal 

securities with the present intent to 

hold the securities to maturity. The term 

‘‘bank’’ in proposed new paragraph (F) 

would have the same meaning as set 

forth in Exchange Act Section 3(a)(6).19

The proposed rule change would 

clarify that the depository eligibility 

requirements of Rule G–34(a)(ii)(A) do 

not apply in the case of an exemption 

under Rule G–34(d), which exempts 

securities that are ineligible for CUSIP 

number assignment and municipal fund 

securities. Further, the proposed rule 

change would add subparagraph 

(a)(ii)(A)(3), providing an exception 

from the depository eligibility 

requirements in instances where the 

new issue is purchased directly by a 

bank,20 a non-dealer control affiliate of 

a bank or a consortium thereof, and the 

underwriter reasonably believes, based 

on a written representation or 

otherwise, that the purchaser’s present 

intent is to hold the municipal 

securities to maturity. For consistency, 

the proposed rule change would amend 

paragraph (a)(ii)(C), to clarify that the 

requirement to input information about 

a new issue into NIIDS only applies to 

an issue that has been made depository 

eligible. 

• Make Technical and NonSubstantive Changes. 

The proposed rule change also would 

make technical and non-substantive 

amendments as follows: 

• The proposed rule change would 

move definitions that apply generally 

throughout the rule into a new section 


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43590 Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 

21 15 U.S.C. 78o–4(b)(2)(C). 

22 Id. 

23EMMA is a registered trademark of the MSRB. 

24 15 U.S.C. 78o–4(b)(2)(C). 

25Policy on the Use of Economic Analysis in 

MSRB Rulemaking, available at http://msrb.org/ 

Rules-and-Interpretations/Economic-AnalysisPolicy.aspx. 

26As an alternative to the proposed rule change, 

the MSRB considered making no amendments, 

while its request for comment nevertheless served 

as a reminder of the MSRB’s longstanding 

interpretation that dealers, when acting as a 

placement agent in a private placement, are 

required to apply for CUSIP numbers. See MSRB 

Regulatory Notice 2017–05. 

27The MSRB is aware, however, that there is 

uncertainty among at least some market participants 

with regard to the application of the existing rule. 

28By comparison, in a negotiated offering, 

underwriters are already established and CUSIP 

numbers can be assigned on a pre-trade basis before 

pricing. 

(e) on definitions, and, as noted above, 

would add a new definition of 

‘‘underwriter’’ in subsection (e)(vii). The 

terms moved into the new section (e) 

would be (i) auction agent; (ii) auction 

rate security; (iii) notification period; 

(iv) program dealer; (v) remarketing 

agent; (vi) SHORT system; (vii) 

underwriter; and (viii) variable rate 

demand obligation. 

• The proposed rule change would 

amend the rule to make more specific 

references to the provision that 

describes information necessary for 

CUSIP number assignments. Currently, 

the rule refers throughout to paragraph 

(a)(i)(A). The proposed rule change 

would amend these references to refer to 

subparagraph (a)(i)(A)(4). Similarly, 

references in the rule to the enumerated 

items to be included in a CUSIP number 

application would be changed from ‘‘(1) 

through (8)’’ to ‘‘(a) through (h).’’ 

• Finally, the proposed rule change 

would change capitalized defined terms 

to lower case, as appropriate throughout 

the rule, and would amend references to 

sections, subsections, paragraphs and 

subparagraphs, as necessary, to be 

consistent with other MSRB rule 

formatting. 

2. Statutory Basis 

The MSRB believes that the proposed 

rule change is consistent with the 

provisions of Section 15B(b)(2)(C) of the 

Act,21 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. 

The MSRB believes that the proposed 

rule change is consistent with Section 

15B(b)(2)(C) of the Act 22 because the 

proposed rule change would remove 

impediments to and perfect the 

mechanism for a free and open 

municipal securities market by 

codifying existing interpretations and 

clarifying in the text of the rule that 

dealers acting as placement agents in 

private placement transactions, 

including direct purchases of municipal 

securities, are subject to the CUSIPrelated requirements set forth in Rule 

G–34(a). In addition, the proposed rule 

change would help prevent fraudulent 

and manipulative practices, promote 

just and equitable principles of trade 

and protect investors, municipal 

entities, obligated persons and the 

public interest by ensuring that eligible 

municipal securities, including those 

issued in a private placement, have an 

appropriate identifier assigned in order 

to provide market participants with 

greater ability to receive, deliver, and 

safekeep such securities. Through the 

MSRB’s Electronic Municipal Market 

Access (EMMA®) System,23 investors 

and other market participants would 

have access to initial information on 

their investments organized by the 

particular CUSIP number, as well as 

transparency as to transaction details if 

the securities do later trade in the 

secondary market. The availability of an 

exception to this requirement would 

eliminate impediments to and perfect 

the mechanism of a free and open 

market in municipal securities by 

allowing dealers and municipal advisors 

to provide services in certain direct 

purchase transactions without 

inhibiting their issuer clients’ access to 

financings that otherwise might not be 

available if CUSIP numbers were 

required. In addition, the proposed rule 

change would remove impediments to a 

free and open market by requiring all 

municipal advisors to comply with the 

requirements of Rule G–34(a)(i)(A), thus 

encouraging consistency and efficiency 

in competitive sales of municipal 

securities and ensuring that CUSIP 

numbers are obtained by municipal 

advisors earlier in a competitive deal to 

allow for immediate trading upon 

award. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Section 15B(b)(2)(C) of the Exchange 

Act requires that MSRB rules not be 

designed to impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act.24 In 

accordance with the MSRB’s policy on 

the use of economic analysis,25 the 

MSRB has considered the economic 

impact associated with the proposed 

rule change to MSRB Rule G–34, 

including a comparison to reasonable 

alternative regulatory approaches, 

relative to the baseline.26 For purposes 

of its analysis, the MSRB considers the 

baseline to be full compliance by 

dealers with the existing CUSIP 

requirement.27 The MSRB does not 

believe that the proposed rule change 

would impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. 

