Document ID: SEC-2019-0248-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2019-03-06T05:00Z

[Federal Register Volume 84, Number 44 (Wednesday, March 6, 2019)]
[Notices]
[Pages 8132-8137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03989]

[[Page 8132]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85222; File No. SR-MSRB-2019-04]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change Consisting of Interpretive Guidance About Frequently Asked 
Questions Regarding the Use of Social Media Under the MSRB's 
Advertising Rules

February 28, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 26, 2019 the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the MSRB. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change 
consisting of interpretive guidance about frequently asked questions 
regarding the use of social media under MSRB Rule G-21, on advertising 
by brokers, dealers and municipal securities dealers, and MSRB Rule G-
40, on advertising by municipal advisors (Rule G-21, together with Rule 
G-40, the ``advertising rules''). The proposed rule change has been 
filed for immediate effectiveness under Section 19(b)(3)(A) of the 
Exchange Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The effective date 
of the amendments to Rule G-21 and Rule G-40 will be announced in an 
MSRB Notice to be published on the MSRB's website following the 
effectiveness of this proposed rule change. To provide brokers, 
dealers, municipal securities dealers and municipal advisors 
(collectively, ``regulated entities'') with sufficient time to develop 
supervisory and compliance policies and procedures, the effective date 
to be announced will be no less than 30 days and no more than 180 days 
following publication of the MSRB Notice.\5\
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    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ See Exchange Act Release No. 83177 (May 7, 2018), 83 FR 
21794 (May 10, 2018) (File No. SR-MSRB-2018-01). The amendments to 
Rule G-21 and new Rule G-40 were to become effective on February 7, 
2019. However, to provide the industry with sufficient time to 
establish supervisory and compliance policies and procedures, the 
MSRB filed with the SEC for immediate effectiveness an extension of 
that effective date. The new effective date of the amendments to 
Rule G-21 and new Rule G-40 will be announced in an MSRB Notice to 
be published on the MSRB's website. See File No. SR-MSRB-2019-01.
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    The text of the proposed rule change is available on the MSRB's 
website at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2019-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

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

    In its filing with the Commission, the MSRB included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The MSRB has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to clarify for brokers, 
dealers, and municipal securities dealers (collectively, ``dealers'') 
and municipal advisors the application of the recent amendments to Rule 
G-21 and new Rule G-40 to the use of social media by regulated entities 
\6\ in connection with their municipal securities activities and 
municipal advisory activities. The MSRB committed to providing that 
guidance \7\ before the effective date of the amendments to the 
advertising rules, and developed draft guidance regarding the use of 
social media in the format of frequently asked questions (the 
``FAQs'').\8\
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    \6\ Consistent with MSRB Rule D-11, references in the FAQs to a 
dealer, municipal advisor, or a regulated entity generally include 
the associated persons of such dealer, municipal advisor, or 
regulated entity.
    \7\ Letter from Pamela K. Ellis, Associate General Counsel, 
Municipal Securities Rulemaking Board, dated April 30, 2018, 
available at http://msrb.org/~/media/Files/SEC-Filings/2018/MSRB-
2018-01%20MSRB%20Letter%20to%20SEC.ashx?
    \8\ Concurrent with the submission of this proposed rule change, 
the MSRB filed a proposed rule change to amend the advertising rules 
to exempt interactive content that is an advertisement and that 
would be posted or disseminated on an interactive electronic forum 
from the requirement that a municipal securities principal, general 
securities principal, or municipal advisor principal, as relevant, 
approve that advertisement prior to first use.
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    While developing the proposed rule change, the MSRB was mindful of 
the potential burden on a regulated entity if there were to be 
unnecessary inconsistencies between any adopted MSRB social media 
guidance and similar guidance issued by other regulators that may be 
applicable to other aspects of the regulated entity's business. To 
inform its approach, the MSRB consulted with staff from the Financial 
Industry Regulatory Authority, Inc. (``FINRA''). The MSRB endeavored, 
to the extent practicable, to align the FAQs with the social media 
guidance published by the SEC and FINRA.\9\
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    \9\ See, e.g., National Examination Risk Alert, Office of 
Compliance Inspections and Examinations, U.S. Securities and 
Exchange Commission (Jan. 4, 2012); Exchange Act Release No. 58288 
(Aug. 1, 2008); FINRA Regulatory Notice 17-18 (Apr. 2017) (``RN 17-
18''); and FINRA Regulatory Notice 10-06 (Jan. 2010) (``RN 10-06'').
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    The FAQs are divided into four categories: Use of social media, 
third-party posts, recordkeeping and supervision. Further, the FAQs 
would provide references to additional resources that may be of use to 
the regulated entity.
    Use of Social Media. The FAQs would provide guidance about when a 
regulated entity's or its associated person's use of social media 
becomes an ``advertisement'' under the advertising rules. The FAQs 
would clarify that, depending on the facts and circumstances and with 
limited exceptions, any material (including material that is posted on 
an associated person's personal social media) that relates to (i) the 
products or services of the dealer, (ii) the services of the municipal 
advisor, or (iii) the engagement of a municipal advisory client by the 
municipal advisor, may constitute an advertisement under the MSRB's 
advertising rules, if it is published or used in any electronic or 
other public media or written or electronic promotional literature 
distributed or made generally available to either customers or 
municipal entities, obligated persons, municipal advisory clients or 
the public.
    Further, the FAQs would address:
     The other MSRB rules to consider when a regulated entity 
uses social

