Document ID: SEC-2023-0160-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2023-02-14T05:00Z

[Federal Register Volume 88, Number 30 (Tuesday, February 14, 2023)]
[Notices]
[Pages 9560-9576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-03060]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96842; File No. SR-MSRB-2023-02]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change To Create New MSRB 
Rule G-46, on Duties of Solicitor Municipal Advisors, and To Amend MSRB 
Rule G-8, on Books and Records

February 8, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on January 31, 2023, the Municipal Securities 
Rulemaking Board (``MSRB'' or ``Board'') filed with the Securities and 
Exchange Commission (``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 9561]]

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 create 
a new rule, MSRB Rule G-46, on duties of solicitor municipal advisors 
(``Proposed Rule G-46'') and amend MSRB Rule G-8, on books and records 
(``Proposed Amended Rule G-8'') (together, the ``proposed rule 
change''). The MSRB requests that the proposed rule change be approved 
with an implementation date to be announced by the MSRB in a regulatory 
notice published no later than one month following the Commission 
approval date, which implementation date shall be no later than twelve 
months following the Commission approval date.
    The text of the proposed rule change is available on the MSRB's 
website at https://msrb.org/2023-SEC-Filings, 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
Solicitor Municipal Advisor Activity
    There are two broad categories of municipal advisors--those that 
provide certain advice to or on behalf of a municipal entity or 
obligated person and those that undertake certain solicitations of a 
municipal entity or obligated person on behalf of certain third-party 
financial professionals.\3\ The first category of municipal advisors is 
often referred to as non-solicitor municipal advisors, while the latter 
is sometimes referred to as solicitors.\4\ Proposed Rule G-46 would 
govern the conduct of these solicitors, more specifically defined as 
``solicitor municipal advisors'' under Proposed Rule G-46(a)(vi).
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    \3\ Section 15B(e)(4) of the Exchange Act (15 U.S.C. 78o-
4(e)(4)) generally defines ``municipal advisor'' to mean a person 
(who is not a municipal entity or an employee of a municipal entity) 
that (i) provides advice to or on behalf of a municipal entity or 
obligated person with respect to municipal financial products or the 
issuance of municipal securities, including advice with respect to 
the structure, timing, terms, and other similar matters concerning 
such financial products or issues; or (ii) undertakes a solicitation 
of a municipal entity. Notwithstanding the omission of the term, 
``obligated person'' in connection with the undertaking of a 
solicitation under Section 15B(e)(4)(A)(ii) of the Exchange Act (15 
U.S.C. 78o-4(e)(4)(A)(ii)), the SEC has interpreted the definition 
of ``municipal advisor'' to include a person who engages in the 
solicitation of an obligated person acting in the capacity of an 
obligated person. See Release No. 34-70462 (September 20, 2013), 78 
FR 67467, at notes 138 and 408 (November 12, 2013) (File No. S7-45-
10) (``SEC Final MA Rule Adopting Release''). See also Exchange Act 
Rule 15Ba1-1(d)(1)(i) (17 CFR 240.15Ba1-1(d)(1)(i)).
    \4\ Section 15B(e)(9) of the Exchange Act (15 U.S.C. 78o-
4(e)(9)) generally defines ``solicitation of a municipal entity or 
obligated person'' to mean a direct or indirect communication with a 
municipal entity or obligated person made by a person, for direct or 
indirect compensation, on behalf of a broker, dealer, municipal 
securities dealer, municipal advisor, or investment adviser . . . 
that does not control, is not controlled by, or is not under common 
control with the person undertaking such solicitation for the 
purpose of obtaining or retaining an engagement by a municipal 
entity or obligated person of a broker, dealer, municipal securities 
dealer, or municipal advisor for or in connection with municipal 
financial products, the issuance of municipal securities, or of an 
investment adviser to provide investment advisory services to or on 
behalf of a municipal entity. The SEC has interpreted this phrase 
generally in a manner similar to the statutory definition. However, 
it has also added two exceptions to the statutory definition for (i) 
advertising by a dealer, municipal advisor or investment adviser and 
(ii) solicitations of an obligated person where such obligated 
person is not acting in the capacity of an obligated person or the 
solicitation is not in connection with the issuance of municipal 
securities or with respect to municipal financial products. See 
Exchange Act Rule 15Ba1-1(n) (17 CFR 240.15Ba1-1(n)). Additionally, 
the SEC has exempted from the municipal advisor definition a person 
that undertakes a solicitation of a municipal entity or obligated 
person for the purpose of obtaining or retaining an engagement by a 
municipal entity or by an obligated person of a dealer or a 
municipal advisor for or in connection with municipal financial 
products that are investment strategies, to the extent such 
investment strategies are not plans or programs for the investment 
of the proceeds of municipal securities or the recommendation of and 
brokerage of municipal escrow investments. See Exchange Act Rule 
15Ba1-1(d)(1) (17 CFR 240.15Ba1-1(d)(1)) and 15Ba1-1(d)(3)(viii) (17 
CFR 240.15Ba1-1(d)(3)(viii)).
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    While the Exchange Act \5\ permits a municipal advisor to conduct 
such solicitations on behalf of a third-party broker, dealer or 
municipal securities dealer (collectively and individually 
``dealers''),\6\ MSRB Rule G-38, on solicitation of municipal 
securities business, prohibits a dealer from providing or agreeing to 
provide payment to third parties for solicitations of municipal 
securities business made on behalf of the dealer.\7\ Additionally, as 
discussed in the MSRB's Statement on Burden on Competition below, 
according to MSRB data, it appears that a substantial number of 
solicitations that would be subject to Proposed Rule G-46 involve a 
solicitation on behalf of a third-party investment adviser to provide 
investment advisory services to a municipal entity. Anecdotally, the 
MSRB understands that such solicitations often occur in connection with 
the solicitation of a public pension plan.\8\ For example, if a person 
communicates with a public pension plan for the purpose of getting a 
particular investment advisory firm hired by the plan to provide 
investment advisory services to such plan, that person may be a 
solicitor municipal advisor if such person is paid by the investment 
advisory firm for the communication and if such person and the 
investment advisory firm are not affiliated.
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    \5\ See Section 15B(e)(4) (15 U.S.C. 78o-4(e)(4)) and Section 
15B(e)(9) of the Exchange Act (15 U.S.C. 78o-4(e)(9)).
    \6\ See 15 U.S.C. 78c(a)(4)(a) defining the term ``broker'' to 
mean ``any person engaged in the business of effecting transactions 
in securities for the account of others;'' see also 15 U.S.C. 
78c(a)(5) defining the term ``dealer'' to mean ``any person engaged 
in the business of buying and selling securities (not including 
security-based swaps, other than security-based swaps with or for 
persons that are not eligible contract participants) for such 
person's own account through a broker or otherwise'' and 15 U.S.C. 
78c(a)(30) generally defining the term ``municipal securities 
dealer'' to mean any person (including a separately identifiable 
department or division of a bank) engaged in the business of buying 
and selling municipal securities for his own account, through a 
broker or otherwise, subject to certain exclusions.
    \7\ The prohibition in Rule G-38 predates the regulation of 
municipal advisors.
    \8\ See e.g., Third-Party Marketers Association: Letter from 
Donna DiMaria, Chairman of the Board of Directors and Chair of the 
3PM Regulatory Committee to the MSRB, dated June 16, 2021 (``3PM 
I'').
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    As discussed below, MSRB data suggests that the number of municipal 
advisors that engage in solicitations that may subject them to Proposed 
Rule G-46 comprise a relatively small percentage of the municipal 
advisors that are registered with the MSRB. However, notwithstanding 
the relatively small size of such solicitation market, the MSRB 
believes that it is important that the fundamental protections extended 
to the municipal entity and obligated person clients of other MSRB 
regulated entities are also extended to the municipal entities and 
obligated persons with whom solicitor municipal advisors interact. For 
example, as noted in the SEC Final MA Rule Adopting Release, the 
solicitation of public pension plans in connection with investment 
advisory services has been subject to multiple SEC enforcement

[[Page 9562]]

actions.\9\ The MSRB believes that the proposed rule change would serve 
as an important bulwark against potential improper practices in the 
municipal market and also would provide greater certainty and 
transparency to solicitor municipal advisors regarding regulatory 
expectations.
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    \9\ See SEC Final MA Rule Adopting Release, 78 FR at 67482.
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    From a practical perspective, any registered municipal advisor is 
permitted to act as both a solicitor municipal advisor and a non-
solicitor municipal advisor. However, anecdotally, the MSRB understands 
that relatively few non-solicitor municipal advisors also act as 
solicitor municipal advisors.\10\ With respect to solicitations on 
behalf of third parties to provide investment advisory services, 
commenters have informed the MSRB that there are two ways in which a 
solicitor municipal advisor typically may solicit a municipal entity: 
(1) directly or (2) through an intermediary.\11\ They are discussed 
below.
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    \10\ According to MSRB data shown in Table 1 below, 69 municipal 
advisors indicated that they engage in both solicitation and non-
solicitation municipal advisory activity. However, it is unclear the 
extent to which these municipal advisors actively engage in both 
types of activity.
    \11\ See e.g., ``3PM I''. While these comments pertained 
primarily to the solicitation of municipal entities, the MSRB does 
not have reason to believe that the practice of soliciting obligated 
persons, to the extent that such solicitations occur, would be 
substantially different. The MSRB notes that the intermediary itself 
may be a solicitor municipal advisor to the extent that the 
intermediary makes a communication with an unaffiliated municipal 
entity or obligated person, for compensation, on behalf of a third-
party dealer, municipal advisor, or investment adviser for the 
purpose of obtaining or retaining an engagement by such municipal 
entity or obligated person of a dealer or municipal advisor for or 
in connection with municipal financial products or the issuance of 
municipal securities, or of an investment adviser to provide 
investment advisory services. See Section 15B(e)(9) of the Exchange 
Act (15 U.S.C. 78o-4(e)(9)).
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Direct Solicitations
    A solicitor municipal advisor often first communicates with a staff 
member of the solicited entity (i.e., the municipal entity or obligated 
person) who handles investment manager research for the entity. This 
individual generally is responsible for evaluating the solicitor 
client's product/services to ensure they are appropriate for the entity 
given the entity's investment policy statement guidelines and 
restrictions. This first communication potentially is one of many that 
may span years. Additionally, the solicitor municipal advisor's client 
likely will have its own communications with the solicited entity, 
which may include board presentations, meetings and discussions during 
which the solicitor municipal advisor may or may not be present.
Indirect Solicitations Through an Intermediary
    A solicitor municipal advisor typically initially will solicit a 
financial intermediary or an investment consultant (collectively 
``intermediary'') who is hired by the solicited entity to conduct 
searches and identify appropriate investment managers to meet a 
municipal entity's specific need.\12\ Such intermediary itself may be a 
solicitor municipal advisor.\13\ When a solicitor municipal advisor 
first solicits the intermediary, the solicitor municipal advisor may 
not necessarily know who the intermediary represents (i.e., whether the 
intermediary represents municipal entities, obligated persons, other 
private entities, or all of the above). Additionally, the solicitor 
municipal advisor generally will not know whether the intermediary will 
recommend the solicitor municipal advisor's client to the 
intermediary's municipal entity client(s) (if any). As a result, at the 
time of the first solicitation, a solicitor municipal advisor may not 
know if it is indirectly soliciting a municipal entity. Moreover, the 
solicitor municipal advisor's client (e.g., the investment adviser) may 
engage in multiple subsequent communications with either the 
intermediary and/or the intermediary's client (e.g., the municipal 
entity or obligated person), during which the solicitor municipal 
advisor may or may not be present. In some instances, the solicitor 
municipal advisor may never meet or directly communicate with an 
intermediary's municipal entity or obligated person client.
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    \12\ In the most common scenario, an intermediary will be an 
investment consultant or will perform similar functions.
    \13\ See supra note 11.
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Proposed Rule G-46
Summary of Proposed Rule G-46
    Proposed Rule G-46 would establish the core standards of conduct 
and duties of ``solicitor municipal advisors'' (as defined below) when 
engaging in solicitation activities that would require them to register 
with the SEC and the MSRB as municipal advisors. The proposed rule also 
would codify certain statements in an MSRB notice issued in 2017 
pertaining to the application of MSRB rules to solicitor municipal 
advisors.\14\ Those statements relate to the obligation of solicitor 
municipal advisors under MSRB Rule G-17, on conduct of municipal 
securities and municipal advisory activities (the ``G-17 Excerpt for 
Solicitor Municipal Advisors'').\15\ In addition to codifying much of 
the substance of the G-17 Excerpt for Solicitor Municipal Advisors, 
Proposed Rule G-46 also would add additional requirements that would 
better align some of the obligations imposed on solicitor municipal 
advisors with those applicable to: non-solicitor municipal advisors 
under Rule G-42, on duties of non-solicitor municipal advisors; 
underwriters under Rule G-17, on fair dealing, and; certain 
solicitations undertaken on behalf of third-party investment advisers 
under the SEC's marketing rule for investment advisers (the ``IA 
Marketing Rule'' or ``IA Rule 206(4)-1'').\16\
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    \14\ See MSRB Notice 2017-08, Application of MSRB Rules to 
Solicitor Municipal Advisors (May 4, 2017).
    \15\ See id. at 17-18.
    \16\ 17 CFR 275.206(4)-1.
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    In summary, the core provisions of Proposed Rule G-46 generally 
would:
     Set forth definitions for terms used in the proposed rule;
     Require solicitor municipal advisors to provide to their 
solicitor clients full and fair disclosure in writing of all of their 
material conflicts of interest and material legal or disciplinary 
events;
     Require solicitor municipal advisors to document their 
relationships in writing(s), deliver such writing(s) to their solicitor 
clients, and set forth certain minimum content that must be included in 
such writing(s);
     Prohibit solicitor municipal advisors from making a 
representation that the solicitor municipal advisor knows or should 
know is either materially false or misleading regarding the capacity, 
resources or knowledge of the solicitor client and require solicitor 
municipal advisors to have a reasonable basis for any material 
representations it makes to a solicited entity regarding the capacity, 
resources or knowledge of the solicitor client;
     Require solicitor municipal advisors to disclose to 
solicited entities material facts about the solicitation, including but 
not limited to an obligation to disclose:
    [cir] Information about the solicitor municipal advisor's role and 
compensation;
    [cir] The solicitor municipal advisor's material conflicts of 
interest;
    [cir] Information regarding the solicitor client (i.e., the type of 
information that is generally on Form MA or Form ADV, Part 2 and a 
description of how the solicited entity can obtain a copy of the