The intent of the proposed rule 

change is to (1) clarify in rule text the 

MSRB’s longstanding view that dealers 

acting as placement agents in private 

placements of municipal securities, 

including direct purchases, are 

underwriters and thus must apply for 

CUSIP numbers for new issues; and (2) 

apply the CUSIP number requirements 

to all municipal advisors advising on a 

competitive sale of municipal securities. 

In addition, the proposed rule change 

provides a principles-based exception 

for dealers and municipal advisors from 

the CUSIP number requirements and for 

dealers from the depository eligibility 

requirements in certain direct purchase 

transactions. 

The MSRB believes the proposed rule 

change would reduce regulatory 

uncertainty for underwriters and 

municipal advisors with regard to the 

requirement to apply for CUSIP 

numbers. Pursuant to the proposed rule 

change, dealers would know with 

greater certainty when application for a 

CUSIP number is required in private 

placement transactions. Similarly, while 

in practice some non-dealer municipal 

advisors may be applying for CUSIP 

numbers in a competitive offering before 

the final award is made,28 the proposed 

rule change would ensure that this is 

the case, thus reducing the risk of delays 

in secondary market trading where a 

competitive offering is awarded but no 

CUSIP number has been assigned. 

The MSRB believes that the 

principles-based exception from the 

CUSIP number requirements for dealers 

and municipal advisors may limit or 

reduce those instances where a dealer or 

municipal advisor may be required to 

apply for a CUSIP number in a direct 

purchase transaction. The MSRB 

believes that for dealers currently 

complying with the CUSIP number 

requirements in private placement 

transactions, the proposed rule change 


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Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43591 

29These municipal securities may no longer need 

a CUSIP number under the proposed CUSIP 

exception, and thus they may no longer fall under 

the depository eligibility requirement. 

30According to its 2017 fee schedule, CUSIP 

Services charges $173 for the first maturity, plus 

$22 for each additional maturity or class per series 

in the same application/offering document. For 

example, an offering with the first maturity and ten 

additional maturities or classes would cost a total 

of $393 ($173 + ($22 × 10)). See https://

www.cusip.com/pdf/2017FeesforCUSIP

Assignment.pdf. 

31See, infra, National Association of Municipal 

Advisors: Letter from Susan Gaffney, Executive 

Director, dated June 30, 2017 (‘‘NAMA Letter II’’); 

and Securities Industry and Financial Markets 

Association: Letter from Leslie M. Norwood, 

Managing Director and Associate General Counsel, 

dated June 30, 2017 (‘‘SIFMA Letter II’’). 

32See, infra, Bloomberg, L.P.: Letter from Peter 

Warms, Senior Manager of Fixed Income, Entity, 

Regulatory Content and Symbology, undated 

(‘‘Bloomberg Letter II’’). 

33MSRB Notice 2017–05. 

34Acacia Financial Group, Inc.: Letter from 

Noreen P. White, Co-President; Kim M. Whelan, CoPresident, dated March 31, 2017 (‘‘Acacia Letter I’’); 

American Bankers Association: Letter from 

Cristeena G. Naser, Vice President and Senior 

Counsel, Center for Securities, Trust & Investment, 

dated March 24, 2017 (‘‘ABA Letter I’’); Bloomberg, 

L.P.: Letter from Peter Warms, Senior Manager of 

Fixed Income, Entity, Regulatory Content and 

Symbology, undated (‘‘Bloomberg Letter I’’); Bond 

Dealers of America: Letter from Mike Nicholas, 

Chief Executive Officer, dated March 31, 2017 

(‘‘BDA Letter I’’); CUSIP Services: Letter from Scott 

J. Preiss, Managing Director, Global Head, dated 

March 30, 2017 (‘‘CUSIP Services’’); Dixworks LLC: 

Email from Dennis Dix, Jr., Principal, dated March 

29, 2017 (‘‘Dixworks’’); First River Advisory L.L.C.: 

Email from Shelley Aronson, dated March 22, 2017 

(‘‘First River Advisory’’); George K. Baum & 

Company: Letter from Guy E. Yandel, EVP & CoManager Public Finance; Dana L. Bjornson, EVP, 

CFO & Chief Compliance Officer; Andrew F. Sears, 

EVP & General Counsel, dated March 31, 2017 

(‘‘George K. Baum’’); Government Finance Officers 

Association: Letter from Emily Brock, Director, 

Federal Liaison Center, dated March 31, 2017 

(‘‘GFOA Letter I’’); National Association of Health 

and Educational Facilities Finance Authorities: 

Letter from Donna Murr, President; Martin Walke, 

Advocacy Committee Chair, dated March 31, 2017 

(‘‘NAHEFFA’’); National Association of Municipal 

Advisors: Letter from Susan Gaffney, Executive 

Director, dated March 31, 2017 (‘‘NAMA Letter I’’); 

National Federation of Municipal Analysts: Letter 

from Julie Egan, NFMA Chair 2017; Lisa Washburn, 

NFMA Industry Practices and Procedures Chair, 

dated March 31, 2017 (‘‘NFMA’’); Opus Bank: Email 

from Dmitry Semenov, Senior Managing Director, 

Public Finance, dated March 15, 2017 (‘‘Opus’’); 

Phoenix Advisors, LLC: Letter from David B. 