[[Page 8133]]

media as part of its municipal securities or municipal advisory 
activities;
     the requirement for principal pre-approval of an 
advertisement; and
     a regulated entity's website hyperlinking to content on an 
independent third-party's website.
    In particular, the FAQs would highlight the other obligations under 
MSRB rules that regulated entities may have, in addition to those set 
forth in the advertising rules, regarding the use of social media. 
Those other regulatory obligations would include obligations under: 
Rule G-17, on conduct of municipal securities and municipal advisory 
activities; Rule G-27, on supervision; Rule G-44, on supervisory and 
compliance obligations of municipal advisors; Rule G-8, on books and 
records to be made by brokers, dealers, municipal securities dealers, 
and municipal advisors; and MSRB Rule G-9, on retention of records.
    Further, the FAQs would reinforce that a social media post that 
contains an advertisement, as defined under the advertising rules, 
would be subject to approval by a principal prior to its first use.
    The FAQs would provide guidance regarding hyperlinking to an 
independent third-party website from a regulated entity's website. The 
FAQs would discuss the concepts of entanglement--i.e., whether the 
regulated entity involved itself in the preparation of the content on 
the third-party website--and adoption--i.e., whether the regulated 
entity implicitly or explicitly approved or endorsed the content on 
that third-party website. The FAQs then would state that the 
advertising rules would apply to hyperlinked content on an independent 
third-party's website if the regulated entity either were to become 
entangled with or adopt that content.
    To assist regulated entities, the FAQs would identify various 
factors that would be relevant in determining whether a regulated 
entity has adopted or become entangled with the independent third-party 
hyperlinked content. Those factors would include: The context of the 
hyperlinked content; the potential for customer or municipal advisory 
client confusion about the source of the content; and the nature of the 
hyperlinked content (i.e., hosted by an independent third-party that is 
not controlled or influenced by the regulated entity with an 
``ongoing'' link). Further, the FAQs would provide that the inclusion 
by a regulated entity of a disclaimer would not, alone, be sufficient 
to avoid potential MSRB rule violations for hyperlinked content on an 
independent third-party website if the regulated entity knows, or has 
reason to know, that such content is materially false or misleading. 
However, the FAQs would highlight that MSRB rules would not apply to 
linked content within the independent hyperlinked content to which the 
regulated entity had hyperlinked.
    Third-party posts. The FAQs would provide guidance regarding when a 
post by a customer, a municipal entity client or another third-party 
(collectively, a ``third-party post'') on a regulated entity's social 
media page may be considered advertising under the advertising rules. 
Further, the FAQs would provide that if the regulated entity were to 
become entangled with or adopt such third-party posts, such third-party 
posts would become subject to the advertising rules.
    In addition, the FAQs would provide guidance regarding whether a 
municipal advisory client may post positive comments on a municipal 
advisor's social media page about the municipal advisor's municipal 
advisory activities without that post being deemed an advertisement 
containing a testimonial under Rule G-40. That guidance would provide 
that such post on the municipal advisor's social media page would only 
be deemed to be an advertisement containing a testimonial under Rule G-
40 if the municipal advisor were to either be entangled with or adopt 
the post.
    Recordkeeping. The FAQs would clarify that ``posts,'' ``chats,'' 
text messages, or messages sent through messaging applications related 
to a regulated entity's municipal securities or municipal advisory 
activities conducted through social media--regardless of (i) whether 
the social media is specifically identified as business or personal, 
(ii) the technology used for the messaging, or (iii) the device used 
for the messaging was issued by the regulated entity-- are subject to 