[[Page 9563]]

solicitor client's Form MA or Form ADV, Part 2, as applicable);
     Set forth a dual disclosure standard with respect to 
required disclosures to solicited entities:
    [cir] Generally, disclosures would be required to be made in 
writing and delivered:
    [ssquf] At the time of the first communication to a solicited 
entity (or in the case of an indirect solicitation, the first 
communication to an intermediary of the solicited entity) on behalf of 
a specific solicitor client; and
    [ssquf] If the solicitation results in a solicited entity engaging 
a solicitor client for investment advisory services or municipal 
advisory services, again at the time that engagement documentation 
between the solicitor client and the solicited entity is delivered to 
the solicited entity or promptly thereafter. Such disclosures may be 
provided by either the solicitor client or the solicitor municipal 
advisor, but must be made to an official of the solicited entity that, 
among other things, the solicitor municipal advisor (or, the solicitor 
client if the solicitor client provides such disclosures) reasonably 
believes has the authority to bind the solicited entity by contract; 
and
     Expressly prohibit solicitor municipal advisors from: 
delivering an inaccurate invoice for fees or expenses and making 
payments for the purpose of obtaining or retaining an engagement to 
perform municipal advisory activities subject to exceptions specified 
in the rule.
    Supplementary material to Proposed Rule G-46 generally would:
     Provide additional explanation regarding the MSRB's 
expectations with respect to the reasonable basis a solicitor municipal 
advisor must have for certain of its representations;
     Explain the relationship between a solicitor municipal 
advisor's fair dealing obligations and a federal fiduciary duty for 
municipal advisors;
     Explain the relationship between a municipal advisor's 
obligations under Proposed Rule G-46 and Rule G-42; and
     Provide additional explanation applicable to a solicitor 
municipal advisor's obligation to document its compensation arrangement 
and make related disclosures.
    Provided below is a more detailed description of Proposed Rule G-
46.
Definitions
    Proposed Rule G-46(a) would set forth a set of definitions for 
terms used in the rule. It would define the terms ``compensation,'' 
\17\ ``excluded communications,'' \18\ ``solicitation,'' ``solicited 
entity,'' ``solicitor client,'' ``solicitor municipal advisor,'' and 
``solicitor relationship.'' \19\ The most important of these 
definitions, which are integral to understanding nearly all of the 
provisions of Proposed Rule G-46 are discussed below.
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    \17\ Proposed Rule G-46(a)(i) generally would provide that 
``compensation'' means any cash, in-kind or non-cash remuneration, 
including but not limited to merchandise, gifts, travel expenses, 
meals and lodging.
    \18\ Proposed Rule G-46(a)(ii) generally would provide that 
``excluded communications'' means (A) advertising by a dealer, 
municipal advisor, or investment adviser; (B) direct or indirect 
communications with an obligated person if such obligated person is 
not acting in the capacity of an obligated person; (C) direct or 
indirect communications with an obligated person made for the 
purpose of obtaining or retaining an engagement that is not in 
connection with the issuance of municipal securities or with respect 
to municipal financial products; and (D) direct or indirect 
communications made for the purpose of obtaining or retaining an 
engagement for or in connection with municipal financial products 
that are investment strategies to the extent that those investment 
strategies are not plans or programs for the investment of the 
proceeds of municipal securities or the recommendation of and 
brokerage of municipal escrow investments. The term ``excluded 
communications'' is used in the term ``solicitation,'' which would 
be defined in Proposed Rule G-46(a)(iii).
    \19\ Proposed Rule G-46(a)(vii) generally would provide that, 
for purposes of the rule, a ``solicitor relationship'' is deemed to 
exist when a municipal advisor enters into an agreement to undertake 
a solicitation of a municipal entity or obligated person within the 
meaning of Section 15B(e)(9) of the Act, 15 U.S.C. 78o-4(e)(9), and 
the rules and regulations thereunder. The solicitor relationship 
shall be deemed to have ended on the date which is the earlier of 
(i) the date on which the solicitor relationship has terminated 
pursuant to the terms of the documentation of the solicitor 
relationship required by Proposed Rule G-46(c) or (ii) the date on 
which the solicitor municipal advisor withdraws from the solicitor 
relationship.
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    Proposed Rule G-46(a)(iii) generally would define the term 
``solicitation'' to mean a direct or indirect communication with a 
municipal entity or obligated person made by a solicitor municipal 
advisor, for direct or indirect compensation, on behalf of a municipal 
advisor or investment adviser that does not control, is not controlled 
by, or is not under common control with the solicitor municipal advisor 
for the purpose of obtaining or retaining an engagement by a municipal 
entity or obligated person of a municipal advisor for or in connection 
with municipal financial products or the issuance of municipal 
securities or of an investment adviser to provide investment advisory 
services to or on behalf of a municipal entity; provided, however, that 
it does not include excluded communications, as defined in Proposed 
Rule G-46(a)(ii). This definition is consistent with the defined term 
``solicitation of a municipal entity or obligated person'' under 
Section 15B(e)(9) of the Exchange Act,\20\ except to the extent that 
the term ``solicitation'' under Proposed Rule G-46(a)(iii) does not 
address solicitations undertaken on behalf of a third-party dealer. As 
noted above, MSRB Rule G-38 generally prohibits a dealer from providing 
or agreeing to provide payment to third parties for solicitations of 
municipal securities business made on behalf of the dealer. As a 
result, Proposed Rule G-46 assumes that such solicitations do not 
occur.
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    \20\ 15 U.S.C. 78o-4(e)(9).
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    Proposed Rule G-46(a)(iv) generally would define the term 
``solicited entity'' to mean any municipal entity or obligated person 
(as those terms are defined in Section 15B(e)(8) and (e)(10) of the 
Exchange Act \21\ and the rules and regulations thereunder) that the 
solicitor municipal advisor has solicited, is soliciting or intends to 
solicit within the meaning of Sections 15B(e)(4)(A)(ii) and (e)(9) of 
the Act \22\ and the rules and regulations thereunder.
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    \21\ 15 U.S.C. 78o-4(e)(8) and 15 U.S.C. 78o-4(e)(10).
    \22\ 15 U.S.C. 78o-4(e)(4)(A)(ii) and 15 U.S.C. 78o-4(e)(9).
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    Proposed Rule G-46(a)(v) generally would define the term 
``solicitor client'' to mean the municipal advisor or investment 
adviser on behalf of whom the solicitor municipal advisor undertakes a 
solicitation within the meaning of Sections 15B(e)(4)(A)(ii) and (e)(9) 
of the Act \23\ and the rules and regulations thereunder. As noted 
above, because of the prohibition set forth in MSRB Rule G-38, Proposed 
Rule G-46 presumes that solicitors do not conduct paid solicitations on 
behalf of third-party dealers. As a result, the term ``solicitor 
client'' as defined in Proposed Rule G-46(a)(v) does not include 
dealers as solicitor clients.
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    \23\ Id.
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    Proposed Rule G-46(a)(vi) generally would define the term 
``solicitor municipal advisor'' to mean, for purposes of the rule, a 
municipal advisor within the meaning of Section 15B(e)(4) of the Act 
\24\ and other rules and regulations thereunder; provided, that it 
shall exclude a person that is otherwise a municipal advisor solely 
based on activities within the meaning of Section 15B(e)(4)(A)(i) of 
the Act \25\ and the rules and regulations thereunder. Generally, this 
means that a solicitor municipal advisor is any municipal advisor that 
is not a non-solicitor municipal advisor.
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    \24\ 15 U.S.C. 78o-4(e)(4).
    \25\ 15 U.S.C. 78o-4(e)(4)(A)(i).
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Disclosure to Solicitor Clients
    Proposed Rule G-46(b) would require a solicitor municipal advisor 
to provide

[[Page 9564]]

to a client full and fair disclosure in writing of all material 
conflicts of interest and any legal or disciplinary event that would be 
material to a reasonable solicitor client's evaluation of the solicitor 
municipal advisor or the integrity of its management or advisory 
personnel. The disclosures must be provided prior to or upon engaging 
in municipal advisory activities.
    The proposed rule sets forth an alternative to providing a 
narrative description of any such legal or disciplinary events by 
permitting solicitor municipal advisors to reference such information 
in certain other publicly available information if the conditions 
specified in the rule are met. As a result, solicitor municipal 
advisors that are also registered broker-dealers or investment advisers 
would be permitted to identify the specific type of event and make 
specific reference to the relevant portions of the solicitor municipal 
advisor's Form BD or Form ADV if the solicitor municipal advisor 
provides detailed information specifying where the client may 
electronically access such forms.\26\ All other municipal advisors 
would be permitted to identify the specific type of event and make 
specific reference to the relevant portions of the solicitor municipal 
advisor's most recent Forms MA or MA-I filed with the Commission if the 
solicitor municipal advisor provides detailed information specifying 
where the client may electronically access such forms.\27\
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    \26\ For example, a solicitor municipal advisor could direct a 
solicitor client to FINRA's BrokerCheck system or the Investment 
Adviser Public Disclosure website, as applicable; provided, that the 
direction is accompanied by information as to how to retrieve the 
firm's specific Form BD or Form ADV and specific reference to the 
relevant portions of the applicable form.
    \27\ For example, a solicitor municipal advisor could direct a 
solicitor client to the SEC's EDGAR system; provided, that the 
direction is accompanied by information as to how to retrieve the 
firm's specific form(s) and specific reference to the relevant 
portions of the applicable form(s).
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Documentation of the Solicitor Relationship
    Proposed Rule G-46(c) would require a solicitor municipal advisor 
to evidence each of its solicitor relationships by a writing or 
writings created and delivered to the solicitor client prior to, upon 
or promptly after the establishment of the solicitor relationship. The 
writing(s) would be required to be dated and include, at a minimum:
     A description of the solicitation activities to be engaged 
in by the solicitor municipal advisor on behalf of the solicitor client 
(including the scope of the agreed-upon activities and a statement that 
the scope of the solicitation is anticipated to include the 
solicitation of municipal entities and/or obligated persons);
     The terms and amount of the compensation to be received by 
the solicitor municipal advisor for such activities;
     The date, triggering event, or means for the termination 
of the relationship, or, if none, a statement that there is none; and
     Any terms relating to withdrawal from the relationship.
    The proposed obligation to document the relationship is generally 
consistent with a non-solicitor municipal advisor's obligation to 
document its municipal advisory relationship with a client under Rule 
G-42(c).\28\ The MSRB believes that this documentation obligation will 
help ensure that the solicitor client has certain basic material 
information about the engagement including the scope of agreed-upon 
activities and information pertaining to compensation for such 
activities. The MSRB also believes that this documentation obligation 
will assist examining authorities in understanding the solicitation 
arrangement and will provide them with necessary information to assist 
in evaluating a solicitor municipal advisor's compliance with relevant 
obligations.
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    \28\ Rule G-42(c) generally requires a municipal advisor to 
evidence each of its municipal advisory relationships by a writing 
or writings created and delivered to the municipal entity or 
obligated person client prior to, upon or promptly after the 
establishment of the municipal advisory relationship.
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    The MSRB understands that a solicitor may be asked to solicit a 
broad range of entities on behalf of a client of the solicitor. These 
entities may include municipal entities, obligated persons and 
corporate entities that are not obligated persons. While the 
solicitation of municipal entities and obligated persons generally 
would require compliance with Proposed Rule G-46 (to the extent the 
solicitation would make the solicitor a ``municipal advisor''), the 
solicitation of an entity that is not a municipal entity or an 
obligated person would not require such compliance. In order to promote 
certainty as to the applicable regulatory scheme for any engagement, 
the MSRB believes that it is imperative for any engagement to be 
documented in a writing that clearly indicates whether the solicitation 
of municipal entities and/or obligated persons is anticipated. 
Information pertaining to termination of the relationship or withdrawal 
from the relationship will similarly assist both solicitor clients and 
examination and enforcement authorities in understanding the scope of 
an engagement.
    Supplementary Material .04 would provide additional guidance with 
respect to the obligation to document the terms and the amount of 
compensation to be received. Specifically, it provides that the 
documentation(s) must clearly describe the structure of the 
compensation arrangement and the amount of compensation paid or to be 
paid. For example, a solicitor municipal advisor that will be paid on 
the basis of a flat or fixed fee would be required to disclose the 
amount of the flat fee, if known and/or calculable at the time of the 
documentation. If the precise dollar amount is not known at the time, 
the documentation should disclose how such compensation will be 
calculated. As another example, if the compensation arrangement calls 
for a percentage of fees collected from the referred clients, then the 
documentation should state so and describe what that percentage is.
Representations to Solicited Entities
    Proposed Rule G-46(d)(i) expressly would prohibit a solicitor 
municipal advisor from making a representation that the solicitor 
municipal advisor knows or should know is either materially false or 
materially misleading due to the omission of a material fact about the 
capacity, resources or knowledge of the solicitor client. This 
prohibition is similar to a prohibition applicable to non-solicitor 
municipal advisors under Rule G-42 except that, unlike with Rule G-42, 
the prohibition for solicitor municipal advisors would not be limited 
to representations that occur in response to requests for proposals or 
qualifications or in oral presentations to a client or prospective 
client for the purpose of obtaining or retaining an engagement for the 
solicitor client.\29\ This is because the MSRB believes that all of the 
solicitor municipal advisor's communications regarding the capacity, 
resources or knowledge of the solicitor's clients are expected to be 
for the purpose of

