Document ID: SEC-2011-1742-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2011-11-10T05:00Z

[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Notices]
[Pages 70207-70209]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29104]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65679, File No. SR-MSRB-2011-17]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of Proposed Rule Change Regarding 
Professional Qualifications and Information Concerning Associated 
Persons

November 3, 2011.

I. Introduction

    On September 13, 2011, the Municipal Securities Rulemaking Board 
(``MSRB'' or ``Board''), filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change consisting of amendments to Rule 
G-3, on professional qualifications, and Rule G-7, on information 
concerning associated persons. The proposed rule change was published 
for comment in the Federal Register on September 30, 2011.\3\ The 
Commission received one comment letter regarding the proposed rule 
change and the MSRB's response to that comment letter.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 65393 (September 26, 
2011), 76 FR 60953 (the ``Commission's Notice'').
    \4\ See letter from Marian H. Desilets, President, Association 
of Registration Management, Inc., dated October 7, 2011, and letter 
from Margaret C. Henry, General Counsel, Market Regulation, MSRB, 
dated October 28, 2011.
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    This order approves the proposed rule change.

II. Background and Description of Proposal

    MSRB Rule G-3(a)(i) defines a municipal securities representative 
as a natural person associated with a broker, dealer or municipal 
securities dealer (``dealer''), other than a person whose functions are 
solely clerical or ministerial, whose activities include one or more of 
the following:
    1. Underwriting, trading or sales of municipal securities;
    2. Financial advisory or consultant services for issuers in 
connection with the issuance of municipal securities;
    3. Research or investment advice with respect to municipal 
securities; or
    4. Any other activities that involve communication, directly or 
indirectly, with public investors in municipal securities provided, 
however, that the

[[Page 70208]]

activities enumerated in 3 and 4 above are limited to such activities 
as they relate to the activities enumerated in 1 and 2 above.
    An individual seeking to become qualified as a municipal securities 
representative must pass either of two qualification examinations--the 
Municipal Securities Representative Qualification Examination (Series 
52) or the General Securities Registered Representative Examination 
(Series 7).
    On September 7, 2011, FINRA filed with the Commission a proposed 
rule change to restructure the Series 7 examination to focus on a 
broader range of securities products available for sale by registered 
representatives. The effect of these changes would be a de-emphasis on 
non-sales aspects of the activities of securities professionals. In 
focusing on general principles applicable to the buying and selling of 
a broad range of securities, rather than specific products, the 
restructured Series 7 examination would reduce the number of questions 
that test for specific knowledge of municipal securities and the rules 
of the MSRB. Given the shift in emphasis of the Series 7 examination 
and the reduced number of municipal questions, in the view of the MSRB, 
passage of the Series 7 examination would no longer represent a useful 
gauge of whether a securities professional was qualified to perform 
municipal securities activities other than sales to, and purchases 
from, customers \5\ of municipal securities (``sales activities'').
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    \5\ ``Customer'' is defined in MSRB Rule D-9 as ``any person 
other than a broker, dealer or municipal securities dealer acting in 
its capacity as such or an issuer in transactions involving the sale 
by the issuer of a new issue of its securities.''
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    As a result of this restructured Series 7 examination, the MSRB 
filed the proposed rule change consisting of amendments to MSRB Rule G-
3, on professional qualifications. The proposed rule change would 
provide that the Series 7 examination would no longer qualify 
individuals as ``municipal securities representatives,'' unless they 
were engaged solely in sales activities or they passed the Series 7 
examination prior to the effective date of the proposed rule change. 
Instead, passage of the Series 52 examination would be required for any 
municipal securities activities other than sales activities.
    The proposed rule change would create a sub-category of municipal 
securities representative referred to as a ``municipal securities sales 
limited representative'' and would apply to individuals whose 
activities with respect to municipal securities are limited exclusively 
to sales activities. The proposed rule change would provide that an 
individual could qualify as a municipal securities sales limited 
representative by passage of the Series 7 examination. Other 
individuals would be required to pass the Series 52 examination in 
order to qualify as full municipal securities representatives, unless 
they had passed the Series 7 examination prior to the effective date of 
the proposed rule change and had maintained this registration.
    The proposed rule change would also require a municipal securities 
limited representative who wished to become a municipal securities 
principal to pass the Series 52 examination prior to taking the Series 
53 municipal securities principal examination. Otherwise, the proposed 
amendments to Rule G-3 would not distinguish between ``municipal 
securities sales limited representatives'' and other ``municipal 
securities representatives.''
    The MSRB also filed proposed amendments to MSRB Rule G-7, on 
information concerning associated persons. Rule G-7 requires brokers, 
dealers and municipal securities dealers (``dealers'') to keep records 
concerning their associated persons, including the category of function 
they perform ``whether municipal securities principal, municipal 
securities sales principal, municipal securities representative or 
financial and operations principal.'' The proposed rule change would 
add ``municipal securities sales limited representative'' to that 
list.\6\ Additionally, the proposed rule change would streamline Rule 
G-7(b) by simply requiring that dealers obtain either Form U4 (in the 
case of non-bank dealers) or Form MSD-4 (in the case of bank dealers), 
rather than repeating the categories of information required by those 
forms.
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    \6\ The proposed rule change would also add ``municipal fund 
securities limited principal'' to this list to reflect the previous 
creation of this separate category.
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III. Discussion of Comments and MSRB's Response

