Document ID: SEC-2011-0254-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2011-02-28T05:00Z

[Federal Register Volume 76, Number 39 (Monday, February 28, 2011)]
[Notices]
[Pages 10926-10935]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4391]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63946; File No. SR-MSRB-2011-03]

 Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendments to Rule G-23, on Activities of 
Financial Advisors

February 22, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``the Act'' or ``the ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ notice is hereby given that on February 9, 2011, the 
Municipal Securities Rulemaking Board (``Board'' or ``MSRB'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB is filing with the SEC a proposed rule change consisting 
of (i) proposed amendments to Rule G-23 (activities of financial 
advisors) and (ii) a proposed interpretation of Rule G-23 (the 
``proposed interpretive notice''). The MSRB requests that the proposed 
rule change be made effective for new issues for which the Time of 
Formal Award (as defined in Rule G-34(a)(ii)(C)(1)(a)) occurs more than 
six (6) months after SEC approval to allow issuers of municipal 
securities time to finalize any outstanding transactions that might be 
affected by the proposed rule change.
    The text of the proposed rule change is available on the MSRB's Web 
site at http://www.msrb.org/Rules-and-Interpretations/SEC-Filings/2011-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the MSRB included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Board 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
    (a) Currently Rule G-23, on activities of financial advisors, sets 
forth the circumstances under which a broker, dealer, or municipal 
securities dealer (``dealer'') acting as a financial advisor to an 
issuer with respect to a new issue or issues of municipal securities 
(``dealer financial advisor'') may acquire all or any portion of such 
issue, directly or indirectly, from the issuer as a principal, or may 
act as agent for the issuer in arranging the placement of such issue, 
either alone or as a participant in a syndicate or other similar 
account formed for that purpose. For negotiated transactions, Rule G-
23(d)(i) requires that: (i) The dealer terminate the financial advisory 
relationship with regard to the issue and at or after such termination 
the issuer expressly consent in writing to such acquisition or 
participation; (ii) at or before such termination, the dealer disclose 
in writing to the issuer that there may be a conflict of interest in 
changing from the capacity of financial advisor to that of purchaser of 
or placement agent for the securities and the issuer expressly 
acknowledges in writing to the dealer receipt of such disclosure; and 
(iii) the dealer disclose in writing to the issuer at or before such 
termination the source and anticipated amount of all remuneration to 
the dealer with respect to such issue and the issuer expressly 
acknowledge in writing to the dealer receipt of such disclosure. With 
respect to issues sold by competitive bid, Rule G-23(d)(ii) provides 
that a financial advisor must obtain the issuer's written consent prior 
to making a bid for the issue.
    The limitations of Rule G-23(d) also apply to affiliates of the 
dealer financial advisor; however, they do not apply to purchases by 
dealer financial advisors of securities from an underwriter, either for 
the account of the dealer financial advisor or for the account of 
customers of the dealer financial advisor, except to the extent that 
such purchases are made to contravene the purpose and intent of the 
rule.
    In addition, Rule G-23(e) provides that a dealer that has a 
financial advisory relationship with respect to a new issue of 
municipal securities may not act as agent for the issuer in remarketing 
such issue unless the dealer has disclosed in writing to the issuer: 
(i) That there may be a conflict of interest in acting as both 
financial advisor and remarketing agent for the securities; and (ii) 
the source and basis of the remuneration the dealer could earn as 
remarketing agent on such issue. The dealer must receive from the 
issuer its express acknowledgement, in writing, of its receipt of such 
disclosure and its consent to the financial advisor acting in both 
capacities along with the source and basis of remuneration.
    The proposed amendments would, subject to the exceptions described 
below, (i) prohibit a dealer financial advisor with respect to the 
issuance of municipal securities from acquiring all or any portion of 
such issue directly or indirectly, from the issuer as principal, or 
acting as agent for the issuer in arranging the placement of such 
issue, either alone or as a participant in a syndicate or other similar 
account formed for that purpose; (ii) apply the same prohibition to any 
dealer controlling, controlled by, or under common control with the 
dealer financial advisor; and (iii) prohibit a dealer financial advisor 
from acting as the remarketing agent for such issue.
    The proposed amendments would not prohibit: (i) A dealer financial 
advisor from placing an issuer's entire issue with another governmental 
entity, such as a bond bank, as part of a plan of financing by such 
entity for or on behalf of the dealer financial advisor's issuer 
client; \3\ (ii) a dealer financial advisor from serving as successor 
remarketing agent to an issuer for the same issue with respect to which 
it provided financial advisory services if the financial advisory 
relationship with the issuer had been terminated for at least

[[Page 10927]]

one (1) year; or (iii) a dealer financial advisor from purchasing such 
securities from an underwriter, either for its own trading account or 
for the account of its customers, except to the extent that such 
purchase was made to contravene the purpose and intent of the rule.
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    \3\ The exception would only apply if the dealer financial 
advisor did not receive compensation for the placement of such issue 
and the dealer financial advisor was not compensated as an 
underwriter in connection with any related transaction undertaken by 
the governmental entity with which such issue is placed.
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    The proposed amendments would change references in Rule G-23 to ``a 
new issue or issues of municipal securities'' to ``the issuance of 
municipal securities'' to conform the language of the rule to the 
language used in Section 15B of the Act, as amended by the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (``Dodd-Frank''). This 
change in language is not intended to change the meaning or operation 
of Rule G-23.
    The proposed amendments would also amend Rule G-23(b) to remove the 
requirement that financial advisory services be provided for 
compensation. This change is also proposed to conform the rule to the 
provisions of Section 15B of the Act as amended by Dodd-Frank, which 
does not require that financial advisors receive compensation in order 
to be considered ``municipal advisors.''
    The proposed interpretive notice would provide guidance on when a 
dealer that provides advice to an issuer would be considered to be 
``acting as an underwriter'' for purposes of Rule G-23(b), rather than 
a financial advisor. Under the proposed guidance, a dealer providing 
advice to an issuer with respect to the issuance of municipal 
securities (including the structure, timing, and terms of the issue and 
other similar matters, such as the investment of bond proceeds, a 
municipal derivative, or other matters integrally related to the issue) 
generally would not be viewed as a financial advisor for purposes of 
Rule G-23, if such advice is rendered in its capacity as underwriter 
for such issue and the dealer clearly identifies itself as an 
underwriter from the earliest stages of its relationship with the 
issuer with respect to that issue. Nevertheless, a dealer's subsequent 
course of conduct (e.g., representing to the issuer that it is acting 
only in the issuer's best interests, rather than as an arm's length 
counterparty, with respect to that issue) could cause the dealer to be 
considered a financial advisor with respect to such issue and such 
dealer would be precluded from underwriting that issue by Rule G-23(d).
    The proposed rule change resulted from a concern that a dealer 
financial advisor's ability to underwrite the same issue of municipal 
securities, on which it acted as financial advisor, presented a 
conflict that is too significant for the existing disclosure and 
consent provisions of Rule G-23 to cure. Even in the case of a 
competitive underwriting, the perception on the part of issuers and 
investors that such a conflict might exist was sufficient to cause 
concern that permitting such role switching was not consistent with ``a 
free and open market in municipal securities,'' which the Board is 
mandated to perfect.
    The imposition by Dodd-Frank of a fiduciary duty upon municipal 
advisors,\4\ which includes financial advisors, made the existence of 
such a conflict a greater concern.
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    \4\ Dodd-Frank amended Section 15B(c)(1) of the Act to provide 
that:
    A municipal advisor and any person associated with such 
municipal advisor shall be deemed to have a fiduciary duty to any 
municipal entity for whom such municipal advisor acts as a municipal 
advisor, and no municipal advisor may engage in any act, practice, 
or course of business which is not consistent with a municipal 
advisor's fiduciary duty or that is in contravention of any rule of 
the Board.
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2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2) of the Act, 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.

    Section 15B(b)(2)(C) of the Act, provides that the rules of the 
MSRB shall:

Be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in municipal securities and 
municipal financial products, to remove impediments to and perfect 
the mechanism of a free and open market in municipal securities and 
municipal financial products, and, in general, to protect investors, 
municipal entities, obligated persons, and the public interest.

    The proposed rule change is consistent with Section 15B(b)(2) of 
the Act because it would prevent conflicts of interest, whether actual 
or perceived, caused by a dealer financial advisor serving as 
underwriter or placement agent for an issue of municipal securities for 
which it provided financial advisory services. Accordingly, the 
proposed rule change would help protect municipal entities and help to 
perfect the mechanism of a free and open market in municipal securities 
to the benefit of investors, municipal entities, and the public 
interest.
    Section 15B(b)(2)(L)(iv) of the Act 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 proposed rule change would principally affect dealer financial 
advisors that are not small municipal advisors. Furthermore, it is 
likely that those dealer financial advisors that are small municipal 
advisors primarily serve as financial advisors to issuers of municipal 
securities that do not access the capital markets frequently and, when 
they do so, issue securities in small principal amounts. Those issuers 
may be less likely than larger, more frequent issuers to understand the 
conflict presented when their financial advisors also underwrite their 
securities. Accordingly, while the proposed rule change might burden 
some small municipal advisors, any such burden is outweighed by the 
need to protect their issuer clients.