[[Page 9565]]

obtaining or retaining an engagement for their clients.
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    \29\ See Rule G-42(e)(i)(C) which prohibits non-solicitor 
municipal advisors from making any representation or the submission 
of any information that the municipal advisor knows or should know 
is either materially false or materially misleading due to the 
omission of a material fact about the capacity, resources or 
knowledge of the municipal advisor, in response to requests for 
proposals or qualifications or in oral presentations to a client or 
prospective client, for the purpose of obtaining or retaining an 
engagement to perform municipal advisory activities.
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    Proposed Rule G-46(d)(ii) would require a solicitor municipal 
advisor to have a reasonable basis for any material representations it 
makes to a solicited entity regarding the capacity, resources or 
knowledge of the solicitor client. The MSRB believes that solicited 
entities should be entitled to rely on the material representations 
made by solicitor municipal advisors, as regulated financial 
professionals hired for the purpose of soliciting business on behalf of 
their clients, with respect to the qualifications of their clients. The 
MSRB further believes that such representations should have some 
reasonable basis.\30\
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    \30\ The MSRB notes that this obligation bears some analogy to a 
non-solicitor municipal advisor's duty of care obligation to have a 
reasonable basis for any advice provided to or on behalf of a client 
pursuant to Rule G-42, Supplementary Material .01. While a non-
solicitor municipal advisor provides advice to or on behalf of its 
municipal entity and obligated person clients, a solicitor municipal 
advisor solicits municipal entities and obligated persons on behalf 
of its clients. In both cases, the municipal advisor would be 
required to have a reasonable basis for what are likely to be the 
core material statements the municipal advisor was hired to provide 
to municipal entities and obligated persons.
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    Supplementary Material .01 would provide guidance on compliance 
with the reasonable-basis standard. Specifically, this supplementary 
material would state that while a solicitor municipal advisor must have 
a reasonable basis for the representations described in Proposed Rule 
G-46(d), the solicitor municipal advisor is not required to actively 
seek out every piece of information that may be relevant to such 
representations. It further provides an example to help illustrate this 
point.
Disclosures to Solicited Entities
    Proposed Rule G-46(e) would require a solicitor municipal advisor 
to disclose to any solicited entity all material facts about the 
solicitation in the manner specified in section (f) of the proposed 
rule. This would include an obligation to disclose certain information 
pertaining to the solicitor municipal advisor's: (i) role and 
compensation; (ii) conflicts of interest; and (iii) client.
    Role and Compensation Disclosures. Proposed Rule G-46(e)(i) would 
require a solicitor municipal advisor to disclose to any solicited 
entity:
     The solicitor municipal advisor's name;
     The solicitor client's name;
     The type of business being solicited (i.e., municipal 
advisory business or investment advisory services);
     The material terms of the solicitor municipal advisor's 
compensation arrangement, including a description of the compensation 
provided or to be provided, directly or indirectly, to the solicitor 
municipal advisor for such solicitation; and
     Payments made by the solicitor municipal advisor to 
another solicitor municipal advisor to facilitate the solicitation.
    Supplementary Material .04 would provide additional guidance with 
respect to the obligation to disclose the material terms of the 
solicitor municipal advisor's compensation arrangement. Specifically, 
it would provide that Proposed Rule G-46(e)(i)(D) would require 
disclosure of at least the same information as that required by 
Proposed Rule G-46(c)(ii), to the extent material. However, Proposed 
Rule G-46(e)(i)(D) also may require the disclosure of additional 
information, depending on the facts and circumstances. For example, if 
the solicitor municipal advisor receives indirect compensation for the 
solicitation, information pertaining to the indirect compensation also 
must be disclosed.
    Additionally, the solicitor municipal advisor would be required to 
disclose the following statements:
     In connection with its solicitation activities as a 
municipal advisor, a solicitor municipal advisor does not owe a 
fiduciary duty under Section 15B(c)(i) of the Exchange Act or MSRB 
rules to the entities that it solicits and is not required by those 
provisions to act in the best interests of such entities without regard 
to the solicitor municipal advisor's own financial or other interests. 
However, in connection with such solicitation activities, a solicitor 
municipal advisor is required to deal fairly with all persons, 
including both solicited entities and the solicitor municipal advisor's 
clients; and
     A solicitor municipal advisor's primary role is to solicit 
the solicited entity on behalf of certain third-party regulated 
entities and the solicitor municipal advisor will be compensated for 
its solicitation services by the solicitor municipal advisor's 
client.\31\
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    \31\ While the proposed rule text uses the defined term 
``solicitor municipal advisor,'' to facilitate a more plain-language 
disclosure, the MSRB expects that solicitor municipal advisors would 
insert their name in place of the term ``solicitor municipal 
advisor.''
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    These statements draw from analogous disclosures that underwriters 
must make to their issuer clients pursuant to Rule G-17 \32\ but are 
tailored to reflect the existence of a federal fiduciary duty for non-
solicitor municipal advisors and to make clear that a solicitor 
municipal advisor's fair dealing obligations apply in connection with 
its solicitation activities.\33\
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    \32\ These disclosures include an obligation to disclose that: 
Rule G-17 requires an underwriter to deal fairly at all times with 
both issuers and investors; unlike a municipal advisor, the 
underwriter does not have a fiduciary duty to the issuer under the 
federal securities laws and is, therefore, not required by federal 
law to act in the best interests of the issuer without regard to its 
own financial or other interests; and the underwriter's primary role 
is to purchase securities with a view to distribution in an arm's-
length commercial transaction with the issuer and it has financial 
and other interests that differ from those of the issuer. See MSRB 
Interpretive Notice Concerning the Application of MSRB Rule G-17 to 
Underwriters of Municipal Securities (March 31, 2021) (the ``G-17 
Underwriter's Guidance'').
    \33\ See SEC MA Final Rule Adopting Release, 78 FR 67467 at note 
100 (stating that ``. . . the fiduciary duty of a municipal advisor, 
as set forth in Exchange Act Section 15B(c)(1), extends only to its 
municipal entity clients'') (emphasis added); see also text 
accompanying note 100 (stating that ``. . . the Exchange Act, as 
amended by the Dodd-Frank Act, grants the MSRB regulatory authority 
over municipal advisors and imposes a fiduciary duty on municipal 
advisors when advising municipal entities'') (emphasis added); 
Exchange Act Section 15B(b)(2)(L)(i) (15 U.S.C. 78o-4(b)(2)(L)(i)) 
(granting the MSRB authority to ``prescribe means reasonably 
designed to prevent acts, practices, and courses of business as are 
not consistent with a municipal advisor's fiduciary duty to its 
clients'') (emphasis added). Because a solicitor municipal advisor's 
clients are not the municipal entities that they solicit, but rather 
the third parties that retain or engage the solicitor municipal 
advisor to solicit such municipal entities, solicitor municipal 
advisors do not owe a fiduciary duty under the Exchange Act or MSRB 
rules to their clients (or the municipal entity) in connection with 
such activity. See MSRB Notice 2017-08, at 10.
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    Supplementary Material .02 would expound on the relationship 
between Proposed Rule G-46 and the fair dealing obligation under Rule 
G-17 and includes similar discussion regarding application of the 
federal fiduciary duty to a solicitor municipal advisor's solicitations 
of solicited entities. However, it specifies that solicitor municipal 
advisors may be subject to fiduciary or other duties under state or 
other laws and that nothing in Proposed Rule G-46 shall be deemed to 
supersede any more restrictive provision of state or other laws 
applicable to municipal advisory activities. Finally, Supplementary 
Material .02 includes a cross reference to Supplementary Material .03 
and would remind solicitor municipal advisors that, to the extent they 
also engage in non-solicitor municipal advisory activity, the 
requirements of Rule G-42 will apply with respect to such activity and 
a federal fiduciary duty will apply with respect to the municipal 
entity clients of the municipal advisor.
    Conflicts Disclosures. Proposed Rule G-46(e)(ii) would require a 
solicitor municipal advisor to disclose any

[[Page 9566]]

material conflicts of interest,\34\ including but not limited to the 
fact that, because the solicitor municipal advisor is compensated for 
its solicitation efforts, it has an incentive to recommend its clients, 
resulting in a material conflict of interest. The solicitor municipal 
advisor also would be required to disclose any material conflicts of 
interest, of which the solicitor municipal advisor is aware after 
reasonable inquiry, that could reasonably be anticipated to impair the 
solicitor municipal advisor's ability to solicit the solicited entity 
in accordance with its duty of fair dealing. This obligation is 
comparable to a non-solicitor municipal advisor's obligation under Rule 
G-42 to disclose to its clients all material conflicts of interest, 
including any conflicts, of which the municipal advisor is aware after 
reasonable inquiry, that could reasonably be anticipated to impair the 
municipal advisor's ability to provide advice to or on behalf of the 
client in accordance with the standards set forth in the rule.\35\ It 
also is comparable to the obligation under the IA Marketing Rule to 
disclose that a promoter, due to the fact that it is compensated, has 
an incentive to recommend the investment adviser it promotes, resulting 
in a material conflict of interest.\36\ The MSRB believes that 
disclosure of such conflict-of-interest information is key to assisting 
a solicited entity in evaluating the solicitor municipal advisor's 
statements and in determining whether to retain the solicitor's client. 
For example, without a specific disclosure about a solicitor municipal 
advisor's incentives, a solicitation creates a risk that the solicited 
entity would mistakenly view the solicitor municipal advisor's 
recommendation as being an unbiased opinion about the solicitor 
client's ability to, for example, manage the solicited entity's assets, 
and would rely on that recommendation more than the solicited entity 
otherwise would if the solicited entity knew of the solicitor municipal 
advisor's incentive.
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    \34\ If a reasonable solicited entity would consider a 
particular conflict of interest on the part of the solicitor 
municipal advisor to be material to the decision to choose the 
solicitor municipal adviser's client, then such conflict of interest 
should be disclosed.
    \35\ See Rule G-42(b)(i)(F).
    \36\ See Investment Adviser Marketing, Release No. IA-5653 at 
101 (Dec. 22, 2020), 86 FR 13024 (March 5, 2021) available at: 
https://www.federalregister.gov/d/2020-28868/p-618.
---------------------------------------------------------------------------