the MSRB's recordkeeping rules (i.e., Rules G-8 and G-9).
    Specifically, for dealers, Rule G-9(b)(viii)(C) requires that ``all 
written and electronic communications received and sent, including 
inter-office memoranda, relating to the conduct of the activities of 
such municipal securities broker or municipal securities dealer with 
respect to municipal securities'' be retained. Similarly, for municipal 
advisors, Rule G-9(h)(i) requires the retention of records, which 
include, among other things, originals or copies of all written and 
electronic communications received and sent, including inter-office 
memoranda, relating to municipal advisory activities.\10\ Neither the 
technology used for the communication nor the distinction between a 
communication made through a devise issued by a regulated entity or its 
associated person's personal device is determinative for this 
requirement.
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    \10\ Rule G-8(f) provides in part that ``[b]rokers, dealers and 
municipal securities dealers other than bank dealers which are in 
compliance with rule 17a-3 of the Commission will be deemed to be in 
compliance with the requirements of this rule, provided that'' 
certain information is maintained. Rule 17a-3(a)(20) under the 
Exchange Act provides that every dealer shall keep a:
     record, which need not be separate from the advertisements, 
sales literature, or communications, documenting that the member, 
broker or dealer has complied with, or adopted policies and 
procedures reasonably designed to establish compliance with, 
applicable federal requirements and rules of a self-regulatory 
organization of which the member, broker or dealer is a member which 
require that advertisements, sales literature, or any other 
communications with the public by a member, broker or dealer or its 
associated persons be approved by a principal.
    Rule G-8(h)(i) requires municipal advisors to make and keep 
current all books and records described in Rule 15Ba1-8(a) under the 
Exchange Act. In particular, Rule 15Ba1-8(a)(1) requires that 
municipal advisors make and keep true, accurate, and current 
``originals or copies of all written communications received, and 
originals or copies of all written communications sent, by such 
municipal advisor (including inter-office memoranda and 
communications) relating to municipal advisory activities, 
regardless of the format of such communications.''
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    Supervision. The FAQs would list MSRB rules, including the 
advertising rules, Rule G-17, Rule G-8 and Rule G-9, as well as other 
factors, such as usage restrictions, training and education, 
recordkeeping and monitoring, that are relevant to the development of 
policies and procedures regarding social media use. The FAQs also would 
provide guidance under Rule G-27 and Rule G-44 about factors that may 
be important for a regulated entity to consider in determining the 
effectiveness of its policies and procedures regarding social media.
    Additional materials. The FAQs also would refer to resources where 
additional information about the MSRB's advertising rules could be 
obtained. Those resources would include the materials submitted to the 
Commission in File No. SR-MSRB-2018-01 related to the recent amendments 
to Rule G-21 and new Rule G-40, MSRB Notice 2018-08 concerning the 
SEC's approval of those recent amendments to Rule G-21 and new Rule G-
40 and MSRB Notice 2018-32 concerning the application of the content 
standards to advertisements by municipal advisors under Rule G-40.

[[Page 8134]]

2. Statutory Basis
    Section 15B(b)(2) of the Exchange Act \11\ provides that:
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    \11\ 15 U.S.C. 78o-4(b)(2).

[t]he 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, 
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municipal securities dealers, and municipal advisors.

    Section 15B(b)(2)(C) of the Exchange Act \12\ provides that the 
MSRB's rules shall:
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    \12\ 15 U.S.C. 78o-4(b)(2)(C).

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, 
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municipal entities, obligated persons, and the public interest.

