Document ID: SEC-2023-0401-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2023-04-11T04:00Z

[Federal Register Volume 88, Number 69 (Tuesday, April 11, 2023)]
[Notices]
[Pages 21729-21731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07502]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97255; File No. SR-MSRB-2023-01]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change 
Consisting of Amendments to MSRB Rule G-40, on Advertising by Municipal 
Advisors, and MSRB Rule G-8, on Books and Records

April 5, 2023.

I. Introduction

    On January 31, 2023, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule (the ``original proposed rule change'') 
consisting of amendments to MSRB Rule G-40 on advertising by municipal 
advisors (``Rule G-40''), and MSRB Rule G-8 on books and records 
(``Rule G-8'').\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See MSRB filing of original proposed rule change, available 
at https://msrb.org/sites/default/files/2023-01/MSRB-2023-01.pdf.
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    The original proposed rule change was published for comment in the 
Federal Register on February 14, 2023.\4\ The Commission received two 
comment letters on the original proposed rule change.\5\ On March 21, 
2023, the MSRB granted an extension of time for the Commission to act 
on the filing until May 15, 2023.\6\
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    \4\ Release No. 34-96840 (Feb. 8, 2023), 88 FR 9580 (Feb. 14, 
2023) (``Notice''). The comment period closed on March 7, 2023.
    \5\ See Letter to Secretary, Commission, from Leslie M. Norwood, 
Managing Director and Associate General Counsel, Securities Industry 
and Financial Markets Association, dated March 7, 2023 (``SIFMA 
Letter''); Letter to Secretary, Commission, from Susan Gaffney, 
Executive Director, National Association of Municipal Advisors, 
dated March 7, 2023 (``NAMA Letter'').
    \6\ See ``Extension of Time on File No. SR-MSRB-2023-01 to May 
15, 2023,'' available at https://msrb.org/sites/default/files/2023-03/MSRB-2023-01%20eot.pdf.
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    On April 4, 2023, the MSRB responded to the comments \7\ and filed 
Amendment No. 1 to the original proposed rule change (``Amendment No. 
1''). The text of Amendment No. 1 is available on the MSRB's 
website.\8\ The Commission is publishing this notice to solicit 
comments on Amendment No. 1 from interested persons.
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    \7\ See Letter from Saliha Olgun, Interim Chief Regulatory 
Officer, MSRB, to Secretary, Commission, dated April 4, 2023, 
available at https://msrb.org/sites/default/files/2023-04/MSRB-2023-01%20Comment%20Letter.pdf.
    \8\ Amendment No. 1 is available at https://msrb.org/sites/default/files/2023-04/MSRB-2023-01%20A-1.pdf.
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II. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Amendment

    As described further below, the MSRB filed Amendment No. 1 to 
respond to comments on the original proposed rule change, relating to: 
(1) the definition of ``testimonial;'' (2) non-client testimonials; (3) 
solicitor municipal advisors; (4) social media guidance; and (5) other 
clarifications to rule text and design.\9\
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    \9\ The MSRB stated that Amendment No. 1 does not alter or 
impact the analysis in the original proposed rule change's burden on 
competition or the statutory basis sections. See Amendment No. 1.
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A. Definition of Testimonial