    Solicitor Client Disclosures. Proposed Rule G-46(e)(iii) would 
require a solicitor municipal advisor to provide to the solicited 
entity the following information regarding the solicitor client:
     The type of information that is generally available on 
Form MA (in the case of a municipal advisor client) or Form ADV, Part 2 
(in the case of an investment adviser client); and
     A description of how the solicited entity can obtain a 
copy of the solicitor client's Form MA or Form ADV, Part 2, as 
applicable.
    These requirements are designed to help ensure that, at any early 
stage, solicited entities are directed to important written information 
about the entities the solicitor municipal advisor represents--
including, but not limited to, information about the disciplinary 
history of the solicitor municipal advisor's clients. However, it does 
not require solicitor municipal advisors to obtain a copy of these 
documents and provide them to their solicited entities, nor does it 
require a solicitor municipal advisor to disclose any specific 
information about the client that is included in such forms.\37\
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    \37\ However, solicitor municipal advisors should be mindful of 
their general fair dealing obligations under Rule G-17 and of their 
obligations related to certain of their representations under 
Proposed Rule G-46(d). If a solicitor municipal advisor were to make 
a representation regarding the capacity, resources or knowledge of 
the solicitor's client that the solicitor municipal advisor knows or 
should know is inaccurate based on a review of its client's Form MA 
or Form ADV, that solicitor municipal advisor could be in violation 
of Proposed Rule G-46.
---------------------------------------------------------------------------

Timing and Manner of Disclosures to Solicited Entities
    Proposed Rule G-46(f) would provide that any disclosures required 
under section (e) of the proposed rule (pertaining to disclosures to 
solicited entities) must be made in writing. The proposed rule also 
would provide for a dual-disclosure requirement, such that 
solicitations that result in a solicited entity engaging a solicitor 
client would receive the requisite disclosures twice. Specifically, 
they would receive the disclosures once at the time of the first 
communication giving rise to the solicitation and again at the time 
that engagement documentation pertaining to the solicited entity's 
engagement of the solicitor client is delivered (or promptly 
thereafter).
    Initial Disclosure at the Time of the First Communication. The 
disclosures would be required to be delivered at the time of the first 
communication (as that term is used in the definition of 
``solicitation'') with a solicited entity on behalf of a specific 
solicitor client.\38\ Specifically, the disclosures would be required 
to be provided to the solicitor client representative with whom such 
communication is made. In the case of an indirect solicitation--a 
solicitation of an intermediary who represents a municipal entity or 
obligated person--the disclosures must be provided to the intermediary 
with whom such communication is made.\39\
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    \38\ A solicitor municipal advisor would be expected to provide 
separate disclosures for each of its engagements. For example, 
assume that a solicitor municipal advisor solicits a municipal 
entity on behalf of a municipal advisor client to provide municipal 
advisory services to the municipal entity. One week later, the 
solicitor municipal advisor solicits the municipal entity again--
this time to obtain an engagement for the solicitor municipal 
advisor's investment advisory client to provide investment advisory 
services to the municipal entity. The solicitor municipal advisor 
would be expected to provide its disclosures to the municipal entity 
again in connection with the second solicitation.
    \39\ For example, a solicitor municipal advisor presentation to 
an investment consultant hired by a public pension plan may be an 
indirect solicitation of that public pension plan. In such a case, 
the disclosure would be provided to the investment consultant.
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    Second Disclosure at the Time of the Solicitor Client's Engagement 
with the Solicited Entity. If the solicitation results in a solicited 
entity engaging a solicitor client for investment advisory services or 
municipal advisory services, all disclosures required by Proposed Rule 
G-46(e) would be required to be provided at the time that such 
engagement documentation is delivered to the solicited entity or 
promptly thereafter. This is the case even if there are no changes 
between the initial set of disclosures and the second set of 
disclosures.
    The second set of disclosures may be provided by either the 
solicitor client or the solicitor municipal advisor. The MSRB believes 
that this flexibility would permit, for example, a solicitor municipal 
advisor's investment adviser client to provide the solicitor's 
disclosures to the solicited entity at the time that the investment 
adviser enters into an engagement with the solicited entity.\40\ These 
disclosures would be required to be made to an official of the 
solicited entity that: (1) the solicitor municipal advisor (or, the 
solicitor client, if the solicitor client provides such disclosures) 
reasonably believes

[[Page 9567]]

has the authority to bind the solicited entity by contract; \41\ and 
(2) is not a party to a disclosed conflict.\42\ These two conditions 
would not apply to the initial delivery of disclosures.
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    \40\ The MSRB does not propose to require the engagement 
documentation between the solicitor municipal advisor and its 
solicitor clients to include an affirmative undertaking on the part 
of the solicitor client to provide the solicitor's disclosures to a 
solicited entity. However, a solicitor municipal advisor might seek 
the inclusion of such language in its engagement documentation as 
one means of seeking to comply with Proposed Rule G-46. As one 
additional alternative, a solicitor municipal advisor might seek to 
include in its engagement documentation with its solicitor clients a 
requirement that the solicitor client provide to the solicitor 
municipal advisor prompt notice that the solicitor client has been 
engaged by the solicited entity. Proposed Rule G-46 would provide 
solicitor municipal advisors flexibility in determining how to 
deliver the second set of disclosures.
    \41\ Solicitor municipal advisors would be expected to adopt 
reasonable policies and procedures to support the reasonable belief 
that the solicited entity representative has the authority to bind 
the solicited entity. However, consistent with the flexible approach 
to supervision under Rule G-44, on supervisory and compliance 
obligations of municipal advisors, the reasonable policies and 
procedures of one firm may reasonably differ from that of another's. 
As one example only, solicitor municipal advisors could seek to 
incorporate into their written agreements with their solicitor 
clients a condition that such disclosures provided on behalf of the 
solicitor municipal advisor must be provided to a solicited entity 
representative that the solicitor client reasonably believes has the 
authority to bind the solicited entity.
    \42\ To the extent a solicitor municipal advisor relies on its 
client to pass on its second set of disclosures, the solicitor 
municipal advisor may wish to provide its clients with a list of 
persons associated with the solicited entity who are a party to a 
conflict to help ensure that the solicitor client does not pass on 
the disclosures to such persons.
---------------------------------------------------------------------------

    The MSRB believes that this dual or bifurcated approach would help 
ensure that the person that is initially solicited receives this key 
information in time to consider it in connection with the initial 
solicitation. However, because such person(s) may not have the 
authority to bind the solicited entity by contract (particularly where 
such person is an intermediary between the solicitor and the solicited 
entity), the MSRB would require that the disclosures are provided again 
at the time of the engagement between the solicited entity and the 
solicitor client (or promptly thereafter). The MSRB believes that any 
risk associated with the first disclosures not being passed on to a 
knowledgeable person with the authority to bind the solicited entity in 
contract would be mitigated by requiring that the disclosures are 
provided again at the time of the engagement--this time, to someone who 
does have such authority. Additionally, the MSRB understands that 
solicitations may sometimes span years. Particularly in such instances, 
the MSRB believes that it is important that the solicited entity 
receives the disclosures again at the time of the solicitor client's 
engagement with the solicited entity.
Specified Prohibitions
    Proposed Rule G-46(g) expressly would prohibit a solicitor 
municipal advisor from:
     Delivering an invoice for fees or expenses for municipal 
advisory activities that is materially inaccurate in its reflection of 
the activities actually performed or the personnel that actually 
performed those activities; and
     Making payments for the purpose of obtaining or retaining 
an engagement to perform municipal advisory activities, subject to 
three specified exceptions discussed further below.
    Exceptions for Payments to Obtain or Retain an Engagement. 
Solicitor municipal advisors would be prohibited from making payments 
for the purpose of obtaining or retaining an engagement to perform 
municipal advisory activities other than:
     Payments to an affiliate for a direct or indirect 
communication with a municipal entity or obligated person on behalf of 
the solicitor municipal advisor where such communication is made for 
the purpose of obtaining or retaining an engagement to perform 
municipal advisory activities;
     Reasonable fees paid to another municipal advisor 
registered as such with the Commission and the MSRB for making a 
communication for the purpose of obtaining or retaining an engagement 
to perform municipal advisory activities; and
     Payments that are permissible ``normal business dealings'' 
as described in Rule G-20, on gifts, gratuities, non-cash compensation 
and expenses of issuance.
    These specified prohibitions are modeled on similar prohibitions 
applicable to non-solicitors under MSRB Rule G-42(e)(i) and to a lesser 
degree would align with certain prohibitions applicable to underwriters 
under the G-17 Underwriter's Guidance.\43\
---------------------------------------------------------------------------

    \43\ See Rule G-42(e)(i); see also G-17 Underwriter's Guidance 
at section titled, ``Underwriter Compensation and New Issue 
Pricing.''
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Supplementary Material
    Proposed Rule G-46 would set forth four supplementary material 
sections:
     Providing additional explanation regarding the MSRB's 
expectations with respect to the reasonable basis a solicitor municipal 
advisor must have for the representations described in Proposed Rule G-
46(d); \44\
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    \44\ See supra discussion titled ``Representations to Solicited 
Entities.''
---------------------------------------------------------------------------

     Explaining the relationship between a solicitor municipal 
advisor's fair dealing obligations and the applicability of a federal 
fiduciary duty for municipal advisors; \45\
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    \45\ See supra discussion titled ``Disclosures to Solicited 
Entities.''
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     Explaining the relationship between a municipal advisor's 
obligations under Proposed Rule G-46 and Rule G-42; and
     Providing additional detail regarding a solicitor 
municipal advisor's compensation documentation and disclosure 
obligations.\46\
---------------------------------------------------------------------------

    \46\ See supra discussion titled ``Documentation of the 
Solicitor Relationship'' and ``Disclosures to Solicited Entities.''
---------------------------------------------------------------------------

    Supplementary Material .03 explains that municipal advisors should 
be mindful that one may be, simultaneously, both a solicitor municipal 
advisor for purposes of Proposed Rule G-46 and a non-solicitor 
municipal advisor for purposes of Rule G-42. For example, a municipal 
advisor may provide ``advice'' as defined in Rule G-42 to a municipal 
entity (the ``advisory engagement'') and separately may act as a 
solicitor municipal advisor with respect to that same municipal entity 
or another municipal entity as contemplated in Proposed Rule G-46 (the 
``solicitor municipal advisor engagement''). As a result, the municipal 
advisor would be subject to Rule G-42 with respect to the advisory 
engagement and would be subject to Proposed Rule G-46 with respect to 
the solicitor municipal advisor engagement. Municipal advisors should 
evaluate the activity undertaken with respect to each engagement to 
determine which rule governs and ensure the written supervisory 
procedures required under Rule G-44 reflect such.
Proposed Amendments to MSRB Rule G-8
    Proposed amendments to Rule G-8 would add specific recordkeeping 
obligations designed to help facilitate and document compliance with 
Proposed Rule G-46. Specifically, they would add new subsection (viii) 
\47\ requiring solicitor municipal advisors to make and keep the 
following books and records:
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    \47\ Today the MSRB also filed a proposed rule change to amend 
MSRB Rule G-40, on advertising by municipal advisors, and amend MSRB 
Rule G-8 by adding subparagraph (h)(viii) to the rule.
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     Evidence that the disclosures required by Proposed Rule G-
46(b) were made in the manner required by that section;
     A copy of each writing or writings required by Proposed 
Rule G-46(c);
     Documentation substantiating the solicitor municipal 
advisor's reasonable basis for believing its representations as 
described in Proposed Rule G-46(d) (e.g., a checklist confirming that 
an investment adviser client's Form ADV was reviewed); and
     Evidence that the disclosures required by Proposed Rule G-
46(e) were made in the manner described in Proposed Rule G-46(f) (e.g., 
automatic email delivery receipt).