Thompson, CEO, dated March 21, 2017 (‘‘Phoenix 

Advisors’’); Piper Jaffray & Co.: Letter from Frank 

Fairman, Managing Director, Head of Public 

Finance Services; Rebecca Lawrence, Managing 

Director, Associate General Counsel, Public Finance 

& Fixed Income, dated March 31, 2017 (‘‘Piper 

Jaffray Letter I’’); Public Financial Management, Inc. 

and PFM Financial Advisors: Letter from Cheryl 

Maddox, General Counsel; Leo Karwejna, Chief 

Compliance Officer, dated March 31, 2017 (‘‘PFM 

Letter I’’); Email from Rudy Salo, dated March 31, 

2017; Securities Industry and Financial Markets 

Association: Letter from Leslie M. Norwood, 

Managing Director and Associate General Counsel, 

dated March 31, 2017 (‘‘SIFMA Letter I’’); SMA: 

Email from Michael Cawley, dated March 21, 2017 

(‘‘SMA Letter I’’); State of Florida, Division of Bond 

Finance: Letter from J. Ben Watkins III, Director, 

Division of Bond Finance, dated April 7, 2017 

(‘‘State of Florida’’). 

may lower their costs in those instances 

where they could rely on the proposed 

exception. Similarly, dealers may see a 

reduction in costs for municipal 

securities that currently are subject to 

the depository eligibility requirements 

but could now be excepted from the 

requirements under the proposed rule 

change.29 As a result of the exception, 

there would no longer be a need to make 

such securities depository eligible and 

input information about the new issue 

into NIIDS. 

The MSRB believes that in instances 

where dealers or municipal advisors can 

rely on the principles-based exception 

based on their reasonable belief that, at 

the time of a purchase, a purchaser 

intends to hold the new issue of 

municipal securities to maturity, there 

is a risk of reduced transparency if, in 

the future, the purchaser decides to 

resell the securities without a CUSIP 

number. This could result in 

information asymmetry and price 

dislocation with respect to the 

subsequent purchaser. 

While non-dealer municipal advisors 

would now be required to apply for 

CUSIP numbers when advising in 

competitive sales of new issue 

municipal securities, the rule change 

per se does not necessarily impose on 

them the cost of applying for the CUSIP 

number. According to staff at CUSIP 

Global Services (‘‘CUSIP Services’’), 

typically only the winning bidder for a 

competitive deal is billed after the 

CUSIP numbers are assigned. Even 

though the request for a CUSIP number 

may have come from a municipal 

advisor, it is not mandatory for the party 

applying for the CUSIP number to be 

billed for the fees (unless the applicant 

for the CUSIP number asks to be 

billed).30

The MSRB believes non-dealer 

municipal advisors, and to a much 

lesser extent, dealers, are likely to incur 

new up-front costs associated with the 

development of regulatory compliance 

policies and procedures. Some industry 

stakeholders 31 provided an estimate on 

compliance costs in terms of the number 

of labor hours needed to create and 

apply policies and procedures to 

comply with the proposed rule change, 

including determining the applicability 

of proposed exceptions. The cost 

estimates ranged from eight to 15 hours 

initially to set up the policies and 

procedures, and up to three hours per 

transaction thereafter to evaluate, for 

example, whether the investor intended 

to hold the securities to maturity. The 

MSRB believes these estimates are high, 

as, for example, the determination of 

whether a transaction involves a 

municipal security should have already 

been made for various other purposes 

and is therefore part of the baseline. 

Even at the upper bound of these 

estimates, these costs would be justified 

by the likely aggregate benefits of the 

proposed rule change over time, 

including reduced costs for some 

dealers who could elect not to apply for 

CUSIP numbers under the proposed 

exception. 

Some industry stakeholders suggested 

that the MSRB should allow the use of 

other standard identifiers in addition to 

CUSIP numbers, as these commenters 

believed other identifiers may be easier 

and less costly to obtain.32 The MSRB 

understands commenters’ concerns, but 

believes this issue should be considered 

separately from this proposed rule 

change. Allowing the use of other 

identifiers would have implications for 

many other MSRB rules that are beyond 

the scope of this particular proposal. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Summary of Comments Received in 

Response to the First Request for 

Comment 

On March 1, 2017, the MSRB 

published a request for comment (‘‘First 

RFC’’), proposing draft amendments to 

Rule G–34.33 The First RFC sought to (1) 

amend the definition of ‘‘underwriter’’ 

as it is used in Rule G–34 to clarify that 

dealers acting as placement agents in 

private placements of municipal 

securities, including direct purchase 

transactions, are ‘‘underwriters’’ for 

purposes of the rule and are required to 

apply for CUSIP numbers for such 

transactions; (2) expand the rule to 

require non-dealer municipal advisors 

also to be subject to the CUSIP number 

requirements when acting as an advisor 

in a competitive sale of a new issue; and 

(3) to make technical amendments as 

necessary. The MSRB received 20 

comment letters,34 most of which 

opposed the blanket requirement to 

apply for CUSIP numbers in private 

placements with many suggesting 

alternative approaches. Commenters 

were split on the desirability of 

expanding the rule to include nondealer municipal advisors. 