    The MSRB believes that the proposed rule change is consistent with 
Sections 15B(b)(2) \13\ and 15B(b)(2)(C) \14\ of the Exchange Act. The 
proposed rule change would help to prevent fraudulent and manipulative 
practices; foster coordination with persons engaged in regulating 
transactions in municipal securities; and protect investors, municipal 
entities, obligated persons, and the public interest.
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    \13\ 15 U.S.C. 78o-4(b)(2).
    \14\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB believes that the proposed rule change is designed to 
prevent fraudulent and manipulative practices. The proposed rule change 
would provide guidance to a regulated entity regarding the use of 
social media under the advertising rules. By providing this guidance, 
the MSRB makes clear that certain social media use by a regulated 
entity would be advertising, and as such, that social media use must 
comply with the standards of the advertising rules, including the 
content standards. Those standards provide, among other requirements, 
that advertisements be based on the principles of fair dealing and good 
faith, be fair and balanced, and provide a sound basis for evaluating 
the facts and that the advertisements not make any false, exaggerated, 
unwarranted, promissory or misleading statement or claim.
    Because the MSRB has endeavored to make its advertising rules, 
including its social media guidance, consistent with the communications 
rules and social media guidance published by other financial 
regulators, to the extent practicable, a regulated entity that is 
dually registered as a broker, dealer or investment adviser with the 
SEC may be able to more easily understand and develop consistent 
practices across business lines, and therefore promote compliance with 
the MSRB's advertising rules. In turn, this improved compliance would 
help prevent fraudulent and manipulative practices because the proposed 
rule change is designed to assist with and promote compliance with the 
advertising rules, rules that in and of themselves are designed to 
prevent fraudulent and manipulative practices.\15\
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    \15\ See Exchange Act Release No. 83177 (May 7, 2018), 83 FR 
21794 (May 10, 2018) (File No. SR-MSRB-2018-01).
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    In addition, the proposed rule change would foster coordination 
with persons engaged in regulating transactions in municipal 
securities. As noted under ``Self-Regulatory Organization's Statement 
of the Purpose of, and Statutory Basis for, the Proposed Rule Change,'' 
regulatory coordination has already occurred with respect to the 
proposed rule change as the MSRB has consulted with FINRA staff to 
inform its approach to the FAQs. Further, by providing social media 
guidance that would be consistent with the social media guidance of 
other financial regulators (including the social media guidance 
published by the SEC and FINRA, regulators that are charged with 
inspecting for compliance with MSRB rules), to the extent practicable, 
those other financial regulators would be familiar with the social 
media guidance, which in turn, should foster efficient examinations by 
those other financial regulators of MSRB-regulated entities. In 
addition, a regulated entity that is dually registered with the MSRB 
and with FINRA would be treated the same under the advertising rules as 
a regulated entity that is registered with the MSRB and not with FINRA. 
Thus, because the MSRB has endeavored to make the proposed rule change 
consistent with the communications rules and social media guidance of 
FINRA, the proposed rule change would help ensure that all regulated 
entities are subject to consistent advertising regulation.
    The proposed rule change also would help protect investors and the 
public interest. The MSRB believes that the clear guidance provided by 
the proposed rule change would help to ensure that social media use by 
a regulated entity that constitutes advertising complies in a 
consistent way with the advertising rules as well as relevant 
supervision and recordkeeping rules.

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

    Section 15B(b)(2)(C) of the Exchange Act \16\ requires that MSRB 
rules not be designed to impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Exchange Act.
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    \16\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB's policy on the use of economic analysis does not apply to 
rulemaking proposals for which the MSRB seeks immediate 
effectiveness.\17\ However, even though the MSRB did not conduct a full 
economic analysis of the proposed rule change, the MSRB still conducted 
an internal analysis to gauge the economic impact of the proposed rule 
change, with an emphasis on the burden on competition involving 
regulated entities.
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    \17\ The scope of the Board's policy on the use of economic 
analysis in rulemaking provides that:
    [t]his Policy addresses rulemaking activities of the MSRB that 
culminate, or are expected to culminate, in a filing of a proposed 
rule change with the SEC under Section 19(b) of the Exchange Act, 
other than a proposed rule change that the MSRB reasonably believes 
would qualify for immediate effectiveness under Section 19(b)(3)(A) 
of the Exchange Act if filed as such or as otherwise provided under 
the exception process of this Policy.
    Policy on the Use of Economic Analysis in MSRB Rulemaking, 
available at http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx. For those rule changes which the MSRB seeks 
immediate effectiveness, the MSRB usually focuses exclusively its 
examination on the burden of competition on regulated entities.