[[Page 9568]]

2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2) of the Exchange Act,\48\ which provides that the 
Board shall propose and adopt rules to effect the purposes of this 
title with respect to transactions in municipal securities effected by 
brokers, dealers, and municipal securities dealers and advice provided 
to or on behalf of municipal entities or obligated persons by brokers, 
dealers, municipal securities dealers, and municipal advisors with 
respect to municipal financial products, the issuance of municipal 
securities, and solicitations of municipal entities or obligated 
persons undertaken by brokers, dealers, municipal securities dealers, 
and municipal advisors.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78o-4(b)(2).
---------------------------------------------------------------------------

    Section 15B(b)(2)(C) of the Exchange Act \49\ 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.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

Prevention of Fraudulent and Manipulative Acts and Practices
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Exchange Act \50\ because the proposed rule 
change would help prevent fraudulent and manipulative acts and 
practices. It would do so by expressly prohibiting solicitor municipal 
advisors from making a representation that the solicitor municipal 
advisor knows or should know is either materially false or misleading 
regarding the capacity, resources or knowledge of the solicitor client. 
It also would require solicitor municipal advisors to have a reasonable 
basis for any material representations the solicitor municipal advisor 
makes to a solicited entity regarding the capacity, resources or 
knowledge of the solicitor client. The proposed rule change also 
expressly would prohibit solicitor municipal advisors from delivering 
an inaccurate invoice for fees or expenses. The MSRB believes that the 
express prohibition of such conduct--all of which could be forms of 
fraudulent and manipulative acts and practices themselves--would help 
prevent fraudulent and manipulative acts and practices. Finally, the 
proposed rule change would provide that solicitor municipal advisors 
would be prohibited from making payments for the purpose of obtaining 
or retaining an engagement to perform municipal advisory activities 
subject to specified exceptions. Among other things, this would 
effectively require solicitor municipal advisors to use only associated 
persons or other regulated solicitor municipal advisors to obtain 
business on their behalf. This would help ensure that only regulated 
persons--who are subject to rules designed to prevent fraudulent and 
manipulative acts and practices--may engage in solicitation activities 
on behalf of a solicitor municipal advisor.
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    \50\ Id.
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Fostering Cooperation and Coordination
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Exchange Act \51\ because it would foster 
cooperation and coordination with persons engaged in regulating 
transactions in municipal securities and municipal financial products. 
It would do so by requiring solicitor municipal advisors to document 
their relationships in writing that includes certain minimum content 
that is vital to the solicitor municipal advisor, its clients and 
applicable regulators in understanding the material terms of an 
engagement--including the scope of agreed-upon activities, information 
pertaining to compensation for such activities and whether the 
solicitation of municipal entities and/or obligated persons is 
anticipated. This documentation obligation would help promote certainty 
as to the applicable regulatory scheme for any engagement since only 
solicitations of municipal entities and obligated persons would be 
subject to Proposed Rule G-46, whereas other solicitations may fall 
within the jurisdiction of the rules of other regulators (e.g., the 
Commission or the Financial Industry Regulatory Authority). The MSRB 
believes that this documentation obligation (and related books and 
records obligations stemming from the proposed amendments to Rule G-8) 
would assist examining authorities in understanding the solicitation 
arrangement and would provide them with necessary information to assist 
in evaluating a solicitor municipal advisor's compliance with relevant 
obligations. The MSRB further believes that the proposed amendments to 
Rule G-8 (with the ensuing application of existing Rule G-9 on records 
preservation) would help create an audit trail to assist examination 
and enforcement authorities in their examination for compliance with 
these prohibitions, fostering cooperation and coordination between 
regulatory authorities.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

Protection of 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 Exchange Act \52\ because it would protect 
municipal entities, obligated persons, and the public interest. It 
would do so by requiring solicitor municipal advisors to disclose in 
writing all of their material conflicts of interest and material legal 
or disciplinary events to the entities that determine whether to hire 
such solicitor municipal advisors. The MSRB believes that this 
requirement would increase solicitor municipal advisor accountability 
and discourage conduct inconsistent with a solicitor municipal 
advisor's obligations because such conduct would be required to be 
disclosed in information provided to clients, thereby incentivizing 
firms to refrain from such conduct or risk not retaining an engagement. 
The MSRB also believes that such requirement would simultaneously 
provide prospective clients with valuable information that is directly 
relevant to their solicitor municipal advisor hiring decisions.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The proposed rule change also would protect municipal entities and 
obligated persons by better aligning the obligations owed by solicitor 
municipal advisors to their clients with those applicable to non-
solicitor municipal advisors to their clients under Rule G-42. Like 
non-solicitor municipal advisors, solicitor municipal advisors would be 
required to: disclose their material conflicts of interest; \53\ 
document their relationships in writing; \54\ and refrain from certain 
conduct such as making certain materially false or misleading 
representations,\55\ delivering a materially inaccurate invoice,\56\ 
and making certain payments for the purpose of obtaining or retaining 
an

[[Page 9569]]

engagement.\57\ These Rule G-42 provisions protect municipal entities 
by assisting non-solicitor municipal advisors in complying with, or 
helping prevent breaches of, applicable obligations such as the duty of 
fair dealing, which is owed under Rule G-17 by all municipal advisors 
to all persons. These protections also would be provided to municipal 
entities and obligated persons solicited by solicitor municipal 
advisors. Additionally, as municipal advisors are permitted to engage 
in both solicitor municipal advisor activity and non-solicitor 
municipal advisor activity, the MSRB believes that the promotion of 
consistent standards among these municipal advisors, where applicable, 
is appropriate since the municipal entities and obligated persons 
solicited by solicitor municipal advisors and the municipal entity and 
obligated person clients of non-solicitor municipal advisors may 
reasonably expect a certain baseline level of conduct from all 
municipal advisors. More specifically, the MSRB believes that the 
proposed rule change would protect municipal entities and obligated 
persons by requiring solicitor municipal advisors to disclose to 
solicited entities all material facts about the solicitation including 
certain information pertaining to the solicitor municipal advisor's: 
(i) role and compensation; (ii) conflicts of interest; and (iii) 
client. The MSRB believes that the role disclosures would help ensure 
that solicited entities (which are municipal entities and obligated 
persons) understand the role of a solicitor municipal advisor. The MSRB 
also believes that such disclosures would help to clarify potential 
confusion about the difference between a solicitor municipal advisor 
and other municipal advisors since they owe very different obligations 
to municipal entities. The proposed compensation disclosures are 
designed to help ensure that solicited entities have important 
information about how a solicitor municipal advisor is compensated to 
help inform the solicited entity's analysis of the nature and extent of 
a solicitor municipal advisor's incentive to recommend that a solicited 
entity hire a specific solicitor client. Finally, the MSRB believes 
that disclosure related to the solicitor municipal advisor's client 
would protect municipal entities, obligated persons and the public 
interest by ensuring that--at any early stage-- solicited entities are 
directed to disclosures about the entities the solicitor municipal 
advisor represents including, but not limited to, information about the 
disciplinary history of the solicitor municipal advisor's clients.
---------------------------------------------------------------------------

    \53\ See Rule G-42(b)(i)(F).
    \54\ See Rule G-42(c) and Proposed Rule G-46(c).
    \55\ See Rule G-42(e)(i)(C) and Proposed Rule G-46(d)(i).
    \56\ See Rule G-42(e)(i)(B) and Proposed Rule G-46(g)(i).
    \57\ See Rule G-42(e)(i)(E) and Proposed Rule G-46(g)(ii).
---------------------------------------------------------------------------

    Section 15B(b)(2)(L)(iv) of the Exchange Act \58\ requires that 
rules adopted by the Board not impose a regulatory burden on small 
municipal advisors that is not necessary or appropriate in the public 
interest and for the protection of investors, municipal entities, and 
obligated persons, provided that there is robust protection of 
investors against fraud. The MSRB believes that the proposed rule 
change is consistent with Section 15B(b)(2)(L)(iv) of the Exchange Act 
\59\ because the proposed rule change would impose on all municipal 
advisors, including small municipal advisors, only the necessary and 
appropriate regulatory burdens needed to promote compliance with the 
proposed rule change. The proposed rule change represents a balanced 
approach to prescriptive standards with flexibility for large and small 
municipal advisors alike. For example, the MSRB believes that the 
flexibility to provide certain disclosures to a solicited entity via a 
third party (i.e., the solicitor's client) could be particularly 
helpful for small municipal advisors who may be less likely to be 
involved in subsequent communications with a solicited entity and, 
therefore, may need to rely on their clients to pass along certain 
disclosures at the time of the solicitor client's engagement. Finally, 
the MSRB seeks to harmonize standards, where appropriate, among those 
applicable to solicitor municipal advisors, non-solicitor municipal 
advisors and Commission-registered investment advisers such that those 
that engage in conduct that would make them two or more of the above 
could leverage some of the existing processes to comply with relevant 
obligations under a comparable regime. The MSRB believes that this will 
minimize the regulatory burden on all solicitor municipal advisors, 
including small municipal advisors.
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
    \59\ Id.
---------------------------------------------------------------------------

    The MSRB also believes that the proposed rule change is consistent 
with Section 15B(b)(2)(G) of the Exchange Act,\60\ which provides that 
the MSRB's rules shall prescribe records to be made and kept by 
municipal securities brokers, municipal securities dealers, and 
municipal advisors and the periods for which such records shall be 
preserved. The proposed rule change would require solicitor municipal 
advisors to make and keep current evidence that the disclosures 
required by Proposed Rule G-46 were made in the manner required by the 
proposed rule change, a copy of the writing(s) documenting the 
relationship, and documentation substantiating the solicitor municipal 
advisor's reasonable basis belief regarding its representations. The 
MSRB believes that the proposed amendments to Rule G-8 related to 
recordkeeping (with the ensuing application of existing Rule G-9 on 
records preservation) would promote compliance and facilitate 
enforcement of Proposed Rule G-46, other MSRB rules, and other 
applicable securities laws and regulations.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78o-4(b)(2)(G).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 15B(b)(2)(C) of the Act \61\ requires that MSRB rules not 
be designed to impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The MSRB 
believes that Proposed Rule G-46 on the duties of solicitor municipal 
advisors and Proposed Amended Rule G-8 on recordkeeping obligations 
would not impose any new burden on competition and, in fact, may 
relieve a burden on competition. The MSRB considered the economic 
impact associated with the proposed rule change, including a comparison 
to reasonable alternative regulatory approaches, relative to the 
baseline.\62\ The MSRB believes that the proposed rule change would not 
place a burden on competition as it would apply a regulatory regime to 
all solicitor municipal advisors similar to the regime that currently 
exists for non-solicitor municipal advisors under Rule G-42 and Rule G-
8 on recordkeeping, and for underwriters under the Rule G-17 
Underwriter's Guidance. Additionally, it would promote clearer 
regulatory requirements and expectations, enhancing the transparency 
and protection for recipients of solicitations and ensuring fair 
dealings between the market participants.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 78o-4(b)(2)(C).
    \62\ See Policy on the Use of Economic Analysis in MSRB 
Rulemaking, available at http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx. In evaluating whether there was a 
burden on competition, the Board was guided by its principles that 
required the Board to consider costs and benefits of a rule change, 
its impact on capital formation and the main reasonable alternative 
regulatory approach.
---------------------------------------------------------------------------

    Furthermore, Section 15B(b)(2)(L)(iv) of the Act \63\ provides that 
MSRB rules may not impose a regulatory burden on small municipal 
advisors that is not necessary or appropriate in the public

[[Page 9570]]

interest and for the protection of investors, municipal entities, and 
obligated persons, provided that there is robust protection of 
investors against fraud. The MSRB believes the proposed rule change 
would apply equally to all solicitor municipal advisors, and on an 
ongoing year-by-year basis, the additional regulatory burden imposed 
would be proportional to each solicitor municipal advisory firm's size 
and business activities and hence would not affect competition. 
Therefore, the MSRB believes the proposed rule change would not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
---------------------------------------------------------------------------