Clarification of the ‘‘Underwriter’’ 

Definition To Include Placement Agents 

The majority of commenters to the 

First RFC opposed the MSRB’s draft 

amendment to Rule G–34(a)(i) that 

would clarify the requirement for 


sradovich on DSKBBY8HB2PROD with NOTICES
43592 Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 

35Acacia Letter I, ABA Letter I, BDA Letter I, First 

River Advisory, George K. Baum, GFOA Letter I, 

NAHEFFA, NAMA Letter I, Piper Jaffray Letter I, 

PFM Letter I, SIFMA Letter I, SMA Letter I, State 

of Florida. 

36CUSIP Services. 

37BDA Letter I, GFOA Letter I and SIFMA Letter 

I. 

38SIFMA Letter I. 

39ABA Letter I, First River Advisory, George K. 

Baum, GFOA Letter I, NAHEFFA, NAMA Letter I, 

Piper Jaffray Letter I, Rudy Salo and SIFMA Letter 

I. 

40 George K. Baum. 

41ABA Letter I, George K. Baum, GFOA Letter I, 

NAHEFFA, NAMA Letter I, Piper Jaffray Letter I, 

Rudy Salo, SIFMA Letter I and State of Florida. 

42BDA Letter I and George K. Baum. 

43BDA Letter I, GFOA Letter I, NAMA Letter I 

and NAHEFFA. 

44BDA Letter I, First River Advisory and SIFMA 

Letter I. 

45BDA Letter I, GFOA Letter I, NAMA Letter I 

and Piper Jaffray Letter I. 

46NFMA. 

47First River Advisory. 

48 GFOA Letter I, NAHEFFA and State of Florida. 

49Bloomberg Letter I. 

50BDA Letter I and SIFMA Letter I. 

51Acacia Letter I, Dixworks, NAMA Letter I, PFM 

Letter I and SMA Letter I. 

52 Dixworks and NAMA Letter I. 

53Acacia Letter I. 

54 George K. Baum, GFOA Letter I, Piper Jaffray 

Letter I and SIFMA Letter I. 

55MSRB Notice 2017–11 (June 1, 2017). 

56See footnote 19, supra. 

57Acacia Financial Group, Inc.: Letter from 

Noreen P. White, Co-President; Kim M. Whelan, Codealers to apply for CUSIP numbers in 

private placements,35 while one 

commenter explicitly supported the 

draft amendment.36 Three commenters 

noted that, if the amendment to the 

definition of ‘‘underwriter’’ were 

adopted as proposed in the First RFC, 

other aspects of Rule G–34 would be 

implicated.37 In particular, Rule 

G–34(a)(ii) regarding application for 

depository eligibility and dissemination 

of new issue information requires the 

underwriter to apply to a securities 

depository to make a new issue 

depository eligible and to communicate 

information about the new issue 

pursuant to the rule. These commenters 

noted that application of this part of the 

rule to private placements may not be 

appropriate. Specifically, the 

requirement that the underwriter apply 

to the Depository Trust and Clearing 

Corporation (‘‘DTCC’’) to make a new 

issue depository eligible and then input 

certain information into the NIIDS may 

not be appropriate or possible with 

respect to private placements. One 

commenter suggested that, if the MSRB 

adopts the revised definition of 

‘‘underwriter,’’ it should clarify that any 

issuance that does not meet DTCC 

eligibility criteria or for which CUSIP 

numbers cannot or are not required to 

be obtained should be exempt from Rule 

G–34(a)(ii) requirements.38

Nine commenters supported an 

exception from the CUSIP number 

requirement for private placements sold 

to a single purchaser or a limited 

number of purchasers.39 One 

commenter noted that typical 

purchasers in a private placement are 

sophisticated financial institutions with 

knowledge and experience in financial 

matters,40 while others noted that the 

draft amendment could put a damper on 

the bank loan and direct purchase 

markets and, as a result, increase costs 

to issuers.41

Two commenters objected to the 

proposed parenthetical in the draft 

amendment to Rule G–34(a), ‘‘. . . each 

broker, dealer or municipal securities 

dealer acting as an underwriter (which 

includes a placement agent) . . .’’ 