    The MSRB noted that a commenter suggested that the term 
``testimonial'' be defined within the rule language itself.\10\ The 
MSRB responded, stating it would provide a definition of a 
``testimonial'' in Rule G-40 to avoid confusion with the term 
``testimonial'' as used in Rule 206-4(1) \11\ under the Investment 
Advisers Act of 1940 (``Advisers Act'').\12\ Specifically, the MSRB 
defined ``testimonial'' in amended Rule G-40(a)(iv)(G)(1) as ``a 
statement of a person's or entity's experience concerning the municipal 
advisor or concerning the municipal advisory services rendered by the 
municipal advisor.'' \13\ Furthermore, the MSRB also removed language 
from the original proposed rule change referring to the ``advice, 
analysis, report, or other services rendered by the municipal 
advisor.'' \14\ The MSRB concluded that replacing this language with 
``municipal advisory services'' in the definition of ``testimonial'' 
(and elsewhere in the original proposed rule change's rule text) 
provided greater clarity.\15\ The MSRB also made conforming numbering 
changes to the original proposed rule change's Rule G-40 revisions to 
accommodate the addition of the definition of ``testimonial'' to 
amended Rule G-40(a)(iv)(G)(1).\16\
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    \10\ NAMA Letter at 1-2; see also Amendment No. 1.
    \11\ 17 CFR 275.206(4)-1(b)(1).
    \12\ See Amendment No. 1; 15 U.S.C. 80b-1-80b-2.
    \13\ See Amendment No. 1.
    \14\ See id.
    \15\ See id.
    \16\ The MSRB also added a cross-reference to the new definition 
of ``testimonial'' in the original proposed rule change's Rule G-8. 
See id.
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    The MSRB stated that the revised rule text in amended Rule G-
40(a)(iv)(G)(2) provides that, if a municipal advisor's advertisement 
meets certain conditions, then a municipal advisor may, directly or 
indirectly, publish, circulate or distribute an advertisement which 
refers, directly or indirectly, to a testimonial.\17\ The MSRB posited 
that this definition addresses a comment requesting that Rule G-40 
include a definition of the term ``testimonial,'' but also a comment's 
suggestion that the rule ``include affirmative language that 
testimonials may be used if certain requirements are met.'' \18\ The 
MSRB also deleted a redundant phrase later in this subsection; 
specifically, amended Rule G-40(a)(iv)(G)(2)(b)(iv)(``the paid 
testimonial must include'').\19\
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    \17\ See id.
    \18\ NAMA Letter at 4; see also id.
    \19\ See Amendment No. 1.
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B. Non-Client Testimonials

    The MSRB noted that both commenters suggested that it would promote 
further harmonization with MSRB Rule G-21 (``Rule G-21''), on 
advertising by brokers, dealers, and municipal securities dealers, if 
municipal advisors were able to use testimonials by third parties.\20\ 
The MSRB stated that it will amend the original proposed rule change to 
permit municipal advisors to use testimonials from a third party, 
whether a person or entity, subject to the conditions set forth in 
proposed Amendment No. 1.\21\ The MSRB reasoned that, for example, 
analogous to Rule 206-4(1) \22\ under the Advisers Act,\23\ an 
advertisement of a municipal advisor that includes a testimonial would 
need to include a disclosure indicating whether the testimonial is from 
a current client or from someone who is not a current client.\24\ The 
MSRB wrote that it agreed with the Commission's belief that this type 
of disclosure would provide important context for weighing the 
relevance of the testimonial.\25\
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    \20\ See id.; NAMA Letter and SIFMA Letter.
    \21\ See Amendment No. 1.
    \22\ 17 CFR 275.206(4)-1(b)(1).
    \23\ 15 U.S.C. 80b-1-80b-2.
    \24\ See Amendment No. 1.
    \25\ See id.; see also Release No. IA-5653 (Dec. 22, 2020) (File 
No. S7-21-19), 86 FR 13024 (Mar. 5, 2021) (``IA Marketing Rule 
Adopting Release'') at 13048.
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C. Solicitor Municipal Advisors

    The MSRB stated that both commenters found the proposal to

[[Page 21730]]

establish a different standard for the use of testimonials by solicitor 
municipal advisors confusing.\26\ In response, the MSRB revised the 
original proposed rule change to create uniformity in the criteria for 
the use of testimonials by all municipal advisors.\27\ Specifically, 
the MSRB removed proposed language that would have permitted, subject 
to certain conditions, a solicitor municipal advisor to pay more than 
$1000 in total value in cash or non-cash compensation during the 
preceding 12 months for a testimonial.\28\ Additionally, the MSRB 
eliminated the proposed language in the original proposed rule change 
in Rules G-40 and G-8 concerning additional records to be maintained by 
a solicitor municipal advisor related to such payments.\29\ The MSRB 
concluded that these revisions in Amendment No.1 would prohibit any 
municipal advisor from providing any compensation to a person or 
entity, directly or indirectly, of more than $1000 in total value in 
cash or non-cash compensation during the preceding 12 months.\30\
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    \26\ See NAMA Letter and SIFMA Letter; see also Amendment No.1.
    \27\ See Amendment No.1.
    \28\ See id.
    \29\ See id.
    \30\ Correspondingly, the MSRB added the phrase ``directly or 
indirectly'' to the original proposed rule change's Rule G-8. See 
id.
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D. Social Media Guidance