    The purpose of amending Rule G-8 and proposing Proposed Rule G-46 
would be to codify certain statements on the obligations of solicitor 
municipal advisors currently outlined in the G-17 Excerpt for Solicitor 
Municipal Advisors. Further, Proposed Rule G-46 would better align the 
duty and obligations of solicitor municipal advisors with those for 
underwriters under Rule G-17, for non-solicitor municipal advisors 
under Rule G-42, and for solicitors that undertake certain 
solicitations on behalf of investment advisers under the SEC's 
investment adviser regime.
    The core standards applicable to non-solicitor municipal advisors 
and underwriters under MSRB Rule G-42 and Rule G-17 are highlighted in 
a standalone rule for non-solicitor municipal advisors and a standalone 
interpretation that was filed with and approved by the SEC, 
respectively. In contrast, the G-17 Excerpt for Solicitor Municipal 
Advisors was issued in a notice that largely summarized existing rules 
and obligations applicable to solicitor municipal advisors and the 
standards set forth in the G-17 Excerpt for Solicitor Municipal 
Advisors were not as robust as the standards set forth in the proposed 
rule change. The proposed rule change is intended to enhance the 
consistency of regulatory standards and should therefore remove burdens 
to competition by providing clear expectations for all solicitor 
municipal advisors.
    In conjunction with Proposed Rule G-46, the proposed amendments to 
Rule G-8 would add specific language relating to solicitor municipal 
advisors, which would facilitate recordkeeping compliance associated 
with Proposed Rule G-46 and help ensure solicitor municipal advisor 
accountability.
    In contrast to the regulation of underwriters and non-solicitor 
municipal advisors, the MSRB currently does not have any explicit 
standards regarding documentation of a solicitor municipal advisor's 
engagement. Nor does it have express standards regarding solicitor 
municipal advisor disclosures of conflicts of interest. The MSRB 
believes that a Proposed Amended Rule G-8 and a codified Proposed Rule 
G-46 would result in informed, clearer regulatory standards and 
expectations for all solicitor municipal advisors, which would not 
impose a burden on competition because the rule would apply to all 
solicitor municipal advisors equally. In addition, Proposed Amended 
Rule G-8 and Proposed Rule G-46 would better align the obligations 
imposed on solicitor municipal advisors with those applicable to non-
solicitor municipal advisors under Rule G-42, underwriters under the G-
17 Underwriter's Guidance, and investment advisers or their promoters 
under the IA Marketing Rule.\64\
---------------------------------------------------------------------------

    \64\ See 17 CFR 275.206(4)-1.
---------------------------------------------------------------------------

    For all solicitor municipal advisors, the evaluation baseline is 
Rule G-17 which applies to all municipal advisors (solicitor and non-
solicitor alike) and requires municipal advisors to deal fairly with 
all persons and not engage in any deceptive, dishonest, or unfair 
practice and the G-17 Excerpt for Solicitor Municipal Advisors which 
applies to solicitor municipal advisors. Another baseline for 
consideration is the IA Marketing Rule \65\ for investment advisers, a 
merged rule that replaces the former advertising and cash solicitation 
rules for investment advisers. Thus, for a subgroup of solicitor 
municipal advisors who undertake solicitations on behalf of an 
investment adviser that is already subject to the requirements, the 
burden for compliance is already in place partially, as these solicitor 
municipal advisors are presumably already complying with the conditions 
outlined by the IA Marketing Rule. Finally, for a subset of municipal 
advisory firms who conduct both solicitation and non-solicitation 
business activities, the baseline is comprised of Rule G-17 and Rule G-
42 on duties of non-solicitor municipal advisors.
---------------------------------------------------------------------------

    \65\ Id.
---------------------------------------------------------------------------

    The MSRB also evaluated reasonable alternative regulatory 
approaches. In one alternative, the MSRB would create a new Rule G-46 
for solicitor municipal advisors, but the text of the rule would state 
that solicitors should follow the SEC's IA Marketing Rule. The main 
benefit of this would be to completely harmonize between MSRB and SEC 
rules for solicitor municipal advisors who solicit municipal entities 
and obligated persons for investment advisory services. However, this 
alternative would reduce alignment with MSRB Rule G-42 for solicitor 
municipal advisors who are also non-solicitor municipal advisors and 
are obligated to comply with Rule G-42. Since all municipal advisors 
are permitted to engage in both solicitation activity and non-
solicitation activity, the MSRB deems Proposed Rule G-46 superior to 
this alternative as it would be a tailored rule for solicitor municipal 
advisors that aligns with Rule G-42 where appropriate and aligns with 
the IA Marketing Rule where appropriate. Therefore, the MSRB believes 
that the approach taken in Proposed Rule G-46 for solicitor municipal 
advisors is warranted under the Exchange Act.
Benefits
    The main benefit of Proposed Amended Rule G-8 and Proposed Rule G-
46 would be to codify certain statements and provide clarification on 
regulatory obligations for solicitor municipal advisors with regard to 
their duties. By aligning Proposed Rule G-46 with Rule G-42, Rule G-17 
and the IA Marketing Rule \66\ where appropriate, Proposed Amended Rule 
G-8 and Proposed Rule G-46 would enhance the consistency of regulatory 
standards, thereby removing burdens to competition because it would 
provide clear expectations for all solicitor municipal advisors that 
are generally consistent with the standards under the comparative 
rules.
---------------------------------------------------------------------------

    \66\ 17 CFR 275.206(4)-1.
---------------------------------------------------------------------------

    For example, Proposed Rule G-46 would make clear the types of 
disclosures that a solicitor municipal advisor would be expected to 
make to solicited entities in order to ensure that such entities have 
access to material information to inform their decisions pertaining to 
whether to retain the solicitor municipal advisor's client(s). This 
information also would assist these solicited entities in evaluating 
the solicitor municipal advisor's potential conflicts of interest 
associated with making such solicitations. Additionally, by codifying 
much of the G-17 Excerpt for Solicitor Municipal Advisors with 
additional requirements, Proposed Rule G-46 expressly would prohibit 
solicitor municipal advisors from making certain false or materially 
misleading representations about their clients and would require them 
to have a reasonable basis for similar representations in order to help 
ensure the protection of the municipal entities and obligated persons 
solicited by such solicitor municipal advisors.

[[Page 9571]]

    Furthermore, the codification of certain existing requirements and 
the expansion of those standards in the proposed rule change would 
enhance transparency for the recipients of the new disclosures that 
would be required by the proposed rule change and promote clearer 
regulatory obligations for solicitor municipal advisors. The proposed 
rule change also would provide protection for municipal entities and 
obligated persons of solicitations, further promoting fair dealings 
between the market participants. As mentioned above, the additional 
requirements also would align some of the obligations imposed on 
solicitor municipal advisors with those applicable to non-solicitor 
municipal advisors under Rule G-42 and underwriters under the G-17 
Underwriter's Guidance as well as those applicable to certain 
endorsements and testimonials in connection with certain investment 
adviser advertisements under the SEC's investment adviser regime. This 
alignment would level the playing field by applying somewhat similar 
obligations for different regulated entities and increasing the 
efficiency for regulatory entities tasked with examining and enforcing 
such requirements and regulated entities seeking compliance. In 
particular, Proposed Rule G-46 would require solicitor municipal 
advisors to document their relationships in writing to the solicitor 
client, which would be instrumental in assisting examining authorities 
and other regulators to determine the relevant regulatory regime 
applicable to a solicitor municipal advisor's solicitation.
Costs
    The MSRB acknowledges that solicitor municipal advisors likely 
would incur costs, relative to the baseline state, to meet the 
standards of conduct and duties contained in the proposed rule change. 
These changes may include the one-time upfront costs related to setting 
up and/or revising policies and procedures, as well as the ongoing 
costs such as compliance costs associated with maintaining and updating 
disclosures. Solicitor municipal advisors also may have additional 
costs associated with additional record-keeping.
    For the upfront costs, it is possible that solicitor municipal 
advisors may need to seek the appropriate advice of in-house or outside 
legal and compliance professionals to revise policies and procedures in 
compliance with Proposed Amended Rule G-8 and Proposed Rule G-46. 
Solicitor municipal advisors also may incur costs related to standards 
of training in preparation for the implementation of Proposed Amended 
Rule G-8 and Proposed Rule G-46. Assuming solicitor municipal advisors 
currently already have policies and procedures in place in relation to 
the G-17 Excerpt for Solicitor Municipal Advisors, the upfront costs 
for Proposed Amended Rule G-8 and Proposed Rule G-46 should be 
incremental. Furthermore, the upfront costs may be lower for solicitor 
municipal advisors that are also non-solicitor municipal advisors as 
they presumably are already complying with similar Rule G-8 and Rule G-
42 requirements. Similarly, such costs may be lower for solicitor 
municipal advisors who are soliciting on behalf of investment advisory 
business and therefore presumably are already complying with the IA 
Marketing Rule.\67\
---------------------------------------------------------------------------

    \67\ 17 CFR 275.206(4)-1.
---------------------------------------------------------------------------

    For the ongoing costs, solicitor municipal advisors may incur 
compliance costs related to each solicitation, including costs 
pertaining to creating and maintaining books and records. Firms may 
have to make changes to their current recordkeeping practices in order 
to satisfy the additional requirements of Proposed Amended Rule G-8 and 
Proposed Rule G-46 for the specific disclosures to a solicited entity 
as outlined above, such as the creation of disclosures for all material 
information regarding the role and compensation of the solicitor 
municipal advisor; documentation of the relationship between a 
solicitor municipal advisor and its solicitor client; disclosure of 
material conflicts of interest; and certain payments made by a 
solicitor municipal advisor to another solicitor municipal advisor.
    Table 1 below shows the number of solicitor municipal advisory 
firms registered with the MSRB as of the end of January 2022. The table 
groups together solicitor municipal advisor only firms (meaning those 
firms that indicated to the MSRB that they engage in solicitation 
activity only and not non-solicitation municipal advisory activity) and 
separately groups together those solicitor municipal advisor firms that 
indicated to the MSRB in Form A-12 that they engage in both 
solicitation and non-solicitation municipal advisory activities (e.g., 
under some engagements, they conduct solicitations of municipal 
entities and/or obligated persons whereas pursuant to other 
engagements, they provide covered advice to municipal entities and/or 
obligated persons). Table 1 also illustrates the type of solicitation 
activity in which solicitor municipal advisory firms registered with 
the MSRB engage (i.e., solicitations for investment advisory business 
versus other solicitations), as reported by solicitor municipal 
advisory firms on Form A-12.\68\
---------------------------------------------------------------------------

    \68\ Pursuant to MSRB Rule A-12, on registration, all municipal 
advisors, including solicitor municipal advisors, must register with 
the MSRB prior to engaging in any municipal advisory activity. Form 
A-12 is the single, consolidated form for registrants to provide the 
MSRB with registration information required under Rule A-12. Among 
other things, Form A-12 is used to: register with the MSRB, update 
registration information following a change to any information 
contained in the form and affirm registration information on an 
annual basis. The data in Tables 1 and 2 below regarding the number 
and breakdown of solicitor municipal advisor firms and the types of 
activities in which they engage is derived from Form A-12 data 
submitted to the MSRB.
---------------------------------------------------------------------------

    Table 2 illustrates preliminary estimates for both the upfront and 
ongoing compliance costs assuming implementation of Proposed Amended 
Rule G-8 and Proposed Rule G-46 for each solicitor municipal advisory 
firm in its respective group who chooses to continue their solicitation 
business practice in the future state.\69\ As of January 2022, there is 
a total of 86 municipal advisory firms registered with the MSRB who 
indicated solicitation business activities on Form A-12, with 17 of 
those firms indicating that they engage solely in solicitation 
activities and the remaining 69 firms indicating they engage in both 
solicitation and non-solicitation municipal advisory activities.\70\ Of 
the

[[Page 9572]]

17 municipal advisory firms engaging solely in solicitation activities, 
16 firms (9 + 7) indicate solicitation activities made on behalf of 
investment advisory business and one firm indicates solicitation 
activities only made on behalf of non-investment advisory business. Of 
the 69 municipal advisory firms engaging in both solicitation and non-
solicitation activities, 47 firms (20 + 27) indicate solicitation 
activities made on behalf of investment advisory business and 22 firms 
indicate solicitation activities only made on behalf of non-investment 
advisory business.
---------------------------------------------------------------------------

    \69\ Hourly rate data are gathered from the 2021 SEC's 
Amendments Regarding the Definition of ``Exchange'' and 
``Alternative Trading Systems (ATSs) That Trade U.S. Treasury and 
Agency Securities, National Market System (NMS) Stocks, and Other 
Securities,'' 17 CFR parts 232, 240, 242, and 249. The SEC's 
Economic Analysis utilizes the Securities Industry and Financial 
Markets Association, Management & Professional Earnings in the 
Securities Industry--2013 Report for the hourly rates of various 
financial industry market professionals. To compensate for 
inflation, ``the 2013 professional wage rates are adjusted for an 
inflation rate of 17.45 percent based on the Bureau of Labor 
Statistics data on Consumer Price Index for all Urban Consumers 
(CPI-U) between September 2013 and September 2021'' (Page 452). The 
MSRB added an additional five percentage points for relevant roles 
mentioned by the SEC and captured in SIFMA's 2013 Report to account 
for an increase in salary inflation for 2022. The inflation-adjusted 
effective hourly wage rates for in-house attorneys are estimated at 
$465 ($380 x 1.2245), $594 ($485 x 1.2245) for chief compliance 
officers, $347 ($283 x 1.2245) for compliance managers, and $490 
($400 x 1.2245) for outside counsel.
    \70\ As previously mentioned, the MSRB utilized Form A-12 data 
for the economic analysis provided. Of note, the MSRB identified 
that between FY 2021-Q2 (January-March) and FY 2022-Q2 there was a 
11.7% decline in the total number of registered municipal advisory 
firms. The number of solicitor municipal advisory firms, including 
firms with both solicitation and non-solicitation activities, also 
decreased from 105 to 86 firms during the same period.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P 
[GRAPHIC] [TIFF OMITTED] TN14FE23.014