(emphasis added) and suggested it 

should be deleted,42 and four other 

commenters objected to the application 

of the CUSIP number requirement to 

placement agents, generally.43

Some commenters stated that private 

placements, by their nature, should not 

have CUSIP numbers because they are 

private transactions, and others stated 

that not obtaining a CUSIP number 

ensures the municipal securities will 

not be resold.44 Several commenters 

stated that requiring placement agents to 

obtain CUSIP numbers in private 

placements may discourage issuers from 

using placement agents at all.45

One commenter indicated that while 

it does not take a position on when 

CUSIP numbers should or should not be 

obtained, it would be concerned about 

the potential disclosure consequences in 

the EMMA system if the proposed 

amendments and clarifications would 

result in more bank loans, direct 

purchases and private placements 

requiring CUSIP numbers.46 This 

commenter indicated that, if new CUSIP 

numbers are obtained for each private 

debt transaction of an issuer, it could 

result in fewer disclosure notices being 

posted or linked to the CUSIP numbers 

for affected publicly outstanding debt, 

thus reducing the information flow to 

investors. Similarly, another commenter 

believed private placement information 

should be posted on EMMA under the 

CUSIP numbers for an issuer’s 

outstanding publicly-offered bonds, and 

not under a separate, distinct CUSIP 

number.47 Other commenters noted that 

they would rather see enhancements to 

EMMA than additional requirements 

placed on market participants.48

One commenter suggested that the 

MSRB use this opportunity to consider 

allowing the use of open standard 

identifiers for financial transactions and 

products in place of CUSIP numbers as 

a regulatory alternative to mandating 

that only CUSIP numbers be used.49

Finally, two commenters urged the 

MSRB to make any amendment 

prospective, regardless of whether it is 

deemed a clarification to an existing 

rule.50

Requirement That Non-Dealer 

Municipal Advisors Apply for CUSIP 

Numbers 

Five commenters believed non-dealer 

municipal advisors should not be 

required to apply for CUSIP numbers in 

competitive new issues of municipal 

securities.51 Two commenters believed 

doing so would serve no useful purpose 

and would pose an undue burden on 

small municipal advisors.52 One 

commenter suggested that the better 

approach would be to eliminate the 

requirement that dealers acting as 

financial advisors obtain CUSIP 

numbers in competitive new issues and 

to instead require the underwriter who 

wins the bid to obtain the CUSIP 

numbers.53

Four commenters supported the draft 

amendment to require non-dealer 

municipal advisors to be subject to the 

requirements of Rule G–34(a) with 

respect to competitive transactions.54

Summary of Comments Received in 

Response to the Second Request for 

Comment 

After carefully considering 

commenters’ suggestions and concerns, 

on June 1, 2017, the MSRB published a 

second request for comment (‘‘Second 

RFC’’).55 The Second RFC sought 

further comment on the same three 

issues from the First RFC. However, the 

Second RFC also sought comment on 

draft amendments that would except 

from the CUSIP number requirements 

dealers and municipal advisors engaged 

in direct purchase transactions with a 

bank, its bank affiliates or a consortium 

of banks formed for the purpose of 

participating in the new issue, where 

the dealer or municipal advisor had a 

reasonable belief that the purchaser(s) of 

the new issue intended to hold the 

securities to maturity and would limit 

resales of the municipal securities to 

other banks, bank affiliates or a 

consortium thereof. The draft 

amendments in the Second RFC also 

sought comment on the application of 

this exception to the requirement for 

underwriters to make an application for 

depository eligibility under Rule G– 

34(a)(ii). The MSRB proposed to define 

‘‘bank’’ as it is defined in the Exchange 

Act.56 The MSRB received 16 comment 

letters in response to the Second RFC.57


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Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43593 

President, dated June 29, 2017 (‘‘Acacia Letter II’’); 

American Bankers Association: Letter from 

Cristeena G. Naser, Vice President and Senior 

Counsel, Center for Securities, Trust & Investment, 

dated June 30, 2017 (‘‘ABA Letter II’’); Bloomberg 

Letter II; Bond Dealers of America: Letter from Mike 

Nicholas, Chief Executive Officer, dated June 29, 

2017 (‘‘BDA Letter II’’); Center for Municipal 

Finance: Letter from Marc D. Joffe, President, dated 

June 28, 2017 (‘‘CMF’’); Eastern Bank: Letter, 

undated (‘‘Eastern Bank’’); Fieldman Rolapp & 

Associates: Letter from Adam S. Bauer, Chief 

Executive Officer and President, dated June 30, 

2017 (‘‘Fieldman’’); Government Capital Securities 

Corp: Email from Ted Christensen, dated June 1, 

2017 (‘‘GCSC’’); Government Finance Officers 

Association: Letter from Emily Brock, Director, 

Federal Liaison Center, dated June 30, 2017 

(‘‘GFOA Letter II’’); NAMA Letter II; New Jersey 

State League of Municipalities: Letter from Michael 

F. Cerra, Assistant Executive Director, dated June 

27, 2017 (‘‘NJLM’’); Piper Jaffray & Co.: Letter from 

Frank Fairman, Managing Director, Head of Public 

Finance Services; Rebecca Lawrence, Managing 

Director, Associate General Counsel, Public Finance 

& Fixed Income, dated June 29, 2017 (‘‘Piper Jaffray 

Letter II’’); Public Financial Management, Inc. and 

PFM Financial Advisors LLC: Letter from Leo 

Karwejna, Chief Compliance Officer; Cheryl 

Maddox, General Counsel; Catherine HumphreyBennett, Municipal Advisory Compliance Officer, 

dated July 3, 2017 (‘‘PFM Letter II’’); SIFMA Letter 

II; Southern Municipal Advisors, Inc.: Letter from 

Michael C. Cawley, Senior Consultant, dated June 

29, 2017 (‘‘SMA Letter II’’); Township of East 

Brunswick: Email from L. Mason Neely, dated June 

2, 2017 (‘‘East Brunswick’’). 