    In this regard, the MSRB believes the proposed rule change is 
necessary and appropriate in the furtherance of the purposes of the 
Exchange Act because it would promote compliance by regulated entities 
by promoting clarity regarding the intended application of the MSRB's 
rules and would reduce confusion concerning the application of its 
rules. The MSRB also believes the proposed rule change would promote 
regulatory consistency with the social media guidance published by the 
SEC and FINRA. In addition, the proposed rule change would apply the 
social media guidance uniformly to dealers and municipal advisors, to 
the extent practicable, which promotes consistency and preserves 
competitive balance between regulated entities with different business 
models.

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Effect on Competition, Efficiency and Capital Formation
    The MSRB does not believe that the proposed rule change would 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Exchange Act, as the 
proposed rule change is applicable to all dealers and municipal 
advisory firms.
    Section 15B(b)(2)(L)(iv) of the Exchange Act \18\ provides that 
MSRB rules may ``not impose a regulatory burden on small municipal 
advisors that is not necessary or appropriate in the public interest 
and for the protection of investors, municipal entities, and obligated 
persons, provided that there is robust protection of investors against 
fraud.'' The MSRB believes that, although the proposed rule change 
would affect all municipal advisors, including small municipal 
advisors, the proposed rule change is meant to clarify existing MSRB 
rules and therefore would not impose additional burdens on municipal 
advisors regardless of firm size.
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    \18\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The MSRB sought public comment on the FAQs in draft form.\19\ In 
response to that request for comment, the MSRB received four comment 
letters.\20\ Commenters generally expressed support for the guidance 
contained in the FAQs, but also expressed various concerns and 
suggested certain revisions. In particular, commenters focused on three 
areas--interactive versus static communications, interpretations of 
FINRA's social media guidance, and additional guidance.\21\ Below, the 
MSRB discusses the comments received.\22\
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    \19\ MSRB Notice 2018-19 (Aug. 14, 2018) (the ``request for 
comment'').
    \20\ Letter from Mike Nicholas, Chief Executive Officer, Bond 
Dealers of America, dated September 14, 2018 (``BDA''); Letter from 
Susan Gaffney, Executive Director, National Association of Municipal 
Advisors, dated September 17, 2018 (``NAMA''); Letter from Leslie M. 
Norwood, Managing Director and Associate General Counsel, Securities 
Industry and Financial Markets Association, dated September 14, 2018 
(``SIFMA''); and Letter from Robert J. McCarthy, Director, 
Regulatory Policy, Wells Fargo Advisors, dated September 14, 2018 
(``Wells Fargo'').
    \21\ NAMA also stated that ``we would like to continue to 
express our general concern with having the MSRB produce guidance 
that is not formally approved by the SEC.'' NAMA letter at 1. 
Further, NAMA stated ``we do not believe that the information 
provided in the FAQs should instead be provided through amending 
current rules or developing new ones. The nature of this medium is 
fluid and dynamic. The MSRB should retain sufficient flexibility to 
update guidance as warranted, and doing so through rulemaking would 
be premature and constricting.'' The MSRB has filed the FAQs with 
the Commission in a format that is more flexible than rule text for 
making future changes as appropriate in this evolving area. In 
addition, the MSRB has filed a proposed rule change to amend the 
advertising rules that the SEC will consider. By so doing, the MSRB 
believes that it has been responsive to NAMA's concerns.
    Further, NAMA commented that the MSRB's factors that a regulated 
entity ``should consider their recordkeeping obligations under 
`Recordkeeping and Record Retention' in question 13 amounts to 
merely issue spotting and provides no guidance.'' NAMA letter at 5. 
To provide municipal advisors with the flexibility to develop 
policies and procedures that reflect the municipal advisor's 
organization, the MSRB developed a primarily principles-based 
approach to supervision and compliance. Consistent with that 
determination, the guidance in FAQ question 11 (hereinafter, 
references to a given ``question'' are to a specific numbered 
question in the FAQs, unless otherwise noted or the context 
otherwise requires) is principles-based (question 11 was previously 
question 13 in the request for comment). As the MSRB believes that 
its response in question 11 is consistent with the MSRB's approach 
in Rule G-44, the MSRB has determined not to revise question 11 in 
response to NAMA's concerns regarding principles-based guidance.
    \22\ Commenters expressed concerns about recordkeeping as it 
relates to associated persons' personal social networking pages and 
to the costs of recordkeeping for small municipal advisors. The MSRB 
determined that these FAQs were not the appropriate forum to address 
recordkeeping requirements under the federal securities laws. 
However, the MSRB may choose to address the issue, as it relates to 
MSRB rules, in the future.
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Interactive Versus Static Communications
    Commenters requested that the MSRB adopt the concepts of 
interactive and static content posted or disseminated to social media 
sites as described in FINRA Regulatory Notice 10-06.\23\ In that 
notice, FINRA provides examples of both interactive and static content, 
and provides guidance that the definition of public appearance under 
FINRA Rule 2210(f) includes unscripted participation in an interactive 
electronic forum.\24\ Since RN 10-06, however, FINRA has amended FINRA 
Rule 2210 so that such communications are now defined as retail 
communications that are excepted from the requirement of principal pre-
approval.\25\ Nevertheless, such retail communications in interactive 
forums are subject to other supervisory requirements and are subject to 
content standards of FINRA's communications rule.\26\ However, FINRA 
considers static content to constitute ``advertisements'' under FINRA 
Rule 2210 and requires principal approval of such content prior to 
posting.\27\
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    \23\ BDA letter; NAMA letter at 4-5; SIFMA letter at 2; and 
Wells Fargo letter at 2-3.
    \24\ RN 10-06 at 4-5.
    \25\ FINRA Rule 2210(b)(1)(D) excepts from the requirement of 
principal pre-approval under FINRA Rule 2210(b)(1)(A) retail 
communications posted on an online interactive electronic form that 
the firm supervises and reviews in the same manner as correspondence 
set forth in Rule 3110(b). See FINRA Regulatory Notice 12-29 (June 
2012) at 7 citing RN 10-06.
    \26\ Id.
    \27\ RN 10-06 at 5.
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    In response, the MSRB has determined to propose to amend its 
advertising rules to address commenters' suggestions. Concurrent with 
this proposed rule change, the MSRB has submitted a separate proposed 
rule change with the Commission to do so.