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

    The MSRB does not believe that the proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change would 
not burden competition among dealer financial advisors since it would 
apply equally to all such dealer financial advisors. In some cases the 
proposed rule change could reduce the number of dealers competing to 
underwrite an issuer's issue of municipal securities, if the issuer has 
employed a dealer financial advisor that is prohibited by the proposed 
rule change from seeking to underwrite such issuance. It could also 
reduce the number of dealers competing to serve as financial advisor 
for an issuer's issuance of municipal securities, if such dealers 
wished to act as underwriter or placement agent for such issue. 
Nevertheless, the MSRB does not believe that any such burden on 
competition is greater than is necessary or appropriate in furtherance 
of the purposes of the Exchange Act, because such burden is outweighed 
by the need to protect issuers as described above.

[[Page 10928]]

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

    On August 17, 2010, the MSRB requested comment on the portion of 
the proposed rule change consisting of amendments to Rule G-23.\5\ A 
copy of the Notice can be viewed at http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2010/2010-27.aspx?n=1. The MSRB 
received 73 comment letters. An index to the comment letters received 
in response to the Notice can be viewed at http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2010/2010-27.aspx?n=1, and 
copies of the comment letters received in response to the Notice can 
also be accessed through that Web site. In addition, these documents, 
submitted with MSRB's filing as Exhibits 2a, 2b, and 2c, respectively, 
can be viewed at the Commission's Web site at: http://www.sec.gov/rules/sro/msrb.shtml, under the heading SR-MSRB-2011-03. A discussion 
of the comments and the MSRB's responses follows.
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    \5\ See MSRB Notice 2010-27 (August 17, 2010) (``Notice''). The 
changes proposed to be made to Rule G-23 that are designed to 
conform the language of the rule to the language used in Section 15B 
of the Act, as described above, were not the subject of prior public 
comment. In addition, the portion of the proposed rule change that 
consists of the proposed interpretive notice was not the subject of 
prior public comment.
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    In its request for comment, the MSRB posed the following questions:
    1. Should a dealer be precluded for a specific timeframe from 
entering into a financial advisory relationship with an issuer after 
serving as an underwriter on one of the issuer's prior offerings of 
securities?
    2. If the MSRB were to amend Rule G-23 to prohibit dealers from 
serving as underwriter on transactions for which they have served as 
financial advisor to the issuer, should there be an exception for 
competitively bid transactions? Would it matter if the notice of sale 
was made available 5-7 business days before a competitively bid 
transaction to allow additional time for other competing firms to 
conduct due diligence? Should a financial advisor be allowed to bid in 
a competitively bid transaction in which a failed bid had occurred? How 
would the situation be handled in which there is a failed bid and the 
financial advisor cannot step in to buy the bonds because of the 
prohibition? Is this a common occurrence?
    3. Are there small and/or infrequent issuers that will be 
negatively affected by the proposed prohibition? What are the 
alternatives and costs for such issuers should the MSRB adopt the 
proposed draft rule amendment?
    4. Is it appropriate for a dealer to serve as financial advisor to 
an issuer at the same time that it serves as underwriter on a separate 
issue for the same issuer?
    5. As it relates to current practices, are there instances in 
competitively bid transactions in which a financial advisor should 
resign in order to ``officially'' bid on a competitive issuance 
transaction as an underwriter? Is there ever a time when the financial 
advisor does not conduct the bid process for the issuer, such as the 
use of electronic bidding platforms where the process of collecting 
bids is done by a third party on behalf of the issuer? Is it an 
uncommon practice for the bid process to be handled internally by the 
issuer?
    6. In the context of a primary offering, should the exception found 
in Rule G-23(d)(iii) be limited to situations in which a financial 
advisor purchases bonds from underwriters who won a competitive bid for 
the bonds in which multiple bids were received?
    7. In competitively bid transactions, are there situations where 
the issuer may hire a financial advisor to serve on a specific issue 
and then, at some point, hire a second financial advisor to oversee the 
competitive bid process in order to allow the original financial 
advisor to bid on the issue?
Discussion of Comment Letters
    The comments are summarized by topic as follows:
Conflicts of Interest
    A trade association for non-dealer financial advisors stated that 
there is an unacceptable and/or inherent conflict of interest when a 
dealer financial advisor for an issue becomes an underwriter for the 
same issue.\6\ An association for finance officers of State and local 
governments noted that it has encouraged the MSRB to adopt changes to 
the rule to prohibit such role switching for many years because of the 
conflicts of interest and as a caution to issuers.\7\ An issuer stated 
that hiring non-dealer financial advisors provides ``greater assurance 
of conflict-free advice.'' \8\ A non-dealer financial advisory service 
to small and medium sized local governments and school districts 
stated, ``[T]he roles and objectives of issuers and underwriters are so 
clearly diametrically opposed that the conflict of interest in an 
underwriter acting as financial advisor to an issuer can never be 
overcome.'' \9\ Another non-dealer financial advisory firm noted that 
the possibility of conflicts of interest are real and, in fact, 
frequently arise when firms are allowed to serve as both financial 
advisor and underwriter on a transaction.\10\
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    \6\ See National Association of Independent Public Finance 
Advisors, Letter from Steven F. Apfelbacher, President dated 
September 30, 2010 (``NAIPFA Letter''); see also Ehlers & 
Associates, Letter from Michael C. Harrigan, Chairman/Senior 
Financial Advisor dated September 30, 2010 (``Ehlers Letter''); 
Independent Bond & Investment Consultants LLC, Letter from William 
N. Lindsay, Director and Mark N. Chapman, Director dated September 
30, 2010 (``IBIC Letter''); Munistat Services, Inc., Letter from 
Robert F. Sikora, President dated September 30, 2010 (``Munistat 
Letter''); Portland, Oregon, Office of Management and Finance, 
Letter from Eric H. Johansen, Treasurer dated September 29, 2010 
(``Portland Letter''); Specialized Public Finance Inc., Letter from 
Garry R. Kimball, President dated September 30, 2010 (``Specialized 
Public Finance Letter''); and Springsted Incorporated, Letter from 
Kathleen A. Aho, President dated September 29, 2010 (``Springsted 
Letter'').
    \7\ See Government Finance Officers Association, Letter from 
Susan Gaffney, Director Federal Liaison Center dated September 30, 
2010 (``GFOA Letter'').
    \8\ See Portland, supra note 6.
    \9\ See Munistat Letter, supra note 6.
    \10\ See Lewis Young Robertson & Burningham, Inc., Letter from 
Scott J. Robertson, Principal dated September 22, 2010 (``Lewis 
Young Letter'').
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    The GFOA Letter described GFOA's Best Practices \11\ as the basis 
for its response and noted that issuers should be aware of and avoid 
the conflicts of interest that arise when a financial advisor resigns 
to become the underwriter on a transaction. The GFOA Best Practices 
provide that ``issuers must keep in mind that the roles of the 
underwriter and the financial advisor are separate, adversarial roles 
and cannot be provided by the same party.'' One issuer noted that 
allowing a dealer financial advisor to underwrite a negotiated issue 
stands in direct conflict with the GFOA Best Practices and two issuers 
provided form letters that expressed their support of the GFOA Best 
Practices.\12\
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    \11\ See GFOA Best Practice--Selecting and Managing the Method 
of Sale of State and Local Government Bonds (1994 and 2007) (DEBT); 
GFOA Best Practice--Selecting Financial Advisors (2008) (DEBT); and 
GFOA Best Practice--Selecting Underwriters for Negotiated Bond Sales 
(2008) (DEBT) (``GFOA Best Practices'').
    \12\ See Copperas Cove, Texas, Letter from Andrea Gardner, City 
Manager dated September 29, 2010 (``Copperas Cove Letter''); 
Georgetown, Texas, Letter from Micki Rundell, Chief Financial 
Officer dated September 8, 2010 (``Georgetown, Texas Letter''); and 
Portland Letter, supra note 6.
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    One issuer provided an example of a dealer financial advisor 
requesting that the city sign a revised agreement permitting the dealer 
to temporarily terminate its financial advisory relationship so that it 
could provide underwriting services. The revised agreement provided 
that, ``It is necessary to point out that such an action could,