58Acacia Letter II, ABA Letter II, BDA Letter II, 

GCSC; Piper Jaffray Letter II and SIFMA Letter II. 

59 GFOA Letter II, NAMA Letter II, NJLM and East 

Brunswick. 60Piper Jaffray Letter II. 61ABA Letter II and SIFMA Letter II. 62ABA Letter II, GFOA Letter II and NAMA Letter 

II. 63CMF and PFM Letter II. 

Limited Exception From the CUSIP 

Number Requirements 

In response to commenters who 

opposed the clarification of the term 

‘‘underwriter’’ that would result in a 

blanket requirement for dealers to apply 

for CUSIP numbers in all private 

placements, the MSRB proposed a 

limited exception from this requirement 

as noted above. Six of the 16 

commenters generally supported the 

MSRB’s proposed exception.58 GCSC 

specifically noted its belief that the 

exception would help keep issuance 

costs low for small issuers. GFOA noted 

that the exception is ‘‘a helpful step 

forward’’ but stated that without clear 

guidance, the draft rule will dampen the 

demand for bank loans and direct 

purchase financings and raise borrowing 

costs. Acacia, while supportive of the 

proposed exception, indicated its 

continued concern over the need for 

dealers and municipal advisors to 

establish policies and procedures to 

arrive at the ‘‘reasonable belief’’ 

conclusion. 

Some commenters supported the 

exception but suggested an expansion of 

the types of purchasers that could fit 

within its parameters. In particular, four 

commenters suggested that in addition 

to banks, as defined in the Second RFC, 

the MSRB should expand the exception 

also to apply to local governments 

privately purchasing municipal 

securities.59 Other commenters 

suggested that the exception be 

expanded to include non-dealer 

subsidiaries of banks or bank holding 

companies 60 or any entity directly or 

indirectly controlled by the purchasing 

bank or under common control with the 

bank, or a consortium of such entities, 

other than a broker-dealer registered 

with the SEC pursuant to the Exchange 

Act.61 In addition, the ABA suggested 

that the draft rule should require the 

purchasers of the municipal securities 

to represent that the securities are being 

purchased for their own account 

without an intention to resell them, 

while SIFMA proposed that the dealer 

or municipal advisor have a reasonable 

belief that this is the case. Both the ABA 

and SIFMA proposed that any resales 

would be limited to qualified 

institutional buyers as defined in Rule 

144A of the Securities Act of 1933 

(‘‘Securities Act’’) or an ‘‘accredited 

investor’’ as defined in Rule 501 of 

Regulation D under the Securities Act. 

The ABA emphasized that many 

banks use bank holding company 

affiliates to provide municipal funding 

and the majority of these funding 

subsidiaries are non-bank entities. BDA 

similarly asked that further clarification 

be given to confirm that the exception 

would apply where a bank negotiates 

the purchase but the actual purchaser is 

a non-bank affiliate, and where there is 

more than one bank purchasing in a 

transaction. 

Several commenters suggested that 

the principles-based exception needs 

further clarification. Specifically, three 

commenters believed additional 

language should be added to require the 

investor to represent its intention to 

hold the securities to maturity and limit 

resales.62 Similarly, SIFMA requested 

clarification of the type of 

documentation underwriters or 

municipal advisors would need to 

produce in an exam with FINRA or the 

SEC in order to show compliance with 

the rule. 

Two commenters opposed the 

exception.63 CMF noted that by 

requiring alternative debt instruments to 

have security identifiers, the MSRB is 

promoting public awareness that issuers 

are taking on additional obligations. 

However, according to CMF, allowing 

such an exception for instruments not 

expected to trade in the secondary 

market is inconsistent with this 

transparency objective. PFM opposed 

the draft rule change entirely, and noted 

that the proposed exception cannot be 

supported without much needed 

regulatory guidance. In particular, PFM 

believed regulatory guidance must be 

provided with respect to the ‘‘indicia of 

the required ‘reasonable belief’’’ to 

include much more prescriptive detail. 

In addition, PFM believed the MSRB 

should withdraw any efforts to amend 

Rule G–34 until the SEC’s proposed 

amendments to Exchange Act Rule 

15c2–12 are completed. PFM noted that 

changes to the disclosure requirements 

under Rule 15c2–12 would provide a 

foundation for any action the MSRB 

might take with respect to Rule G–34. 

Finally, GFOA indicated that, if certain 

clarifications cannot be made regarding 

compliance with the draft rule changes, 

the MSRB should continue investing in 

enhancing the EMMA system. 

Upon consideration of the comments 

received in response to the Second RFC, 

the MSRB is proposing an expanded 

exception to include purchasers that are 

non-dealer control affiliates of a bank. 

Based on comments received, the MSRB 

understands that in many direct 

purchase transactions there may be 

business reasons to hold a new issue 

municipal security in an affiliated entity 

that is not a bank. The MSRB further 

agrees that the exception should not be 

available if the entity purchasing or 

holding the municipal security is a 

dealer affiliate. With respect to 

expanding the exception to include 

local governments purchasing 

municipal securities, the MSRB 

understands that in these scenarios the 

transactions are negotiated directly 

between the two parties, without the 

involvement of an underwriter. As a 

result, the CUSIP number requirements 

of Rule G–34(a)(i) would not apply and 

the need to expand the exception to 

include these scenarios is unnecessary. 