Interpretations of FINRA's Social Media Guidance

    Commenters requested that the MSRB adopt their interpretations of 
certain aspects of FINRA's social media guidance. Specifically, 
commenters requested that the MSRB adopt interpretations regarding the 
adoption of third-party content, hyperlinks, and FINRA's social media 
guidance.
    Adoption. SIFMA commented that ``SIFMA and its members ``don't view 
`liking' as the adoption of content'' and explained that current FINRA 
guidance defines adoption ``in regard to sharing or linking'' but not 
`liking'.'' \28\ Similarly, Wells Fargo suggested that the FAQs would 
not align with FINRA's guidance in FINRA Regulatory Notice 17-18 
regarding adoption because simply ``liking'' a post does not rise to 
the level of ``sharing'' or ``linking.'' \29\
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    \28\ SIFMA letter at 3.
    \29\ Wells Fargo letter at 2.
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    FINRA has provided guidance that it would deem adoption as 
explicitly or implicitly endorsing or approving third-party content, 
and that by liking or sharing unsolicited favorable third-party content 
posted on a representative's business-use social media website, the 
representative would be adopting that content.\30\ In addition, the 
MSRB submits that FINRA's guidance relating to ``shares'' and ``links'' 
to which commenters refer, by its own terms, does not provide the 
exclusive list of how a firm can adopt independent third-party content, 
but rather responds to a narrow question regarding sharing and 
linking.\31\ Consistent with the SEC's