[[Page 10929]]

under certain circumstances, create a conflict of interest.'' \13\ The 
issuer stated that, as an infrequent issuer, it did not understand the 
extent of the conflict inherent in such role switching or the 
availability of other options to market its bonds. The issuer further 
noted that the proposed amendments would assure that issuers receive 
unbiased advice regarding the structure of their issues and the 
approach to marketing their bonds. One non-dealer financial advisory 
firm noted, ``Most issuers from our markets would be unable to provide 
comments because they are not clear on the difference'' between non-
dealer and dealer financial advisors.\14\ Another advisory firm stated 
that the practice of role switching ``deprives an issuer of the 
unbiased, independent advice it sought when originally retaining a 
financial advisor.'' \15\
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    \13\ See Osage Beach, Missouri, Letter from Karri Bell, City 
Treasurer dated August 26, 2010 (``Osage Beach Letter'').
    \14\ See Ehlers Letter, supra note 6.
    \15\ See Columbia Capital Management, LLC, Letter from Dennis 
Lloyd, President dated September 29, 2010 (``Columbia Capital 
Letter'').
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    Commenters against all or portions of the proposed amendments 
suggested there cannot be a one size fits all approach in the municipal 
market \16\ and stated that they are unaware of any evidence or history 
of abuse that the proposed rule is designed to prevent.\17\ One 
commenter stated, ``We do not see abuses or issues in the marketplace 
related to Rule G-23 and, if abuses or specific concerns exist, would 
like to see them highlighted so that we can better understand the 
rationale behind the Securities and Exchange Commission's request for 
the MSRB to consider changes to this rule.'' \18\ The commenter further 
argued that there is existing regulation under Rule G-17 that would 
apply to any situation in which a dealer is not acting in a fair and 
appropriate manner and that Rule G-23 is ``an appropriately drafted 
rule that is serving the function that it was intended to serve.''
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    \16\ See George K. Baum & Company, Letter from Robert K. Dalton, 
Vice Chairman dated September 29, 2010 (``Baum Letter''); Bond 
Dealers of America, Letter from Mike Nicholas, Chief Executive 
Officer dated September 30, 2010 (``BDA Letter''); D.A. Davidson & 
Co., Letter from William A. Johnstone, President and Chief Executive 
Officer dated September 29, 2010 (``D.A. Davidson Letter''); and 
J.J.B. Hilliard, W.L. Lyons, LLC, Letter from Ronald J. Dieckman, 
Director Public Finance and Municipal Bonds dated September 30, 2010 
(``Hilliard Letter'').
    \17\ See Robert W. Baird & Co. Incorporated, Letter from Charles 
M. Weber, Associate General Counsel dated September 29, 2010 
(``Baird Letter''); Piper Jaffray & Co., Letter from Frank Fairman, 
Managing Director, Head of Public Finance Services, and Rebecca 
Lawrence, Assistant General Counsel, Principal dated September 29, 
2010 (``Piper Letter''); RBC Capital Markets Corporation, Letter 
from Christopher Hamel, Head, Municipal Finance dated September 30, 
2010 (``RBC Letter''); and Securities Industry and Financial Markets 
Association, Letter from Leslie M. Norwood dated September 30, 2010 
(``SIFMA Letter'').
    \18\ See Piper Letter, supra note 17.
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    A trade association for securities firms and banks stated, ``Rule 
G-23 represents a comprehensive and balanced approach to potential 
conflicts of interest.'' \19\ Another commenter noted ``municipal 
clients clearly understand the potential conflict of interest that may 
exist when a financial advisor serves as underwriter'' and that such 
clients are generally aware of GFOA Best Practices ``which advise them 
of the inherent conflict of interest in allowing a financial advisor to 
resign in order to serve as underwriter.'' \20\ Another commenter 
argued, ``To suggest that an issuer is incapable of understanding an 
arrangement it is entering into is always a dangerous concept. Freedom 
of choice is an essential element in the healthy functioning of the 
financial markets to maximize credit availability.'' \21\ A bank 
commenter stated, ``In terms of negotiated financings, Rule G-23 should 
remain unchanged since the Rule currently in force does prevent 
conflicts of interest.'' \22\ An issuer stated, ``We fully comprehend 
the duties owed to us by a dealer financial advisor.'' \23\ The trade 
association argued that the provisions that allow a dealer financial 
advisor to serve as underwriter on the same transaction are rarely 
relied upon by dealers.\24\
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    \19\ See SIFMA Letter, supra note 17; see also BDA Letter, supra 
note 16; BMO Capital Markets GKST Inc., Letter from Robert J. 
Stracks, Counsel dated September 30, 2010 (``BMO Letter''); Eastern 
Bank Capital Markets, Letter from James N. Fox, Senior Vice 
President and Managing Director dated September 29, 2010 (``Eastern 
Bank Letter''); Fulbright & Jaworski L.L.P., Letter from Fredric A. 
Weber dated September 30, 2010 (``Fulbright Letter''); and RBC 
Letter, supra note 17.
    \20\ See Baird Letter, supra note 17.
    \21\ See BMO Letter, supra note 19.
    \22\ See Eastern Bank Letter, supra note 19.
    \23\ See Denver, Colorado, Department of Finance, Letter from 
R.O. Gibson, Director of Financial Management dated September 29, 
2010 (``Denver Letter'').
    \24\ See SIFMA Letter, supra note 17.
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    MSRB Response. The MSRB shares the concern of those commenters who 
stated that Rule G-23 permits inherent conflicts of interest, which are 
not cured by the disclosure and waiver provisions of the rule. While 
underwriters have a duty of fair dealing to issuers under Rule G-
17,\25\ they also have a duty to investors, whose interests are 
generally adverse to those of issuers. A financial advisor's sole duty 
is to its issuer client. The MSRB believes the proposed amendments will 
protect municipal entities, as the MSRB is mandated to do by Dodd-
Frank, by preventing the perceived and actual conflicts of interest 
that arise under the existing rule.
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    \25\ See Reminder Notice on Fair Practice Duties to Issuers of 
Municipal Securities, MSRB Notice 2009-54 (Sept. 29, 2009), 
reprinted in MSRB Rule Book.
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Fiduciary Duty Concerns
    Commenters in favor of the proposed amendments to Rule G-23 noted 
that certain sections of Rule G-23 should be eliminated or revised to 
ensure compliance with the provisions of Dodd-Frank.\26\ One commenter 
\27\ noted that Dodd-Frank ``clearly and concisely defines the type of 
advice that a Municipal Advisor provides, and it does so for the 
purpose of delineating who owes a fiduciary duty to the issuer of 
municipal debt. In so doing, the Act provides an exception for brokers, 
dealers or municipal securities dealers serving as underwriters.'' \28\ 
Another commenter argued that any rulemaking should make a clear 
distinction between a financial advisor and an underwriter.\29\ One 
commenter stated that the definition of ``underwriter'' in Section 
2(a)(11) of the Securities Act of 1933 ``does not contemplate at all 
that underwriters will provide `advice' to issuers.'' \30\ Another 
commenter stated, ``As presently written, Rule G-23 allows underwriters 
to provide substantially the same `advice' as a financial advisor which 
is not consistent'' with Dodd-Frank.\31\
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    \26\ See Fieldman, Rolapp & Associates, Letter from Thomas M. 
DeMars, Managing Principal dated September 30, 2010 (``Fieldman 
Letter''); Fiscal Advisors & Marketing, Inc., Letter from John C. 
Shehadi, Chairman, et al. dated September 30, 2010 (``Fiscal 
Advisors Letter''); Munistat Letter, supra note 6; NAIPFA Letter, 
supra note 6; and Public FA, Inc., Letter from Philip C. Dotts, 
President dated September 30, 2010 (``Public FA Letter'').
    \27\ See WM Financial Strategies, Letter from Nathan R. Howard, 
Municipal Advisor dated September 28, 2010 (``WM Financial 
Strategies/Mr. Howard Letter'').
    \28\ Section 15B(e)(4)(A) of the Exchange Act defines the term 
``municipal advisor'' to include, among other things, a person that 
provides advice to or on behalf of a municipal entity with respect 
to the issuance of municipal securities, including advice with 
respect to the structure, timing, terms and other similar matters 
concerning such issues. Section 15(B)(e)(4)(C) provides that the 
term does not include a dealer serving as an underwriter as defined 
in Section 2(a)(11) of the Securities Act of 1933.
    \29\ See WM Financial Strategies, Letter from Joy A. Howard, 
Principal dated September 28, 2010 (``WM Financial Strategies/Ms. 
Howard Letter'').
    \30\ See Fieldman Letter, supra note 26.
    \31\ See Public FA Letter, supra note 26.
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    The same commenter suggested that advice concerning structure, 
timing, terms and other similar matters that dealers are currently 
permitted to provide pursuant to Rule G-23 is now a function reserved 
for municipal advisors under Dodd-Frank. Another commenter noted, ``the 
concept of

[[Page 10930]]