In addition, the proposed exception 

would require the dealer to have a 

reasonable belief that the purchaser is 

purchasing with a present intent to hold 

the securities to maturity. Commenters 

asked for a more prescriptive 

requirement as to how one would show 

a reasonable belief. However, the MSRB 

believes dealers should determine the 

best way to make such a determination 

based on their particular business and 

practices. The determination could be 

made based upon, for example, a 

representation from the purchaser, 

though obtaining a representation is not 

required. Indeed, as a general matter, 

the proposed rule would not dictate the 

way in which a dealer must arrive at the 

‘‘reasonable belief.’’ In addition, the 

proposed rule would not include 


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43594 Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 

64Acacia Letter II, Fieldman, NAMA Letter II, 

PFM Letter II and SMA Letter II. 

65Acacia Letter II and NAMA Letter II. 

66Fieldman. 

67BDA Letter II; Piper Jaffray Letter II and SIFMA 

Letter II. 

68See Exchange Act Release No. 57131 (January 

11, 2008), 73 FR 3295 (January 17, 2008) (SR– 

MSRB–2007–08) and MSRB Notice 2007–10. 

69Bloomberg Letter II; BDA Letter II and CMF. 

language in the exception that would 

require a dealer or municipal advisor to 

draw conclusions regarding the 

circumstances of the purchaser’s 

possible resales in the future, if the 

purchaser’s present intent were to 

change. The MSRB believes that the 

dealer’s reasonable belief as to the 

present intent of the purchaser is 

adequate and that the circumstances of 

any subsequent resales would be 

outside the scope of the dealer’s 

analysis surrounding the initial sale of 

the new issue securities. 

Requirement That Non-Dealer 

Municipal Advisors Apply for CUSIP 

Numbers 

In the Second RFC, the MSRB 

proposed draft amendments that 

generally would require all municipal 

advisors in competitive new issues to 

apply for CUSIP numbers. Reference to 

‘‘competitive offering’’ was meant to 

refer to competitive offerings in a 

typical public distribution of municipal 

securities. However, the MSRB noted its 

understanding that there are direct 

purchase scenarios in which the 

municipal advisor arranges competitive 

bids from, for example, three banks 

competing for a direct purchase. In 

circumstances like those, the MSRB 

indicated that the security purchased by 

the winning direct purchaser may not 

require a CUSIP number if the 

municipal advisor, like the dealer 

placement agent described above in a 

direct purchase by a bank, could make 

a principled determination that trading 

is unlikely and, thus, CUSIP numbers 

are not necessary. The Second RFC 

proposed draft amendments that would 

allow a municipal advisor to rely on the 

exception from the CUSIP number 

requirement if the conditions were met. 

Five commenters believed Rule G–34 

should not apply to any municipal 

advisors and that the obligation to 

obtain a CUSIP number should rest 

solely with the underwriter.64 Acacia 

and NAMA stated that while not every 

competitive sale has a municipal 

advisor, they each do have an 

underwriter and thus, for consistency, it 

makes sense that the underwriter would 

obtain the CUSIP number. In addition, 

NAMA stated that a municipal advisor 

does not have an interface with the 

investor prior to the completion of the 

competitive sale process and by making 

a determination regarding the investor’s 

intentions to hold or sell a security, in 

addition to considering whether an 

instrument is in fact a security, the 

municipal advisor might be engaging in 

broker-dealer activity. According to 

NAMA, there is no benefit to municipal 

advisory clients or municipal advisors 

by requiring municipal advisors to 

obtain CUSIP numbers. Similarly, SMA 

stated that obtaining a CUSIP number is 

an underwriter’s responsibility and the 

imbalance between dealer municipal 

advisors and non-dealer municipal 

advisors is justified by the differing 

roles they play in the market. PFM 

stated that applying for a CUSIP number 

is activity outside of the municipal 

advisor’s responsibility and ‘‘epitomizes 

traditional broker-dealer type activity.’’ 

Two commenters indicated that the 

costs on non-dealer municipal advisors 

of complying with the proposed 

obligations, including creating and 

implementing policies and procedures, 

would be problematic and create a new 

regulatory burden.65 Finally, one 

commenter noted concern that for a 

municipal advisor to obtain a CUSIP 

number in a competitive sale, it must 

make certain assumptions about the 

final bond structure or know the 

preferred structure of the eventual 

purchaser.66

Three commenters supported the 

MSRB’s efforts to address any potential 

regulatory inefficiencies between dealer 

and non-dealer municipal advisors.67

SIFMA noted that, if there is a nondealer municipal advisor assisting an 

issuer who is currently not required to 

obtain a CUSIP number, then each 

bidding dealer in a competitive sale 

must obtain a set of CUSIP numbers for 

the transaction, in case they are the 

winning bidder. Obtaining the CUSIP 

number before a dealer is selected is 

necessary, according to SIFMA, because 

of the subsequent timing requirements 

related to inputting information into 

NIIDS. SIFMA believed it is more 

efficient for a single municipal advisor 

to an issuer to obtain CUSIP numbers 

than for several dealers competing for a 

sale to obtain CUSIP numbers knowing 

that all but one dealer will need to 

cancel the request. 