[[Page 8136]]

and FINRA's social media guidance, the FAQs would provide that a 
regulated entity may adopt the content of a third-party post if the 
regulated entity explicitly or implicitly approves or endorses the 
content. Further, based on that guidance, the FAQs would provide that, 
if a regulated entity ``likes'' or otherwise indicates approval with 
that third-party post, then the regulated entity has adopted that 
third-party post. The FAQs would provide non-exclusive factors for a 
regulated entity to consider when determining whether the regulated 
entity has adopted third-party content.
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    \30\ RN 17-18 at Q9 (``[b]y liking or sharing favorable 
comments, the representative has adopted them and they are subject 
to the communications rules . . .'').
    \31\ RN 17-18 provides:
     Q3: If a firm shares or links to specific content posted by an 
independent third-party such as an article or video, has the firm 
adopted the content?
    A: By sharing or linking to specific content, the firm has 
adopted the content and would be responsible for ensuring that, when 
read in context with the statements in the originating post, the 
content complies with the same standards as communications created 
by, or on behalf of, the firm.

    The MSRB believes that the FAQs would correctly interpret the 
theory of adoption as it applies to ``likes'' of third-party content 
and would promote regulatory consistency with the interpretations of 
other financial regulations. The MSRB has determined not to modify the 
FAQs in response to SIFMA's and Wells Fargo's suggestions for 
``liking'' a post as doing so would create disharmony among the 
applicable regulatory interpretations.
    Relatedly, NAMA provided three suggestions regarding adoption and 
entanglement. NAMA suggested that the FAQs' guidance regarding the 
entanglement or adoption by a municipal advisor of third-party content 
was inconsistent with the MSRB's guidance in MSRB Notice 2018-24 
regarding testimonials. In particular, NAMA expressed concern that by 
simply allowing third-parties to post on a municipal advisor's social 
networking page, and specifically, by allowing a municipal advisory 
client to post positive comments on a municipal advisor's social 
networking page, the municipal advisor, itself, would be allowing an 
advertisement that was a testimonial to be posted. As provided in 
question 8, a municipal advisor would only be posting an advertisement 
that contains a prohibited testimonial under Rule G-40 if the municipal 
advisor were to become entangled with or adopt the positive comments of 
the municipal advisory client. To provide clarity, the MSRB has revised 
question 8 so that it now asks ``May a municipal advisory client post 
positive comments about its experience with the municipal advisor on 
the municipal advisor's social media page without such post being 
deemed a testimonial within Rule G-40?''
    Further, NAMA suggested that the use of the term ``encourage'' when 
defining entanglement was inconsistent with SEC and FINRA language 
regarding entanglement.\32\ To be responsive to NAMA's concerns, the 
MSRB has deleted references to ``encourage'' when discussing 
entanglement.
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    \32\ NAMA letter at 3.
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    NAMA also suggested that the MSRB explicitly define the terms 
``customer complaint'' and ``municipal advisory client complaint'' when 
discussing third-party posts on an associated person's social 
networking page.\33\ After considering NAMA's suggestion, the FAQs 
provide a reference to the definition of those terms in Rule G-8.
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    \33\ Id.
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    Hyperlinks. SIFMA and Wells Fargo recommended that the MSRB align 
its guidance in question 4 relating to ongoing links with the guidance 
provided by FINRA in question 5 in RN 17-18.\34\ In particular, those 
commenters suggested that FINRA has provided guidance that the 
determination of whether an ongoing hyperlink contains misleading 
information is only made at the time the firm determines to offer a 
particular hyperlink.\35\ SIFMA and Wells Fargo note that a firm would 
not have the capacity to monitor the third-party website on a continual 
basis.\36\
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    \34\ SIFMA letter at 3; Wells Fargo letter at 3.
    \35\ Id.
    \36\ SIFMA letter at 3; see Wells Fargo letter at 3. Wells Fargo 
also suggested that it was unclear why it is necessary to review the 
link's content for testimonial status. The FAQs provide that, if the 
hyperlinked content on a third-party website from a regulated 
entity's website is an advertisement under the advertising rules, a 
regulated entity must consider all applicable provisions of the 
advertising rules including whether the hyperlinked content would be 
a testimonial. The need to review a hyperlink's content for 
testimonial status would stem from any prior determination that the 