    The Commission received one comment letter from the Association of 
Registration Management, Inc. and a response from the MSRB to the 
comment letter.\7\
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    \7\ See supra note 4.
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    The commenter expressed concern about the number of individual 
product and regulation specific examinations proposed, introduced or 
reintroduced within the past 18 months, and stated that these have 
caused considerable burden on the industry to effectively implement 
standards within firms to comply with ongoing registration 
requirements. The commenter further stated that this protocol of 
individual exams is making it difficult for registered persons to fully 
and easily understand what is required at all times to ensure and 
remain compliant.
    The MSRB responded that the commenter's letter mistakenly states 
that the MSRB's Series 52 and 53 examinations were among those new 
examinations and that comments of that nature are more appropriately 
addressed to the Commission or FINRA. The MSRB stated that it only took 
action with respect to the Series 7 qualification because of FINRA's 
decision to change the focus of the exam.
    The commenter further stated that the revised rule could 
potentially require larger firms to have many of its registered 
representatives obtain an additional license to ensure continuity and 
coverage across all business lines, and that it is not clear if firms 
will be required to apply for ``MR position codes'' in order for their 
associated persons to be grandfathered. The MSRB responded that a 
dealer need take no action in order for its associated persons to be 
grandfathered.
    The commenter also inquired whether the MSRB will permit FINRA to 
grandfather additional associated persons who might have let their 
Series 7 registrations lapse before November 7, 2011. The MSRB 
responded that the proposal would not permit such additional 
grandfathering.
    The commenter requested that the effective date of the MSRB 
proposal be delayed until late first quarter of 2012 at the earliest to 
allow firms to be able to adequately identify and prepare (budget, 
staffing, etc.) for compliance as well as allow member firms to meet 
other already announced regulatory obligations along with year-end 
renewal process workloads and annual training requirements. The 
commenter further requested consideration of the fact that the industry 
had not been apprised of the change until nearly 45 days prior to the 
proposed implementation, stating that such timing will cause an 
unnecessary hardship.
    The MSRB responded that it made the decision to have the changes to 
Rule G-3 take effect at the same time as FINRA's changes to the Series 
7 examination and that FINRA's revised Series 7 will begin to be 
implemented on November 7, 2011. The MSRB further stated that at that 
time, the number of municipal questions will be reduced, and those 
questions will address only sales activities. Accordingly, the MSRB 
stated that such examination would no longer assess an associated 
person's ability to

[[Page 70209]]

perform other municipal securities activities in a competent manner, so 
no delay in the effective date of the Rule G-3 changes is appropriate.
    The Commission has carefully considered the commenter's concerns 
about the MSRB's proposed changes to the licensing requirements for 
associated persons of brokers, dealers or municipal securities dealers 
for municipal securities activities other than sales to customers, the 
scope of the ``grandfather'' provisions, and the effective date of the 
proposed rule change, and does not believe the proposed changes are 
inconsistent with the Exchange Act.

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comment letter received, and the MSRB's response to the comment 
letter and finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB.\8\ The Commission believes that the 
proposed rule change is consistent with the provisions of Section 
15B(b)(2)(A) of the Exchange Act, which authorizes the MSRB to 
prescribe ``standards of training, experience, competence, and such 
other qualifications as the Board finds necessary or appropriate in the 
public interest or for the protection of investors and municipal 
entities or obligated persons.'' Section 15B(b)(2)(A) of the Exchange 
Act also provides that the Board may appropriately classify municipal 
securities brokers, municipal securities dealers, and municipal 
advisors and persons associated with municipal securities brokers, 
municipal securities dealers, and municipal advisors and require 
persons in any such class to pass tests prescribed by the Board.
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    \8\ In approving the proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c (f).
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    The proposed rule change is also consistent with the provisions of 
Section 15B(b)(2)(A) of the Exchange Act in that the proposed rule 
change will ensure that individuals seeking to engage in more than 
sales activities will be tested on their qualification and competency 
to engage in such other municipal securities activities. These 
individuals will be required to pass an examination that includes 
questions both on municipal securities and the municipal markets and on 
U.S. government, Federal agency and other financial instruments, 
economic activity, government policy, factors affecting interest rates, 
and applicable Federal securities laws and regulations. The proposed 
rule change will also more closely align the information dealers are 
required to obtain pursuant to Rule G-7 with the information already 
required by FINRA and the bank regulators, thereby reducing the 
administrative burden on such dealers.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\9\ that the proposed rule change (SR-MSRB-2011-17) be, 
and it hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29104 Filed 11-9-11; 8:45 am]
BILLING CODE 8011-01-P