[GRAPHIC] [TIFF OMITTED] TN14FE23.015

BILLING CODE 8011-01-C
    As previously  mentioned, the incremental costs for the subgroup of 
solicitor municipal advisory firms soliciting on behalf of investment 
advisory business may be lower than other solicitor municipal advisory 
firms to the extent that such solicitor municipal advisors engage in 
solicitations that are subject to the IA Marketing Rule.\72\ These 
solicitor municipal advisors are presumed to have policies and 
procedures consistent with, although not necessarily identical to, some 
of the requirements under Proposed Amended Rule G-8 and Proposed Rule 
G-46. In addition, the MSRB assumes that municipal advisory firms that 
engage in both solicitation and non-solicitation activities are 
currently in compliance with Rule G-8 and Rule G-42 with respect to 
their non-solicitation municipal advisory activities. The MSRB believes 
these firms may be able to leverage some of their existing Rule G-8 and 
Rule G-42 policies and procedures, resulting in a potentially lower 
upfront cost for implementing Proposed Amended Rule G-8 and Proposed 
Rule G-46 as compared to municipal advisory firms that engage in 
solicitation activities only. For example, municipal advisory firms 
that engage in both solicitation and non-solicitation activities are 
likely accustomed to documenting their relationships in an engagement 
letter and may be able to leverage their existing supervisory and 
compliance framework to extend it to their solicitation activities.
---------------------------------------------------------------------------

    \71\ The MSRB uses the higher hourly rate in each category of 
costs. For example, while the revision of policies and procedures 
can be conducted by either an in-house attorney (average hourly rate 
$465) or outside counsel (average hourly rate $490), the MSRB 
chooses the higher hourly rate for this analysis to be aggressive in 
the cost estimate. Similarly, for both the training and the ongoing 
compliance cost per each solicitation, the task can be performed by 
either a Chief Compliance Officer (average hourly rate of $594), an 
in-house compliance attorney (average hourly rate $465) or an in-
house compliance manager (average hourly rate $347), and the MSRB 
chooses the Chief Compliance Officer rate for the training and the 
compliance attorney rate for the ongoing compliance cost in the 
estimates.
    \72\ 17 CFR 275.206(4)-1.
---------------------------------------------------------------------------

Effect on Competition, Efficiency, and Capital Formation
    The MSRB believes that Proposed Amended Rule G-8 and Proposed Rule 
G-46 would neither impose a burden on competition nor hinder capital 
formation, as the proposed rule changes bring a similar regulatory 
regime to solicitor municipal advisors that currently exists for non-
solicitor municipal advisors under Rule G-8 on

[[Page 9573]]

recordkeeping and Rule G-42 and for underwriters under the G-17 
Underwriter's Guidance. The MSRB believes that the proposed rule change 
would improve the municipal securities market's operational efficiency 
by providing solicitor municipal advisors with a clearer understanding 
of regulatory obligations, as well as enhancing the transparency and 
protection for recipients of the solicitations, further promoting fair 
dealings between market participants.
    At present, the MSRB is unable to quantitatively evaluate the 
magnitude of the efficiency gains or losses, but believes the overall 
benefits accumulated over time for market participants would outweigh 
the upfront costs of revising policies and procedures and ongoing 
compliance and recordkeeping costs by solicitor municipal advisors.
    Finally, the proposed rule change would apply equally to all 
solicitor municipal advisors. Therefore, the MSRB does not expect that 
Proposed Amended Rule G-8 and Proposed Rule G-46 would impose a burden 
on competition with respect to solicitor municipal advisory services, 
as the upfront costs are expected to be relatively minor for all 
solicitor municipal advisory firms while the ongoing costs are expected 
to be proportionate to the size and business activities of each 
solicitor municipal advisory firm. In fact, the proposed rule change 
may relieve a burden on competition. Therefore, the MSRB believes the 
proposed rule change would not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the 
Exchange Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The MSRB solicited comment on the proposed rule change in two 
requests for comment. The MSRB first sought comment on a draft of Rule 
G-46 in a request for comment that was published in March 2021 (the 
``First Request for Comment'').\73\ The MSRB again sought comment on a 
revised draft of Rule G-46 that was published in December 2021 (the 
``Second Request for Comment'').\74\
---------------------------------------------------------------------------

    \73\ See MSRB Notice Request for Comment on Fair Dealing 
Solicitor Municipal Advisor Obligations and New Draft Rule G-46 
(March 17, 2021) available at: https://msrb.org/sites/default/files/2021-07.pdf.
    \74\ See MSRB Notice 2021-18, Second Request for Comment on Fair 
Dealing Solicitor Municipal Advisor Obligations and New Draft Rule 
G-46 (December 15, 2021) available at: https://msrb.org/sites/default/files/2021-18.pdf.
---------------------------------------------------------------------------

    The MSRB received three comment letters in response to the First 
Request for Comment \75\ and another three comment letters in response 
to the Second Request for Comment.\76\ The comments are summarized 
below by topic and MSRB responses are provided.
---------------------------------------------------------------------------

    \75\ Comments were received in response to the First Request for 
Comment from: National Association of Municipal Advisors: Letter 
from Susan Gaffney, Executive Director, dated June 17, 2021 (``NAMA 
I''); Securities Industry and Financial Markets Association: Letter 
from Leslie M. Norwood, Managing Director and Associate General 
Counsel, dated June 17, 2021 (``SIFMA I''); and 3PM I, supra note 8. 
Comment letters are available here.
    \76\ Comments were received in response to the Second Request 
for Comment from: National Association of Municipal Advisors: Letter 
from Susan Gaffney, Executive Director, dated March 15, 2022 (``NAMA 
II''); Securities Industry and Financial Markets Association: Letter 
from Leslie M. Norwood, Managing Director and Associate General 
Counsel, dated March 15, 2022 (``SIFMA II''); and Third-Party 
Marketers Association: Letter form Donna DiMaria, Chairman of the 
Board of Directors and Chair of the 3PM Regulatory Committee, dated 
March 15, 2022 (``3PM II''). Comment letters are available here.
---------------------------------------------------------------------------

    As described above, Proposed Rule G-46 would establish the core 
standards of conduct and duties of solicitor municipal advisors when 
engaging in certain solicitation activities. The proposed rule also 
would codify certain statements from the G-17 Excerpt for Solicitor 
Municipal Advisors and add additional requirements that would better 
align some of the obligations imposed on solicitor municipal advisors 
with those applicable to: non-solicitor municipal advisors under Rule 
G-42; underwriters under Rule G-17; and certain solicitations 
undertaken on behalf of third-party investment advisers under the IA 
Marketing Rule.
Harmonization With Other Rules
    Commenters were supportive of harmonization efforts between the 
standards set forth in the requests for comment and those applicable to 
other regulated entities. In response to the First Request for Comment, 
commenters urged even more harmonization with those standards,\77\ in 
particular Rule G-42 since issuers would be familiar with the 
requirements applicable to municipal advisors and greater conformance 
with those standards would permit issuers to receive disclosures in a 
format with which they may already be familiar.\78\
---------------------------------------------------------------------------

    \77\ See NAMA I at 1-2; see generally SIFMA I.
    \78\ See NAMA I at 1-2.
---------------------------------------------------------------------------

    The MSRB made a number of refinements to draft Rule G-46, as 
reflected in the proposed rule change. Key changes are discussed in the 
context of the MSRB's summary of comments and responses thereto below.
Applicability of Fiduciary Duty
    In the First Request for Comment, the MSRB did not specifically 
include any draft text regarding the application of a fiduciary duty to 
solicitor municipal advisors. However, the MSRB sought comment as to 
whether such a statement would be helpful to solicited entities. 
Commenters generally supported adding a clear statement to the rule 
text indicating that solicitor municipal advisors do not owe a federal 
fiduciary duty to either their clients or the municipal entities and 
obligated persons that they solicit.\79\ They also advocated for a 
similar mandatory disclosure to solicited entities.\80\ While one 
commenter did not see an appreciable benefit to requiring any such 
disclosure, this commenter did not raise any objections to such 
disclosure either.\81\
---------------------------------------------------------------------------

    \79\ See SIFMA I at 1-2.
    \80\ See NAMA I at 1 and SIFMA I at 4.
    \81\ See 3PM I at 7.
---------------------------------------------------------------------------

    In response, in the Second Request for Comment, the MSRB revised 
draft Rule G-46 to add additional supplementary material to the draft 
rule. This supplementary material expressly stated that solicitor 
municipal advisors must comply with their fair dealing obligations 
pursuant to Rule G-17 on fair dealing, but that they do not owe a 
fiduciary duty to their municipal entity and obligated person clients 
in connection with their solicitation activities. The MSRB also revised 
the draft rule text to require a similar disclosure to be provided to 
the solicitor municipal advisor's solicited entities. The substance of 
this supplementary material as well as the draft disclosure requirement 
also are reflected in the proposed rule change.
Solicitor Representations
    In response to the First Request for Comment, draft rule text set 
forth standards regarding solicitor municipal advisor representations 
to solicited entities. Commenters generally urged the MSRB to narrow 
these draft standards.\82\ One commenter suggested that the standards 
should only apply to a subset of a solicitor's representations 
(generally regarding the capacity and resources of the municipal 
advisor). This commenter also suggested that the applicable standard 
more closely mirror that posed in the G-17 Excerpt for Solicitor 
Municipal Advisors.\83\
---------------------------------------------------------------------------

    \82\ See SIFMA I 2-3.
    \83\ See id. at 2.
---------------------------------------------------------------------------

    In the Second Request for Comment, the MSRB revised the draft rule 
text accordingly and in a manner that is consistent with the standard 
set forth in

[[Page 9574]]