    The MSRB wrote that both commenters suggested that the MSRB's 
``FAQs regarding the Use of Social Media under MSRB Rule G-21, on 
Advertising by Brokers, Dealers or Municipal Securities Dealers, and 
MSRB Rule G-40, on Advertising by Municipal Advisors'' (``social media 
guidance'') \31\ be updated to reflect the proposed amendments to Rule 
G-40.\32\
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    \31\ These frequently asked questions (``FAQs'') were filed with 
the Commission for immediate effectiveness. See Release No. 34-85222 
(Feb. 28, 2019), 84 FR 8132 (Mar. 6, 2019) (File No. SR-MSRB-2019-
04). These FAQs can be found on the MSRB's website at https://www.msrb.org/FAQs-regarding-Use-Social-Media-under-MSRB-Rule-G-21-Advertising-Brokers-Dealers-or-Municipal-0 (Aug. 23, 2019).
    \32\ See NAMA Letter and SIFMA Letter; see also Amendment No. 1.
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    The MSRB responded by proposing to amend its social media guidance 
to reflect the proposed amendments to Rule G-40 (inter alia, allowing 
the use of testimonials in municipal advisor advertisements, subject to 
certain conditions).\33\ The MSRB explained that the current social 
media guidance notes that, by paying for or soliciting positive 
comments from a third party, (i) a municipal advisor would be deemed to 
be entangled with those comments, and (ii) the posting of those third-
party comments on the municipal advisor's social media page would be 
deemed to be an advertisement by the municipal advisor that contains a 
testimonial.\34\ The MSRB stated that Amendment No.1's revisions to the 
social media guidance would make clear that the advertisement 
containing a testimonial would be permissible so long as the 
advertisement meets the requirements of Rule G-40 (including having the 
requisite disclosures).\35\
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    \33\ See Amendment No. 1.
    \34\ See id.
    \35\ See id.
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    In addition, the MSRB noted that the revised social media guidance 
would make clear that if a municipal advisor did not pay, directly or 
indirectly, for a testimonial, but liked, shared, or commented on a 
post from a third-party, the municipal advisor would be deemed to have 
adopted those comments and the posting of those third party comments on 
the municipal advisor's social media page would be deemed an 
advertisement that contains a testimonial.\36\ The MSRB concluded that 
the advertisement containing a testimonial would be permissible so long 
as the advertisement meets the requirements of Rule G-40 (including 
having the requisite disclosures).\37\ The MSRB also revised the social 
media guidance's footnotes with updated citations and conforming 
numbering changes.\38\
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    \36\ See id.
    \37\ See id.
    \38\ See id.
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E. Other Modifications to Rule Text

    As discussed further below, the MSRB also proposed other textual 
changes in Amendment No. 1 to provide additional clarity and facilitate 
compliance.\39\
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    \39\ See NAMA Letter at 4.
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i. Language in Rule G-40 Regarding Use of a Testimonial
    The MSRB stated that it revised the original proposed rule change 
to clarify that a municipal advisor may only use a testimonial if the 
person or entity providing the testimonial has the knowledge and 
experience to make a statement concerning their experience with the 
municipal advisor or with the municipal advisory services rendered by 
the municipal advisor.\40\
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    \40\ See Amendment No. 1.
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ii. Supplementary Material .03 to Rule G-40
    The MSRB added Supplementary Material .03 to Rule G-40 to the 
original proposed rule change, stating that this revision would clarify 
that, in order for a requisite disclosure in an advertisement to be 
clear and prominent (including that a testimonial is a paid 
testimonial), the disclosure must be at least as prominent in the 
advertisement as the testimonial.\41\ The MSRB also explained that this 
revision indicates that disclosures should appear close to the 
associated testimonial statement with the same prominence so that the 
statement and disclosures are read at the same time, rather than 
referring the reader to somewhere else in the advertisement to view the 
disclosures.\42\
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    \41\ See Amendment No. 1.
    \42\ See id.
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III. Date of Effectiveness of the Proposed Rule Change and Amendment 
No. 1

    As stated in the original proposed rule change, the MSRB will 
publish a regulatory notice no later than one month following the 
Commission's approval date, which will include an implementation date 
that shall be no later than three months following the Commission 
approval date.\43\
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    \43\ See Notice.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the filing as 
amended by Amendment No. 1 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-2023-01 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-2023-01. 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

[[Page 21731]]

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-2023-01 and should be submitted on or before April 26, 2023.

    For the Commission, pursuant to delegated authority.\44\
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    \44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-07502 Filed 4-10-23; 8:45 am]
BILLING CODE 8011-01-P