``advice,'' both legally and practically, suggests a party that has no 
business interest in the transaction that might be contrary to that of 
the issuer.'' \32\ One financial advisory firm noted that any 
amendments to Rule G-23 should reflect that dealers providing such 
advice ``must be fiduciaries and therefore cannot buy the bonds.'' \33\ 
One commenter noted, ``At the very moment firms seek to resign as 
advisers, they remain issuers' fiduciaries until finalization of 
resignations.'' \34\ A financial advisory firm noted that financial 
advisors to issuers of governmental debt are fiduciaries that must 
render advice and must act only in the best interests of the issuers 
and another firm stated, ``We have observed over many years that some 
broker/dealers performing underwriting services engage themselves to 
issuers who (mistakenly) consider the underwriter to be their 
``financial advisor'' (i.e., a fiduciary working for them).'' \35\
---------------------------------------------------------------------------

    \32\ See Fieldman Letter, supra note 26.
    \33\ See Lewis Young Letter, supra note 10.
    \34\ See American Governmental Financial Services of Sacramento, 
E-mail from Robert Doty, President dated September 30, 2010 (``AGFS 
E-mail'').
    \35\ See Ehlers Letter, supra note 6 and Lewis Young Letter, 
supra note 10.
---------------------------------------------------------------------------

    One commenter noted that the rule should reiterate that ``the 
underwriter does not hold a fiduciary responsibility to the issuer.'' 
\36\ Another commenter stated that the Board could consider modifying 
the existing language of Rule G-23(b) to affirm that advice is now a 
function reserved for financial advisors and that providing such advice 
on a particular transaction places the underwriter in the role of 
financial advisor thus precluding it from acting as underwriter on such 
transaction.\37\ Finally, another commenter noted, ``If the advisers 
were performing their jobs properly, and not violating their fiduciary 
duty so severely, they would be actively contacting potential 
underwriters, not attempting to grab for themselves the underwriting 
positions in which the advisers become issuers' adversaries.'' \38\
---------------------------------------------------------------------------

    \36\ See GFOA Letter, supra note 7.
    \37\ See Munistat Letter, supra note 6.
    \38\ See AGFS E-mail, supra note 34.
---------------------------------------------------------------------------

    Some commenters did not see a need for the proposed changes in Rule 
G-23 at this time, particularly with the advent of the newly mandated 
fiduciary standard for municipal advisors.\39\ One commenter stated 
that this fiduciary standard of care will ``help ensure that municipal 
clients receive reasonable, unbiased advice from their financial 
advisors and eliminate the concern that financial advisors are tainted 
by the prospect of underwriting new issues.'' \40\ Another commenter 
stated, ``As to a federal fiduciary standard, every adviser has had to 
deal with a fiduciary obligation under state or common law long before 
now (and even before the SEC was created).'' \41\
---------------------------------------------------------------------------

    \39\ See Hilliard Letter, supra note 16; RBC Letter, supra note 
17; and SIFMA Letter, supra note 17.
    \40\ See Baird Letter, supra note 17.
    \41\ See BMO Letter, supra note 19.
---------------------------------------------------------------------------

    MSRB Response. The MSRB is concerned that the role switching 
currently permitted under Rule G-23 is inconsistent with a dealer 
financial advisor's fiduciary duty to its issuer client. This inherent 
conflict is too significant for disclosure and consent to cure. Some 
commenters \42\ suggested that the proposed amendments to Rule G-23 do 
not go far enough, because they do not address the exception from the 
definition of ``financial advisory relationship'' in Rule G-23(b) for 
dealers ``acting as underwriters.'' The MSRB believes that the proposed 
interpretive guidance strikes a balance between these competing 
concerns by providing that a dealer may not avail itself of the 
underwriter exception unless it maintains an arm's-length relationship 
with the issuer.
---------------------------------------------------------------------------

    \42\ See NAIPFA Letter, supra note 6; Public FA Letter, supra 
note 26; WM Financial Strategies/Ms. Howard Letter, supra note 29; 
and WM Financial Strategies/Mr. Howard Letter, supra note 29.
---------------------------------------------------------------------------

Issue-by-Issue Application of the Proposed Rule
    One commenter expressed support for a ``cooling off'' period during 
which a dealer would not be permitted to serve as underwriter for any 
transaction of an issuer following the termination of the dealer's 
financial advisory relationship with such issuer.\43\ A trade 
association stated, ``Under Rule G-37 and the proposed changes to Rule 
A-3, the MSRB has established a precedent for imposing two-year bans'' 
and believes that a financial advisor ``will remain independent if 
precluded from serving as an underwriter for a term of two years from 
the expiration or termination of the financial advisory relationship.'' 
\44\ Another commenter agreed with a two year ban \45\ if such a time 
frame would be part of the proposed amendments and also noted the two-
year precedent of other MSRB rules. Some commenters supported a cooling 
off period of at least one year and some suggested that clarification 
be provided to ensure that any issue covered by a financial advisory 
agreement be subject to the prohibition.\46\ Other commenters expressed 
concern that if clarification is not provided, some dealers may read 
the proposed rule change as simply eliminating the requirement for a 
disclosure of conflict letter, so long as they have not yet begun work 
on a particular issue, and would simply resign as to one issue and 
underwrite another issue.\47\
---------------------------------------------------------------------------

    \43\ See IBIC Letter, supra note 6.
    \44\ See NAIPFA Letter, supra note 6.
    \45\ See Copperas Cove Letter, supra note 12; see also Estrada 
Hinojosa & Company, Inc., Letter from Robert A. Estrada, Chairman 
and Chief Compliance Officer dated September 30, 2010 (``Estrada 
Letter''); Ehlers Letter, supra note 6; Fiscal Advisors Letter, 
supra note 26; Georgetown, Texas, supra note 12; Munistat Letter, 
supra note 6; Public FA Letter, supra note 26; Tamalpais Advisors, 
Inc., Letter from Jean Marie Buckley, President dated September 28, 
2010 (``Tamalpais Letter''); Specialized Public Finance Letter, 
supra note 6; Springsted Letter, supra note 6; and WM Financial 
Strategies/Ms. Howard Letter, supra note 29.
    \46\ See Lewis Young, supra note 10.
    \47\ See Columbia Capital Letter, supra note 15; Lewis Young 
Letter, supra note 10; and Public Financial Management, Inc., Letter 
from F. John White, Chief Executive Officer dated September 29, 2010 
(``PFM Letter'').
---------------------------------------------------------------------------

    Some commenters also expressed concerns regarding situations in 
which a dealer serves as financial advisor to an issuer while it serves 
as underwriter on a separate issue for the same issuer. These 
commenters suggested that the best interests of issuers are not 
protected even if the services are provided on separate 
transactions.\48\
---------------------------------------------------------------------------

    \48\ See NAIPFA Letter, supra note 6; Columbia Capital Letter, 
supra note 15; and Lewis Young Letter, supra note 10.
---------------------------------------------------------------------------

    However, other commenters noted that there are issuers with 
multiple and/or separate and distinct debt financing programs that are 
funded from different revenue sources and that the proposed amendments 
would unnecessarily restrict the pool of available dealer financial 
advisors available to such issuers on various transactions.\49\ One of 
these commenters noted that any proposed prohibition that is broader 
than issue-by-issue ``goes beyond what is necessary to ensure fair 
competition and would unnecessarily constrain the advice and services 
available to issuers.'' \50\ Another noted that a broad amendment to 
Rule G-23 would result in unintended consequences that could be very 
unfair to dealers that engage in both financial advisory services and 
bond

[[Page 10931]]

underwriting.\51\ One commenter expressed support for proposed 
amendments that would ``allow a regulated firm to continue to engage in 
non-transaction specific consulting'' in order to ``allow an issuer to 
have certainty in the relationship that they have with a firm for each 
specific debt transaction.'' \52\ The same commenter noted that the 
``current practice of allowing a financial advisor to retain their role 
while involved with a private placement, which the financial advisory 
firm or a related bank portfolio purchases, should be eliminated.''
---------------------------------------------------------------------------

    \49\ See BDA Letter, supra note 16; Denver Letter, supra note 
23; Eastern Bank Letter, supra note 19; Hilliard Letter, supra note 
16; Lynn, Robert O.L., E-mail from Robert O.L. Lynn, Financial 
Services Consultant dated September 29, 2010 (``Lynn E-mail''); RBC 
Letter, supra note 17; Ross, Sinclaire & Associates, Letter from 
Murray Sinclaire, Jr., President/CEO dated September 28, 2010 (``RSA 
Letter''); SIFMA Letter, supra note 17; and Stone & Youngberg, 
Letter from Stone & Youngberg dated September 28, 2010 (``Stone & 
Youngberg Letter'').
    \50\ See BDA Letter, supra note 16.
    \51\ Specifically, the Estrada Letter, supra note 45, provided 
examples to support a recommendation that the MSRB not prohibit 
dealers from providing financial advisory and/or underwriting 
services, at the same time, to more than one debt issuing entities 
of a single issuer (e.g., a dealer firm should be able to provide 
financial advisory services to a city owned and operated water and 
sewer company while providing underwriting services to the same city 
owned and operated electric and gas utility company). The Estrada 
Letter also argued that such role switching should not be prohibited 
on various bond issuances that have more than one series, ``The MSRB 
should not prohibit a broker/dealer who serves as financial advisor 
on Series 2010A from competing to serve as underwriter for B, C or 
D.''
    \52\ See Baum Letter, supra note 16.
---------------------------------------------------------------------------