The MSRB believes the policy reasons 

to require dealer municipal advisors to 

apply for CUSIP numbers in competitive 

sales of new issue securities are just as 

applicable to non-dealer municipal 

advisors. Further, removing the 

municipal advisor (whether dealer or 

non-dealer) altogether from the 

requirement could result in trading 

delays where the winning dealer in a 

competitive transaction applies for the 

CUSIP number after the award is made. 

In the alternative, removal of dealer 

municipal advisors from the 

requirement could result in 

inefficiencies where multiple dealers 

apply for CUSIP numbers for the same 

transaction before the award is made 

and subsequently cancel them if they 

are not selected as the winning dealer. 

The proposed rule change therefore 

would require municipal advisors, both 

dealer and non-dealer alike, to apply for 

CUSIP numbers for new issue securities 

when advising on a competitive sale of 

such new issue securities. This ensures 

efficiencies in the market by requiring 

CUSIP numbers to be assigned prior to 

the award of the issue in a competitive 

sale where a municipal advisor is 

retained. Where the competitive sale 

might result in a direct purchase by a 

bank, its non-dealer control affiliates or 

a consortium thereof, the municipal 

advisor may determine not to obtain a 

CUSIP number if it reasonably believes 

the purchaser’s present intent is to hold 

the municipal securities to maturity. If 

the structure of the transaction changes 

after a municipal advisor has applied for 

the CUSIP number, Rule G– 

34(a)(i)(A)(5) requires that the 

information provided in the CUSIP 

number application be updated as soon 

as it is known, but in any event, no later 

than a time sufficient to ensure CUSIP 

number assignment occurs prior to 

dissemination of the time of first 

execution. The MSRB would expect the 

regulated entity that originally applied 

for the CUSIP number to comply with 

Rule G–34(a)(i)(A)(5) to correct any 

CUSIP number information 

inconsistencies.68

Other Comments 

Three commenters expressed their 

view that the MSRB should not require 

the use of a proprietary, for-profit 

identifier such as CUSIP.69 These 

commenters believed that the rule 

should include the ability of an 

underwriter or municipal advisor to use 

any identification number widely 

accepted in the municipal securities 

market. BDA stated that by specifically 

referring to CUSIP numbers, the MSRB 

is stifling competition in the area. 

Bloomberg suggested that the MSRB add 

‘‘or other standard identifier’’ to the 

CUSIP number references in the rule. 

The MSRB understands commenters’ 

concerns with respect to this issue, but, 

because this issue arises in numerous 

other contexts, believes it should be 

considered separately from this 


sradovich on DSKBBY8HB2PROD with NOTICES
Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43595 

70 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b–4(f)(6)(iii). 

5The term ‘‘User’’ is defined as ‘‘any Member or 

Sponsored Participant who is authorized to obtain 

access to the System pursuant to Rule 11.3.’’ See 

Exchange Rule 1.5(cc). 

6See Exchange Rule 11.13(b)(3)(N). 

initiative, which is focused on only one 

MSRB rule. The MSRB notes that it is 

currently monitoring or involved in 

various industry initiatives to 

modernize identifiers. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period of 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

MSRB–2017–06 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549. 

All submissions should refer to File 

Number SR–MSRB–2017–06. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for 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 MSRB. 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–MSRB– 

2017–06 and should be submitted on or 

before October 10, 2017. 

For the Commission, pursuant to delegated 

authority.70

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–19804 Filed 9–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81594; File No. SR– 

BatsBZX–2017–57] 

Self-Regulatory Organizations; Bats 

BZX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Amend Rule 

11.13, Order Execution and Routing, 

To Account for IEX as a Primary 

Listing Market and To Amend Certain 

Rules To Reflect the Name Change of 

NYSE MKT to NYSE American 

September 13, 2017. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 6, 2017, Bats BZX Exchange, 

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

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. The 

Exchange has designated this proposal 

as a ‘‘non-controversial’’ proposed rule 

change pursuant to Section 19(b)(3)(A) 

of the Act 3 and Rule 19b–4(f)(6)(iii) 

thereunder,4 which renders it effective 

upon filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange filed a proposal to 

amend paragraphs (b)(3)(M) and (N) of 

Rule 11.13, Order Execution and 

Routing, to expand the ability of Users 5

to designate their orders for 

participation in the opening, re-opening 

(following a halt, suspension, or pause), 

or closing process of a primary listing 

market other than the Exchange (NYSE, 

Nasdaq, NYSE MKT, or NYSE Arca) to 

include the Investors Exchange LLC 

(‘‘IEX’’). The Exchange also proposes to 

amend paragraphs (b)(3)(M) and (N) of 

Rule 11.13 as well as Rules 11.24(c)(1) 

and 11.26(a) to reflect the name change 

of NYSE MKT to NYSE American. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at www.bats.com, at the principal office 

of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Exchange Rule 11.13(b)(3)(N) 

describes the ROOC routing option, 

under which Users may designate their 

orders for participation in the opening 

or closing process, in addition to the reopening (following a halt, suspension, 

or pause), of a primary listing market 

other than the Exchange, if received 

before the opening/re-opening/closing 

time of such market.6 Under Exchange 

Rule 11.13(b)(3)(M), Users may also 

elect that their orders be routed to 

participate in the primary market’s reopening process, and not its opening or 

closing processes. Any remaining shares 


sradovich on DSKBBY8HB2PROD with NOTICES