the proposed rule change. The MSRB believes that this more narrow 
standard is consistent with the standard applicable to non-solicitor 
municipal advisors and that these standards, in concert with a 
solicitor municipal advisor's Rule G-17 fair dealing obligations, offer 
appropriate protections to entities solicited by solicitor municipal 
advisors.
Prohibited Conduct
    The rule text in the First Request for Comment did not include a 
section setting forth specific conduct that would expressly be 
prohibited. One commenter suggested that the MSRB add such language to 
the rule and that such prohibitions could largely be drawn from the 
specifically prohibited conduct under Rule G-42.\84\ In the Second 
Request for Comment, the MSRB proposed a new section to draft Rule G-46 
that would prohibit solicitor municipal advisors from: (i) receiving 
excessive compensation and (ii) delivering a materially inaccurate 
invoice. Additionally, the MSRB sought comment as to how to determine 
that compensation for a solicitation is excessive.
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    \84\ See id. at 3-4.
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    In response to the Second Request for Comment, one commenter stated 
that the provision to prohibit excessive compensation should be 
excluded noting, in part, the challenges in determining the appropriate 
compensation a solicitor municipal advisor should earn. In the 
alternative, this commenter suggested that the MSRB should provide 
guidance as to how excessive compensation should be determined.\85\ In 
response, the MSRB determined not to include in the proposed rule 
change the prohibition on excessive compensation. The MSRB notes that, 
solicitor municipal advisors are already subject to a general duty of 
fair dealing under Rule G-17 and unlike the clients of non-solicitor 
municipal advisors, solicitor municipal advisor clients are not 
municipal entities and investors, but instead are themselves regulated 
financial professionals. As a result, the MSRB believes that the 
potential benefits associated with such a prohibition may not be 
sufficiently outweighed by the burdens associated with determining and 
demonstrating compliance. Additionally, the proposed rule change 
reflects the addition of another specified prohibition pertaining to 
third-party payments, which was added in response to a comment 
regarding the use of solicitors and the establishment of a more level 
playing field between solicitor municipal advisors and dealers 
(discussed further below).
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    \85\ See 3PM II at 1-3.
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Documentation of the Relationship
    In the First Request for Comment, draft Rule G-46 proposed to 
require solicitor municipal advisors to document their relationship and 
would have required such documentation to include relatively limited 
content--in part to align with standards under the IA Marketing 
Rule.\86\ One commenter stated that the draft requirement to document 
the solicitor municipal advisor's engagement should be more aligned 
with a non-solicitor municipal advisor's obligation to document its 
municipal advisory relationship under Rule G-42 (which includes 
additional terms not set forth in the First Request for Comment).\87\ 
In the Second Request for Comment, the MSRB added two additional draft 
elements that would be required to be included in such engagement, both 
of which are required under Rule G-42 and pertain to termination of the 
relationship. The MSRB also sought comment as to whether additional 
information regarding the terms of such documentation may be warranted.
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    \86\ 17 CFR 275.206(4)-1.
    \87\ See SIFMA I at 3.
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    In response to the Second Request for Comment, while one commenter 
stated that the draft text of draft Rule G-46 adequately captured the 
description of the compensation arrangement,\88\ another commenter 
stated that the MSRB should provide additional information regarding 
the terms and amount of compensation to be received by a solicitor (a 
term that would be required to be included in the documentation of the 
relationship).\89\
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    \88\ See SIFMA II at 8.
    \89\ See 3PM II at 3.
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    The proposed rule change currently reflects a new Supplementary 
Material .04, which provides additional detail regarding written 
disclosures pertaining to a solicitor's compensation. This 
supplementary material is designed to inform a solicitor municipal 
advisor's compliance with both its documentation obligation under 
Proposed Rule G-46(c)(ii) and its disclosure obligation under Proposed 
Rule G-46(e)(i)(D).
Required Disclosures
    In the First Request for Comment, the MSRB proposed to require 
solicitor municipal advisors to disclose to solicited entities certain: 
role and compensation disclosures; conflicts disclosures; and solicitor 
client disclosures. Commenters did not oppose a draft obligation to 
make such disclosures but suggested that the MSRB modify them in some 
respects. One commenter suggested that the MSRB could better align the 
types of required disclosures with those required by non-solicitors 
under Rule G-42.\90\ Another stated that the MSRB should require 
solicitors to make certain disclosures to their clients regarding their 
conflicts of interest and legal and disciplinary history.\91\ This 
commenter also suggested that solicitor municipal advisors should be 
permitted to customize their role-based disclosures.\92\
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    \90\ See NAMA I at 1-2.
    \91\ See 3PM I at 6-7.
    \92\ See id. at 1.
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    Commenters also suggested that the MSRB align the timing and manner 
of required disclosures with the standards set forth under Rule G-42 
\93\ and requested guidance from the MSRB as to what qualifies as 
evidence that disclosure was provided in the manner set forth under the 
draft rule. While one commenter supported an option to make oral 
disclosures if the MSRB were to provide additional guidance in this 
area, another commenter was not supportive of such an option.\94\ 
Finally, one commenter suggested a bifurcated approach to disclosures 
for solicited entities, which would permit the solicitor municipal 
advisor to provide an initial set of disclosures to the person 
solicited followed by a second set of disclosures at the time of 
capital allocation that would increase the likelihood that an official 
with the authority to bind the solicited entity by contract would see 
such disclosures.\95\
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    \93\ See SIFMA I at 4.
    \94\ See id. at 11.
    \95\ See 3PM I at 3.
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    In the Second Request for Comment, the MSRB revised the timing and 
manner of such disclosures in response to comments received and also 
sought comment as to whether disclosures should be permitted to be 
provided orally, consistent with the IA Marketing Rule.\96\ In 
response, commenters generally indicated that the revised timing and 
manner of disclosures was workable and less burdensome than the 
approach initially proposed.\97\ However, one commenter requested 
clarification regarding whether, in the case of an indirect 
solicitation, the disclosure requirement would be met if a solicitor 
municipal advisor presents the requisite disclosures to an intermediary 
to be passed on to an official of the solicited entity.\98\ 
Additionally, two commenters

[[Page 9575]]

stated that disclosures should be provided in writing,\99\ while 
another commenter responded that disclosures should be permitted to be 
provided orally only if the MSRB can provide proper guidance as how to 
meet a solicitor municipal advisor's books and records 
obligations.\100\
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    \96\ 17 CFR 275.206(4)-1.
    \97\ See 3PM II at 7-8.
    \98\ See 3PM II at 3-4.
    \99\ See NAMA II at 2 and SIFMA II at 8.
    \100\ See 3PM II at 6.
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    In response to these comments, the proposed rule change currently 
reflects a slightly modified approach as compared to that set forth in 
the Second Request for Comment. As discussed above, a solicitor 
municipal advisor would be expected to provide the first set of 
disclosures for a solicited entity to the person actually solicited. 
For indirect solicitations, the second set of disclosures must be 
presented to an official of the solicited entity. However, the proposed 
rule change expressly provides that an intermediary would be permitted 
to pass such disclosures on to such official. After reviewing the 
comments received, the MSRB determined to retain the requirement that 
all disclosures be provided in writing.
    The MSRB believes that it is important that all solicited entities 
receive consistent role disclosures from the solicitor municipal 
advisors that solicit them. Accordingly, the proposed rule change 
requires solicitor municipal advisors to use identical language in 
connection with their role disclosures. The MSRB also believes that as 
registered municipal advisors, solicitor municipal advisors have been 
required to keep appropriate books and records in order to show 
compliance with other relevant MSRB rules and that they can leverage 
similar processes and experiences to determine what evidence would 
establish that disclosures were made in the manner required by the 
proposed rule change. If compliance resources would assist solicitor 
municipal advisors in their compliance efforts, the MSRB is prepared to 
produce such resources as solicitor municipal advisors begin to 
implement new policies and procedures to comply with Proposed Rule G-
46, if approved by the Commission.\101\
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    \101\ Additionally, if the proposed rule change is approved, the 
MSRB expects to revise the G-17 Excerpt for Solicitor Municipal 
Advisors to reflect the adoption of Proposed Rule G-46.
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Clarification of Solicitor Municipal Advisory Activity
    Commenters asked the MSRB to provide guidance on certain areas 
relevant to the definition of a municipal advisor, including when the 
solicitation of an obligated person would cause one to be a solicitor 
municipal advisor as well as when the solicitation of an intermediary 
of a municipal entity would cause one to be a solicitor municipal 
advisor.
    The MSRB believes that the more appropriate regulator to whom to 
direct such comments may be the Commission. Commenters may wish to 
consult the Commission's set of Frequently Asked Questions pertaining 
to registration as a municipal advisor.\102\
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    \102\ See SEC, Registration of Municipal Advisors Frequently 
Asked Questions, available at: SEC.gov Registration of Municipal 
Advisors Frequently Asked Questions.
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The Use of Solicitors
    One commenter emphasized the importance of creating a level playing 
field between dealers and municipal advisors, noting that under Rule G-
38, on solicitation of municipal securities business, dealers are 
currently prohibited from providing payment to unaffiliated persons for 
a solicitation of municipal securities business on behalf of the 
dealer.\103\ This commenter suggested that a similar standard should 
apply with respect to solicitor municipal advisors, such that Proposed 
Rule G-46 expressly should prohibit solicitor municipal advisors from 
paying other third-party solicitors to solicit municipal advisory 
business on their behalf. This commenter further suggested that, if the 
MSRB deemed not to extend this prohibition to solicitor municipal 
advisors, it should permit both dealers and municipal advisors to pay 
solicitor municipal advisors for their third-party solicitation 
efforts; provided, that such solicitors are subject to comprehensive 
pay-to-play regulation.
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    \103\ See SIFMA II at 2-3.
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    As described above, Exchange Act Sections 15B(e)(4) and 15B(e)(9) 
\104\ permit municipal advisors to engage in certain solicitation 
activities on behalf of third-party dealers, municipal advisors, and 
investment advisers. MSRB Rule G-38 (which pre-dates the amendments to 
the Exchange Act that brought municipal advisors under the MSRB's 
regulatory jurisdiction) prohibits dealers from paying third parties 
for such solicitation activities. Non-solicitor municipal advisors are 
similarly subject to a restriction on paying third parties for 
solicitation activities on their behalf, subject to an exception.\105\ 
Unlike dealers, non-solicitor municipal advisors are permitted to pay 
reasonable fees to another registered municipal advisor for such 
solicitation.
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    \104\ 15 U.S.C 78o-4(e)(4) and 15 U.S.C. 78o-4(e)(9).
    \105\ See Rule G-42(e)(i)(E).
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    In response to commenters and as discussed above, the proposed rule 
change would extend a similar prohibition (and related narrow 
exception) to solicitor municipal advisors. Because registered 
municipal advisors are permitted to engage in both solicitation and 
non-solicitation municipal advisory activities, the MSRB believes that 
this is the appropriate approach to harmonization among regulated 
entities. The MSRB notes that, unlike dealers, municipal advisors owe 
their municipal entity clients a fiduciary duty, which may mitigate any 
potential risk associated with municipal advisor use of third-party 
solicitors. As a result, the MSRB believes that the current approach 
taken in the proposed rule change represents an appropriate approach to 
protecting municipal entities and obligated persons.
Books and Records
    In the First Request for Comment, the MSRB proposed to include the 
books and records obligations relevant to draft Rule G-46 in the text 
of draft Rule G-46 itself. In the Second Request for Comment, the MSRB 
explained that it proposed to take a similar approach with respect to 
future MSRB rules or rule amendments. A number of commenters opposed 
this standard and urged the MSRB to move the relevant books and records 
requirements into Rule G-8, on books and records, as regulated entities 
are more accustomed to consulting that rule to identify their relevant 
books and records obligations.\106\ As discussed above, the proposed 
rule change proposes to amend Rule G-8 to take such an approach.
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    \106\ See SIFMA I at 4, NAMA II at 2 and SIFMA II at 4-5.
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Inadvertent Solicitations
    In the First Request for Comment and the Second Request for 
Comment, the MSRB did not propose a safe harbor for inadvertent 
solicitations. One commenter recommended that the MSRB consider such a 
safe harbor provision, modeled off of the safe harbor provision in Rule 
G-42.\107\ The MSRB determined not to include such a provision in the 
proposed rule change because even a one-time solicitation could result 
in a solicitor municipal advisor's client getting hired and providing 
services to the municipal entity or obligated person solicited. As a 
result, the MSRB believes that it is important that the solicited 
entity has

[[Page 9576]]

all of the protections afforded by the proposed rule change and that 
all of the other obligations under Rule G-46 are met. The MSRB notes 
that the proposed rule change would apply only to certain solicitations 
on behalf of unaffiliated dealers, municipal advisors or investment 
advisers. As a result, if a firm solicits an entity only on its own 
behalf or even on behalf of an entity that controls, is controlled by, 
or is under common control with the soliciting firm, the proposed rule 
change would not apply.
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    \107\ See SIFMA I at 6 and SIFMA II at 4.
---------------------------------------------------------------------------

Other
    In the First Request for Comment and the Second Request for 
Comment, the MSRB inquired whether a municipal advisor client should be 
required to make a bona fide effort to ascertain whether the solicitor 
municipal advisor has provided to solicited entities the required 
disclosures related to a municipal advisor client. The MSRB also sought 
comment as to whether there would be value to solicited entities 
receiving disclosures regarding the payments made by one solicitor 
municipal advisor to another to facilitate a solicitation.
    With respect to the bona fide effort requirement, commenters were 
not supportive of such a requirement \108\ and the proposed rule change 
does not impose this obligation on municipal advisor clients of 
solicitor municipal advisors. With respect to the comment regarding 
payments made by one solicitor municipal advisor to another, commenters 
indicated that such disclosures are important and supported an 
obligation to require such disclosures.\109\ The MSRB subsequently 
refined draft Rule G-46 to require the disclosure of such payments. 
This obligation appears in Proposed Rule G-46(e)(i)(E).
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    \108\ See 3PM I at 8 and 3PM II at 7.
    \109\ See SIFMA II at 9 and 3PM II at 7.
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    One commenter suggested that reference to obligated persons should 
be removed from the definitions of solicitor municipal advisor and 
solicited entity, noting that they are not relevant for the purposes of 
the activity in which solicitors typically engage.\110\ Because the 
MSRB has an obligation to protect both municipal entities and obligated 
persons and because solicitor municipal advisors may (within the scope 
of their professional qualification activities) solicit obligated 
persons, the MSRB believes that it is important that the proposed rule 
change extend the same protections afforded to municipal entities under 
Proposed Rule G-46 to obligated persons as well.
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    \110\ See 3PM I at 4.
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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 [email protected]. Please include 
File Number SR-MSRB-2023-02 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-2023-02. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MSRB-2023-02 and should be submitted on 
or before March 7, 2023.

    For the Commission, pursuant to delegated authority.\111\
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    \111\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-03060 Filed 2-13-23; 8:45 am]
BILLING CODE 8011-01-P