    Some commenters argued that any proposed cooling off period would 
be an arbitrary one, would reduce issuer choice and would decrease 
competition among financial advisors.\53\ One of the commenters against 
such a period suggested that there is no reason that an issuer should 
be precluded from working with a dealer financial advisor for a 
specific timeframe because the dealer has previously underwritten a 
prior offering for that issuer. Another argued that no cooling off 
period is needed following the provision of underwriting services as 
there are no ``potentially cognizable conflicts once the underwriter's 
role has ended.'' \54\ One commenter also noted that in certain areas 
of the country there has been an ``unfortunate movement by non-
registered advisors to exclude broker-dealers/underwriters from 
responding to issuers' request for proposals to serve as financial 
advisor'' and suggested that this ``looks and smells like restrictive 
competition (anti-trust).'' \55\
---------------------------------------------------------------------------

    \53\ See Denver Letter, supra note 23; Piper Letter, supra note 
17; RSA Letter, supra note 49; and SIFMA Letter, supra note 17.
    \54\ See Piper Letter, supra note 17 and SIFMA Letter, supra 
note 17.
    \55\ See FirstSouthwest, Letter from Hill A. Feinberg, Chairman 
and CEO dated September 29, 2010 (``FirstSouthwest/Mr. Feinberg 2 
Letter'').
---------------------------------------------------------------------------

    It was also noted that the proposed amendments to the rule would 
prohibit a dealer that provided financial advisory services to an 
issuer from providing successor remarketing agent services to the same 
issuer for a one year term following the termination of its financial 
advisory relationship. The commenter suggested ``the restrictions 
should be as narrowly tailored as possible so as to prevent unnecessary 
disruption in the marketplace'' and suggested a cooling off period of 
only three months.\56\
---------------------------------------------------------------------------

    \56\ See SIFMA Letter, supra note 17.
---------------------------------------------------------------------------

    MSRB Response. Upon review of the comment letters, the MSRB has 
determined not to impose a cooling off period between the time a dealer 
completes a financial advisory engagement with an issuer and the time 
the dealer may serve as underwriter for a different issue by the same 
issuer. Instead, the MSRB has determined to continue to apply Rule G-23 
on an issue-by-issue basis. The proposed amendments would not prohibit 
a dealer financial advisor from providing financial advisory services 
on one issue and then serving as underwriter on another issue, even if 
the two issues were in the market concurrently.
    Nevertheless, the MSRB does consider it to be appropriate to impose 
a cooling off period of one year during which a dealer financial 
advisor could not serve as remarketing agent for the same issue of 
municipal securities. The MSRB believes the one year term is a 
significant timeframe that would more adequately address any potential 
or actual conflicts of interest than the three month time frame 
suggested by one commenter.
Small and/or Infrequent Issuers
    Commenters that supported the proposed amendments to Rule G-23 
generally did not support an exception to the proposed amendments for 
small and/or infrequent issuers.\57\ One commenter asked what would 
constitute a small or infrequent issuer and noted that small and 
infrequent issuers would be the primary beneficiaries of a revised rule 
because they are less knowledgeable about the capital markets and 
consequently, are the least likely issuers to understand the conflicts 
of interest that arise when a dealer financial advisor switches to 
serve as underwriter.\58\ Another noted, ``We are not aware of any 
study proving that ``small'' or ``infrequent'' issuers have difficulty 
marketing their issues.'' \59\ Others stated that small and infrequent 
issuers would benefit from the prohibition because they lack the market 
expertise necessary to defend their own interests.\60\ Another 
commenter stated that small and infrequent issuers are the most likely 
to be manipulated by dealer financial advisors because such issuers 
lack the sophistication to know if the terms of the underwriting 
engagement are reasonable.\61\
---------------------------------------------------------------------------

    \57\ See Fieldman Letter, supra note 26; GFOA Letter, supra note 
7; IBIC Letter, supra note 6; Lewis Young Letter, supra note 10; PFM 
Letter, supra note 47; and Public FA Letter, supra note 26.
    \58\ See WM Financial Strategies Letter/Ms. Howard, supra note 
29.
    \59\ See NAIPFA Letter, supra note 6.
    \60\ See Fiscal Advisors Letter, supra note 26 and Munistat 
Letter, supra note 6.
    \61\ See Columbia Capital Letter, supra note 15.
---------------------------------------------------------------------------

    A trade association stated that ``if an FA is properly structuring 
the deal, and if the deal is rated and advertised appropriately, there 
should not be an adverse affect on the issuer.'' \62\ Another commenter 
noted, ``In our experience, the smaller, infrequent issuers have ample 
access to the market if the credit is sound.'' \63\ Other commenters 
noted that ``there are always reasonable alternatives for issuers to 
market their bonds,'' which include the use of non-dealer financial 
advisors and private placements with local banks and that, ``Many times 
the smallest of issuers use governmental lenders anyway, and you have 
already provided for this needed exemption.'' \64\
---------------------------------------------------------------------------

    \62\ See GFOA Letter, supra note 7.
    \63\ See Specialized Public Finance Letter, supra note 6.
    \64\ See Columbia Capital Letter, supra note 15; Lewis Young 
Letter, supra note 10; NAIPFA Letter, supra note 6; Public FA 
Letter, supra note 26; and Springsted Letter, supra note 6.
---------------------------------------------------------------------------

    Other commenters that supported the proposed amendments to Rule G-
23 also noted that a fundamentally sound principle such as the proposed 
amendments to Rule G-23 should not be disregarded for small or 
infrequent issuers, as the rule as revised will provide protection 
against a broker's concealed self-interest and that ``a prohibition 
would create a competitive environment'' for all financial advisory 
firms, which would ultimately benefit issuers.'' \65\ Finally, another 
commented that, if the MSRB continues to be concerned about the impact 
of a prohibition on role switching on smaller and infrequent issuers, 
it should ``study the overall costs that smaller issuers incur when the 
financial advisor resigns to become the underwriter, versus other 
methods of sale.'' \66\
---------------------------------------------------------------------------

    \65\ See IBIC Letter, supra note 6.
    \66\ See GFOA Letter, supra note 7; IBIC Letter, supra note 6; 
and PFM Letter, supra note 47.
---------------------------------------------------------------------------

    Commenters that opposed the proposed amendments to Rule G-23 
generally noted concerns about the effect of the proposed amendments on 
smaller and/or infrequent issuers. One noted that any changes that 
further limit issuer choice will ``in our opinion, result in adverse 
market consequences for

[[Page 10932]]

many issuers.'' \67\ Another stated, ``Small issuers, issuing difficult 
to place securities need all the options they can get.'' \68\ Another 
commenter stated, ``Very often, only the local dealer is interested in 
marketing the securities of these municipal issuers and these 
transactions are usually too small to attract bids from larger firms'' 
and argued that any revisions to the rule should retain the ability of 
dealer financial advisors to conduct direct placements on behalf of 
smaller issuers.\69\ Another noted that small and infrequent borrowers 
in the municipal bond market face difficulties getting bids for their 
bonds even when deal flow is low.\70\
---------------------------------------------------------------------------

    \67\ See D.A. Davidson Letter, supra note 16.
    \68\ See Zions First National Bank, Letter from W. David 
Hemingway, Executive Vice President dated September 30, 2010 
(``Zions Letter'').
    \69\ See BDA Letter, supra note 16.
    \70\ See BDA Letter, supra note 16; D.A. Davidson Letter, supra 
note 16; Hilliard Letter, supra note 16; and Zions Letter, supra 
note 78.
---------------------------------------------------------------------------

    Other commenters against the proposed amendments to Rule G-23 
raised specific State law requirements and said that certain special 
districts would be negatively affected by the proposed amendments.\71\ 
Specifically, some commenters noted that municipal utility districts 
(``MUDs'') in Texas sell their bonds ``non-rated'' and said that the 
proposed amendments would increase interest rates and property 
taxes.\72\ One commenter also argued, ``Eliminating financial advisers 
from bidding on their own districts would force our firm to seek a 
legislative remedy and allow our districts to sell bonds by negotiated 
sale and therefore all but eliminating competitive sales in the 
future.'' \73\
---------------------------------------------------------------------------

    \71\ See Alabama Department of Education, Letter from Warren 
Craig Pouncey, Deputy State Superintendent of Education, 
Administrative and Financial Services dated September 29, 2010 
(``Alabama Letter''); Allen Boone Humphries Robinson LLP, Letter 
from Joe B. Allen, Managing Partner dated September 29, 2010 
(``Allen Letter''); Corinthian Communities, Letter from Harry 
Masterson, Principal dated September 30, 2010 (``Corinthian 
Letter''); Crews & Associates, Inc., Letter from Jim Jones, 
President dated September 28, 2010 (``Crews Letter''); 
FirstSouthwest, Letter from Terrell Palmer, Senior Vice President 
dated September 29, 2010 (``FirstSouthwest/Mr. Palmer Letter''); 
Fulbright Letter, supra note 19; GGP-Bridgeland, LP, Letter from 
Peter C. Houghton, Vice President dated September 29, 2010 (``GGP-
Bridgeland Letter''); Mischer Investments, Letter from Mark A. 
Kilkenny, Senior Vice President dated September 29, 2010 (``Mischer 
Letter''); Newland Real Estate Group, LLC, Letter from Walter F. 
Nelson, President dated September 30, 2010 (``Newland Letter''); New 
Quest Properties, Letter from Steven D. Alvis, Managing Partner 
dated September 29, 2010 (``NewQuest Letter''); Schwartz, Page & 
Harding, L.L.P., Letter from Joseph M. Schwartz, Managing Partner 
dated September 29, 2010 (``Schwartz Letter''); Signorelli Company, 
Letter from Daniel K. Signorelli, President (``Signorelli Letter''); 
Wolff Companies, Letter from David W. Hightower, Executive Vice 
President and Chief Development Officer dated September 30, 2010 
(``Wolff Letter''); and Young & Brooks, Letter from Mark W. Brooks 
dated September 29, 2010 (``Young & Brooks Letter'').
    \72\ See also FirstSouthwest/Mr. Palmer Letter, supra note 71; 
FirstSouthwest, Letter from Julie Peak, Managing Director, dated 
September 27, 2010 (``FirstSouthwest/Ms. Peak Letter''); Municipal 
Information Services, Letter from Ronald L. Welch dated September 
30, 2010 (``MIS Letter''); and Young and Brooks Letter, supra 70.
    \73\ See FirstSouthwest/Mr. Palmer Letter, supra note 71.
---------------------------------------------------------------------------

    Some of the commenters against the proposed amendments also 
suggested exemptions for issuances below a certain threshold if the 
proposed amendments that would prohibit dealer financial advisors from 
serving as underwriters on transactions on which they provided 
financial advisory services were adopted.\74\ The proposed threshold 
exemptions ranged from $5 million to $30 million or less. One trade 
association provided statistics to indicate that ``only 2.5% of all new 
issue volume (based on the total dollar amount) for the last ten 
years'' exceeded $10,000,000, which suggest that there should be an 
exception for smaller issuances as they are a small part of the 
market.\75\
---------------------------------------------------------------------------

    \74\ See Baum Letter, supra note 16 ($30,000,000); D.A. Davidson 
Letter, supra note 16 ($30,000,000); FirstSouthwest, Letter from 
Hill A. Feinberg, Chairman and CEO dated September 23, 2010 
(``FirstSouthwest/Mr. Feinberg Letter'') (competitively bid issues 
not exceeding $5,000,000); Lantana (Texas) District Offices, Denton 
County Fresh Water Supply Districts 6 & 7, Letter from Kevin Mercer, 
General Manager dated September 28, 2010 (``Lantana Letter'') 
(competitively bid issues not exceeding $10,000,000); NewQuest 
Letter, supra note 71 (competitively bid issues not exceeding 
$10,000,000); RBC Letter, supra note 17 ($20,000,000); and 
Signorelli Letter, supra note 71 (competitively bid issues not 
exceeding $10 million).
    \75\ See SIFMA Letter, supra note 17.
---------------------------------------------------------------------------

    MSRB Response. The MSRB believes that the potential negative impact 
on fees and market accessibility for small and/or infrequent issuers 
would be minimal compared to the protections that will be afforded to 
such issuers. The MSRB is persuaded by the arguments that small and/or 
infrequent issuers are, in many cases, unable to appreciate the nature 
of the conflict they are being asked to waive by the very dealer 
financial advisor that will benefit from the waiver.\76\ The MSRB does 
not believe that exceptions should be provided for smaller offerings as 
suggested by several commenters.
---------------------------------------------------------------------------

    \76\ See Copperas Cove Letter, supra note 12; Fieldman Letter, 
supra note 26; Georgetown, Texas Letter, supra note 12; and Portland 
Letter, supra note 6.
---------------------------------------------------------------------------

Competitive Bid Offerings and Failed Bids
    Some commenters did not support exceptions to the prohibition that 
would allow a dealer financial advisor to bid on a competitive 
transaction for which they have provided financial advisory services. 
One of these commenters noted ``a financial advisor may also control or 
influence the credit enhancement and ratings process. Whether to apply 
for insurance and/or a rating, which ratings service to use and 
structural considerations like reserve or coverage requirements can all 
impact the outcome of a competitive sale.'' \77\ Another argued that if 
a financial advisor were permitted to bid for a competitive 
transaction, it might not aggressively work to secure the largest 
number of bids possible because of an incentive to reduce 
competition.\78\ One commenter noted that any time a financial advisor 
provides the winning bid on a competitive sale transaction the 
potential for an appearance of impropriety exists.\79\
---------------------------------------------------------------------------

    \77\ See Specialized Public Finance Letter, supra note 6.
    \78\ See WM Financial Strategies/Ms. Howard Letter, supra note 
29.
    \79\ See Columbia Capital Letter, supra note 15; Specialized 
Public Finance Letter, supra note 6; and WM Financial Strategies/Ms. 
Howard Letter, supra note 29; see also Fieldman Letter, supra note 
26; Fiscal Advisors Letter, supra note 26; Munistat Letter, supra 
note 6; Public FA Letter, supra note 26.
---------------------------------------------------------------------------

    Commenters also suggested that, even if a notice of the sale were 
made available an ample time before the competitive bid, the notice 
would not change the inherent conflict of interest that exists when a 
dealer is allowed to participate in such a transaction. One of these 
commenters stated that the notice of sale is already published at least 
five business days before a competitive sale, so providing such an 
exception would not provide meaningful relief or mitigate any conflicts 
of interest.\80\ Another commenter suggested that allowing an exception 
for competitively bid issues for which the notice of the sale was 
provided five to seven business days in advance of the bid deadline to 
allow time for due diligence ``will invite game playing.'' \81\
---------------------------------------------------------------------------

    \80\ See Columbia Capital Letter, supra note 15; IBIC Letter, 
supra note 6; Fiscal Advisors Letter, supra note 26; Specialized 
Public Finance Letter, supra note 6; and Tamalpais Letter, supra 
note 45.
    \81\ See Springsted Letter, supra note 6.
---------------------------------------------------------------------------

    Other commenters noted that failed bids are not a common occurrence 
and there should be no exceptions for such occurrences.\82\ One noted 
that most failed bids are due to ``severe market disruptions, 
transactions not suited to competitive bid or poorly designed bidding 
rules.'' In the event of a failed

[[Page 10933]]

bid, another commenter stated, ``there is almost always means of 
getting the securities sold without the advisor stepping in as a 
buyer.'' They also argued that in the case of private placements there 
is much more potential for abuse and a flat prohibition would be 
helpful. However, one commenter provided an example of a transaction 
that had not been completed as of the date of her letter and noted that 
the firm ``was unsuccessful in underwriting the securities and then 
switched to serving as financial advisor for a competitive sale.'' \83\
---------------------------------------------------------------------------

    \82\ See Columbia Capital Letter, supra note 15; IBIC Letter, 
supra note 6; Lewis Young Letter, supra note 10; and WM Financial 
Strategies/Ms. Howard, supra note 30.
    \83\ See WM Financial Strategies/Ms. Howard Letter, supra note 
29.
---------------------------------------------------------------------------

    A trade association for non-dealer financial advisors noted that 
``if a bid fails it is most likely because the broker-dealer financial 
advisor failed to properly advertise, circulate documents and/or 
perform other activities to obtain the largest number of bids possible. 
If a financial advisor has performed their role properly and yet there 
are no bidders, it is likely that the credit of the issuer's debt 
obligation should not be publicly sold.'' \84\ In addition, the 
organization argued that in the event of the remote possibility under 
which competitive bidding is required by local/State law and the 
possibility of only one interested underwriter, the issuer would be 
better served by employing a non-dealer municipal advisor to arrange 
the competitive sale rather than relying on the potential ``sole 
bidder'' to serve as both financial advisor and sole bidder. It also 
argued that the non-dealer municipal advisor may recommend that the bid 
be rejected which could provide other legal options for the debt 
placement and that ``sole bidders'' have the opportunity to charge 
higher fees and impose higher yields.
---------------------------------------------------------------------------

    \84\ See NAIPFA Letter, supra note 6.
---------------------------------------------------------------------------

    However, commenters against the proposed amendments stated that 
they are unaware of: (i) Many circumstances under which a dealer 
financial advisor would be justified in resigning in order to bid on a 
competitive issuance transaction as underwriter; (ii) situations under 
which the financial advisor is not involved in the bidding process; or 
(iii) situations under which the issuer handles the bid process.\85\ 
One commenter noted that issuers do not usually have the knowledge to 
properly handle the bid process internally. Another stated that 
allowing a financial advisor to resign to bid on a competitive 
transaction is ``another illustration of allowing a loophole for the 
dealer that introduces a conflict of interest.'' One commenter argued, 
``The electronic bidding platforms are nothing more than vehicles to 
collect the bids'' and that ``it is an uncommon practice for the bid 
process to be handled internally by the issuer.'' Commenters also 
agreed that, in competitively bid transactions, the issuer should not 
have to hire a financial advisor to oversee the bid process in order to 
allow the original advisor to bid on the transaction. Finally, one of 
the commenters argued, ``If the FA maintains its role throughout the 
transaction, there would be no need for a second FA.'' \86\
---------------------------------------------------------------------------

    \85\ See Columbia Capital Letter, supra note 15; IBIC Letter, 
supra note 6; Munistat Letter, supra note 6; Springsted Letter, 
supra note 6; and Tamalpais Letter, supra note 45.
    \86\ See Fiscal Advisors Letter, supra note 26; IBIC Letter, 
supra note 6; Lewis Young Letter, supra note 10; Munistat Letter, 
supra note 6; Public FA Letter, supra note 26; Springsted Letter, 
supra note 6; and Tamalpais Letter, supra note 45.
---------------------------------------------------------------------------

    Some commenters stated that the proposed amendments to Rule G-23 
are unnecessary because the competitive bid process is appropriate, 
fair and equal for all parties.\87\ One commenter noted, ``awards of 
deals in the competitive market are based solely on price and have 
nothing to do with any previous or existing relationships among 
issuers, advisors and dealers.'' \88\ Another stated, ``The bidding 
process for competitive sales encourages competition among the 
underwriters and introduces an arms' length basis for establishing the 
terms of the issue and the underwriting.'' \89\ One bank argued that 
``at least direct purchases by financial advisors for their own 
portfolios should be allowed in competitively bid transactions where 
the issuer acknowledges the potential conflicts in writing and gives 
the financial advisor permission to submit a bid.'' \90\
---------------------------------------------------------------------------

    \87\ See D.A. Davidson Letter, supra note 16; Eastern Bank 
Letter, supra note 19; and Hilliard Letter, supra note 16.
    \88\ See SIFMA Letter, supra note 17.
    \89\ See BDA Letter, supra note 16.
    \90\ See Zions Letter, supra note 78.
---------------------------------------------------------------------------

    Eleven commenters \91\ in Kentucky and South Carolina submitted 
form letters opposing any changes to the rule. Some of these commenters 
noted that, for certain competitive bid issuances, a dealer financial 
advisor provided the only winning bid. ``No other underwriting firm had 
bid to purchase these bonds and the Sale would have been unsuccessful'' 
without the dealer financial advisor's participation. Other commenters 
noted that for certain of their competitive bid transactions, the 
winning bid provided by the dealer financial advisor was at a cost 
significantly lower than the next closest bid.
---------------------------------------------------------------------------

    \91\ See Barren County (Kentucky) Schools, Letter from Dr. Jerry 
Ralston, Superintendent dated September 15, 2010 (``Barren County 
Letter''); Boyd County (Kentucky) Public Schools, Letter from Donald 
Fleu, Finance Director/Treasurer dated September 15, 2010 (``Boyd 
County Letter''); Crittenden County (Kentucky) Schools, Letter from 
Brent Highfil, Finance Director dated September 15, 2010 
(``Crittenden County Letter''); Dayton (Kentucky) Independent 
Schools, Letter from Gary Rye, Superintendent dated September 14, 
2010 (``Dayton, Kentucky Letter''); East Bernstadt (Kentucky) 
Independent School, Letter from Homer Radford, Superintendent dated 
September 15, 2010 (``East Bernstadt Letter''); Elliott County 
(Kentucky) Board of Education, Letter from John Williams, 
Superintendent dated September 15, 2010 (``Elliott County Letter''); 
Greenup County (Kentucky) Schools, Letter from Scott P. Burchett, 
Finance Director/Treasurer dated September 17, 2010 (``Greenup 
County Letter''); Kenton County (Kentucky) Board of Education, 
Letter from Kelley Gamble, Finance Director dated September 15, 2010 
(``Kenton County Letter''); Kentucky Interlocal School 
Transportation Association, Letter from Jack Moreland, President 
dated September 27, 2010 (``KISTA Letter''); Pike County (Kentucky) 
Schools, Letter from Nancy Ratliff, Finance Director dated September 
15, 2010 (``Pike County Letter''); and South Carolina Association of 
Governmental Organizations, Letter from Brantley D. Thomas III, 
Chairman of the Board of Directors dated September 15, 2010 (``SCAGO 
Letter''). The letters were an exhibit to the RSA Letter, supra note 
49.
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    Some commenters stated that the negative impact of a failed bid in 
a competitive bid transaction can be prevented by allowing the 
financial advisor to bid on the transaction.\92\ One commenter cited 
the ``dramatic effect failed bids'' had on the marketplace in the last 
few years and suggested that an exception to the prohibition for 
competitive bid transactions would avoid, ``exacerbating the risk of 
failed bids that might otherwise occur.'' And further suggested that a 
financial advisor ``* * * should not conduct an auction in a 
competitively bid transaction and participate as a bidding underwriter 
on the same issue.'' \93\ One commenter stated that it has not had a 
failed bid transaction \94\ and others stated that they have seen 
transactions in which no bid was placed or the dealer provided the only 
bid.\95\ Another commenter argued that when a failed bid occurs ``it is 
either a function of very unusual and difficult market conditions or an 
issue that likely should have been sold on a negotiated basis to begin 
with (perhaps the issue was required to be sold competitively as 
required by state law).'' While another stated, ``When we are hired as 
municipal advisor we pledge to the issuer that, if permitted, we will 
submit a bid for their bonds,''

[[Page 10934]]

which guarantees that a failed bid will not occur.\96\
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    \92\ See BDA Letter, supra note 16 and Eastern Bank Letter, 
supra note 19.
    \93\ See SIFMA Letter, supra note 17.
    \94\ See RSA Letter, supra note 49.
    \95\ See DeWaay Financial Network, Letter from Mark Detter, Vice 
President dated September 24, 2010 (``DeWaay Letter'') and Stone & 
Youngberg Letter, supra note 49 (on a non-rated transaction in a 
state where competitive bidding is compulsory).
    \96\ See Piper Letter, supra note 17 and Hilliard Letter, supra 
note 16.
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    Some commenters noted that existing market practice makes a notice 
of the competitive bid available five to seven days prior to the sale 
and that such notice would be a good rule of practice to allow bidders 
to review information, meet any internal processes and conduct any due 
diligence that they require.\97\ One commenter also noted that five 
days advance notice is adequate and is ``about the time of forward 
focus for underwriters. Anything longer will not be beneficial.'' \98\ 
Other commenters stated that a five to ten day notice requirement would 
be helpful with competitive bid transactions.\99\
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    \97\ See D.A. Davidson Letter, supra note 16; Eastern Bank 
Letter, supra note 19; Piper Letter, supra note 17; and Stone & 
Youngberg Letter, supra note 49.
    \98\ See Hilliard Letter, supra note 16.
    \99\ See BDA Letter, supra note 16; Hilliard Letter, supra note 
16; Piper Letter, supra note 17; SIFMA Letter, supra note 17; Smith, 
Murdaugh, Little & Bonham, L.L.P., Letter from W. James Murdaugh, 
Jr. dated September 29, 2010 (``Smith Letter''); Young & Brooks 
Letter, supra note 71; and Zions Letter, supra note 78.
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    Commenters did not recognize situations in which the financial 
advisor would have to resign in order to submit a bid to underwrite a 
competitive bid transaction, especially because of the wide use of the 
electronic bidding process.\100\ One of the commenters noted, ``Nearly 
all competitive sales in our markets utilize a third party electronic 
platform to receive the bids,'' which precludes a financial advisor 
from manipulating the results and provides assistance with eliminating 
concerns regarding such practice. Another stated, ``As financial 
advisor we facilitate the setting up of the bid process but the 
access'' is handled by the issuer. One of the commenters requested that 
the MSRB consider modifications to the proposed amendments that would 
allow a financial advisory firm to bid on a competitive bond issuance 
through an ``* * * independent electronic bidding system (e.g., PARITY) 
in which the financial advisory firm does not have access to bid 
information.'' \101\
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    \100\ See D.A. Davidson Letter, supra note 16; Eastern Bank 
Letter, supra note 19; Hilliard Letter, supra note 16; Piper Letter, 
supra note 17; Stone & Youngberg Letter, supra note 49 and Zions 
Letter, supra note 78.
    \101\ See Allen Letter, supra note 71.
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    One commenter stated, ``there are some situations where a financial 
advisor does not conduct the bid process for an issuer, but this is 
typically in the case of very large and very sophisticated issuers. In 
most cases issuers are ill-equipped to manage the bidding process, and 
would be negatively impacted if they attempted to do so.'' \102\ 
Another commenter stated, in general, as financial advisor they do not 
conduct the bid process but they would assist the issuer in evaluating 
bids that issuers receive in a sealed bid process and suggested that it 
would be good practice to require that any dealer financial advisor 
that is bidding on a competitive sale for an issuer be required to 
submit its bid electronically through a third party independent 
platform.\103\ Another noted, ``Electronic bidding platforms are a 
viable option if those services are readily available to an issuer at a 
cost that is not prohibitive.'' \104\
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    \102\ See RSA Letter, supra note 49.
    \103\ See Piper Letter, supra note 17.
    \104\ See DeWaay Letter, supra note 105.
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    Finally, other commenters argued that any proposed changes to Rule 
G-23 should apply to negotiated sales only and not to competitive sales 
and that the financial advisor should not be permitted to serve as 
underwriter on a negotiated transaction unless ``the issuer is afforded 
the opportunity to hire an independent financial advisor to monitor the 
FA's structuring and the underwriter's pricing of the negotiated 
issue.'' Another argued that they could cite many examples in which the 
flexibility of a negotiated refunding has allowed issuers to generate 
savings that would have been missed or reduced by selling at 
competitive sale.\105\
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    \105\ See BDA Letter, supra note 16; MIS Letter, supra note 72; 
and Piper Letter, supra note 17.
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    MSRB Response. The MSRB does not believe that the use of electronic 
bidding platforms mitigates the conflict of interest posed by a dealer 
financial advisor's switching to an underwriter role, in part, because 
such platforms are not necessarily available to all issuers. Further, 
the MSRB does not believe that requiring additional advance notice of a 
competitive sale would provide adequate protections against conflicts 
of interest. As stated by a non-dealer financial advisor, ``a financial 
advisor may also control or influence the credit enhancement and 
ratings process. Whether to apply for insurance and/or a rating, which 
ratings service to use and structural considerations like reserve or 
coverage requirements can all impact the outcome of a competitive 
sale.'' \106\ The MSRB believes that involvement in this process 
provides a dealer financial advisor with information that can provide 
an unfair advantage when such dealer participates in a competitive bid 
transaction.
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    \106\ See Specialized Public Finance Letter, supra note 6.
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Effective Date/Transitional Rule
    Some commenters noted that immediate implementation of the proposed 
amendments to prohibit a dealer financial advisor from serving as 
underwriter on an issue would cause disorder in the market because of 
existing contractual relationships. Commenters suggested various 
transitional time frames to allow market participants adequate time to 
comply with any changes.\107\ One commenter suggested that ``the MSRB 
delay its effective date or continue to apply current Rule G-23 to 
those financial advisory relationships that are in place at the time 
the modified Rule is enacted.'' \108\Another requested that ``the MSRB 
include a transitional rule and time period to allow issuers, dealers 
and financial advisors time to review their current engagements and 
business practices and to take action to conform to, and comply with, 
any new rules.'' \109\
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    \107\ See BDA Letter, supra note 16; Baum Letter, supra note 16; 
and SIFMA Letter, supra note 17.
    \108\ See RBC Letter, supra note 17.
    \109\ See BDA Letter, supra note 16.
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    MSRB Response. The MSRB has requested that the proposed rule change 
be made effective for new issues for which the Time of Formal Award (as 
defined in Rule G-34(a)(ii)(C)(1)(a)) occurs more than six months after 
SEC approval to allow issuers of municipal securities time to finalize 
any outstanding transactions that might be affected by the proposed 
rule change.
Miscellaneous
    Conduit Issues. One dealer financial advisor provided an example of 
services that it provides to its hospital clients. The commenter noted 
that such clients often pursue multiple Federal credit enhancement 
programs and must engage a financial advisor to assist and support them 
as they proceed through certain Federal processes. If at some point 
during the process, a client determines to pursue one Federal program 
over another, this commenter states that ``the dealer engaged as 
financial advisor would be unable to serve as the client's 
underwriter.'' The commenter also suggests this is detrimental to the 
client because of ``unnecessary project delays'' and may lead the 
client to ``select an underwriter inexperienced in structuring and 
issuing'' certain types of financing structures.\110\
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    \110\ See Red Capital Markets, LLC, Letter from Kevin J. 
Mainelli, Managing Director dated September 30, 2010 (``Red Capital 
Letter'').
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    Another commenter requested a specific exemption for ``corporate 
(not

[[Page 10935]]

for profit and for profit) conduit borrowers'' because of their 
expectation, ``to be treated in the same manner as they are treated in 
the corporate advisory and underwriting context.'' \111\
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    \111\ See SIFMA Letter, supra note 17; see also BMO Letter, 
supra note 19.
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    MSRB Response. Rule G-23 does not preclude a dealer from serving as 
financial advisor to a conduit borrower on an issuance of municipal 
securities and the proposed amendments would not prohibit the dealer 
from providing underwriting services for such issue of the conduit 
issuer so long as it has not also become the financial advisor to the 
conduit issuer.
    Principal Transactions by Financial Advisors. One commenter noted 
that an important issue to be considered is that financial advisors 
``should not be allowed to serve as a principal in any municipal 
transaction which includes a swap counter party, GIC provider or the 
reinvestment of proceeds.'' \112\
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    \112\ See FirstSouthwest/Mr. Feinberg Letter, supra note 74.
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    MSRB Response. The MSRB will take this comment under advisement 
when it considers the fiduciary duty of municipal advisors, as mandated 
by Dodd-Frank.
    Bank Loans. One commenter noted that any amendments to the rule 
should prohibit the activities of financial advisors, dealer banks and 
affiliated bank portfolios from doing indirectly what they are 
prohibited from doing directly. Another noted that the MSRB should not 
adopt any amendments that will prevent a national bank that provides 
financial advisory services to municipalities from purchasing municipal 
securities from its municipal clients.\113\
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    \113\ See Baum Letter, supra note 16 and Zions Letter, supra 
note 78.
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    MSRB Response. The MSRB notes that a bank's purchase of an issuer 
client's municipal securities is covered by Rule G-23. However, the 
proposed amendments would not preclude true loans that are not 
municipal securities under the Act made by banks to municipal issuers.
    Competitiveness. One commenter argued, ``It has been difficult for 
a broker dealer to compete when a non regulated competitor is able to 
buy business rather than earn it. But now proposed amendments to G-23 
seem to be a trade off, further placing broker dealers in a non 
competitive situation.'' Another stated that the proposed amendments 
are anti-competitive and potentially harmful to municipalities on their 
new issues. Finally, another argued, ``To adopt a rule change that 
narrows the free choice of state and local governments, even if with 
the intent to protect their interest, would appear to be inconsistent 
with fundamental principles of federalism.'' \114\
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    \114\ See Baird Letter, supra note 17; Fulbright Letter, supra 
note 19; and Hilliard Letter, supra note 16.
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    MSRB Response. Rule G-23 was adopted as part of the MSRB's ``fair 
practice'' rules \115\ with the intent to establish standards of 
ethical conduct for dealer financial advisors. The Board has long noted 
that a dealer financial advisor acts in a ``fiduciary capacity'' as 
agent for a governmental unit. The role and interests of the dealer 
financial advisor are ``significantly different'' from the role and 
interests of a dealer acting as an underwriter for the same 
governmental unit. Often, when a dealer financial advisor switches 
roles to underwrite a transaction, the issuer does not fully understand 
the implications of the ending of the financial advisory relationship 
with the issuer (which ends the dealer's fiduciary obligation to the 
issuer) and the arm's length relationship that is necessary due to the 
dealer financial advisor's becoming the underwriter on the transaction. 
Further, under Dodd-Frank, the Board will be considering the adoption 
of fair practice rules applicable to non-dealer financial advisors and 
other municipal advisors, thereby promoting a more equalized regulatory 
burden on both dealers and municipal advisors. On balance, dealer 
financial advisors will not be placed at a competitive disadvantage 
with non-dealer financial advisors as a result of the proposed rule 
change.
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    \115\ See Exchange Act Rel. No. 13987 (September 22, 1977).
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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 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2011-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2011-03. This file 
number should be included on the subject line if e-mail 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies 
of the submission, all subsequent amendments, all written statements 
with respect to the proposed rule change that are filed with the 
Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street, NE., Washington, 
DC 20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the MSRB's offices. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-MSRB-2011-03 and should be submitted on or before March 
21, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\116\
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    \116\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4391 Filed 2-25-11; 8:45 am]
BILLING CODE 8011-01-P