hyperlinked content is advertising under the advertising rules.
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    Question 4 would provide guidance about ongoing links that would 
promote regulatory consistency with FINRA's guidance in question 5 of 
RN 17-18. In particular, the FAQs would define an ongoing link,\37\ 
consistent with FINRA's definition of an ongoing link,\38\ and provide 
guidance that hyperlinked content may not be advertising subject to the 
advertising rules if the hyperlink containing the independent third-
party content is ongoing and the regulated entity has no influence or 
control over the independent third-party hosting the content. The FAQs 
then would provide guidance about the factors that a regulated entity 
may want to consider if the hyperlinked content is advertising subject 
to the advertising rules. Similar to FINRA's guidance in RN 17-18, 
question 4 in MSRB's FAQs would not specifically address requirements 
to monitor an ongoing link under the MSRB's advertising rules.\39\ 
Because the MSRB believes that the FAQs' guidance regarding ongoing 
hyperlinks would promote regulatory consistency with the relevant 
guidance of other financial regulators, the MSRB has determined not to 
expand the guidance regarding ongoing hyperlinks to address commenters' 
suggestions.
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    \37\ Question 4 would provide, in part, as follows:
    When a regulated entity links to content that is hosted by an 
independent third-party that is not controlled by the regulated 
entity, that content may not be advertising subject to the MSRB's 
advertising rules if the hyperlink is ``ongoing.''
    An ``ongoing'' link is one which: (i) Is continuously available 
to visitors to the regulated entity's website; (ii) visitors to the 
regulated entity's site have access to even though the independent 
third-party site may or may not contain favorable material about the 
regulated entity; and (iii) visitors to the regulated entity's 
website have access to even though the independent third-party's 
website may be revised. (footnote omitted) A regulated entity may 
not have adopted the content on the independent third-party's 
website if the link is ``ongoing.''
    \38\ RN 17-18, question 5, provides, in part, as follows:
    Whether a firm has adopted the content of an independent third-
party website or any section of the website through the use of a 
link is fact dependent. Two factors are critical to the analysis: 
(1) Whether the link is ``ongoing'' and (2) whether the firm has 
influence or control over the content of the third-party site.
    The firm has not adopted the content if the link is ``ongoing,'' 
meaning:
    [rtarr9] the link is continuously available to investors who 
visit the firm's site;
    [rtarr9] investors have access to the linked site whether or not 
it contains favorable material about the firm; and
    [rtarr9] the linked site could be updated or changed by the 
independent third- party and investors would nonetheless be able to 
use the link.
    \39\ For example, a regulated entity cannot post content that it 
knows or has reason to know contains any untrue statement of 
material fact or is otherwise false or misleading.
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    Adoption of FINRA social media guidance. SIFMA suggested that, 
because FINRA has a long history of rulemaking and guidance with 
respect to social media issues, it would be helpful if dealers could 
rely on FINRA's social media or other guidance.'' \40\ The MSRB 
appreciates SIFMA's suggestion, and in developing the FAQs, the MSRB 
was mindful of the potential burden on a regulated entity if there were 
to be unnecessary inconsistencies between any adopted MSRB social media 
guidance and similar guidance issued by other regulators that may be 
applicable to other aspects of the regulated entity's business. To that 
end, and to the extent practicable, the MSRB

[[Page 8137]]

endeavored to align the FAQs with the social media guidance published 
by the SEC and FINRA.
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    \40\ SIFMA stated that ``it would be helpful if dealers could 
rely on outstanding FINRA enforcement actions or other guidance on 
social media issues.'' SIFMA letter at 3. The MSRB is not in a 
position to determine when and whether statements contained in FINRA 
enforcement actions, whether settled or fully litigated, involving 
FINRA rules even constitute or reflect official interpretations that 
are binding on FINRA members.
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    The MSRB is aware that the use of social media is an evolving 
landscape, and recognizes that the MSRB will likely need to continue to 
issue guidance in this area as practices and technology evolve and as 
other regulators issue new rules and official guidance regarding social 
media. The MSRB will continue to monitor developments in this area 
(including rules and guidance of other regulators and enforcement 
matters) and to seek input from regulated entities regarding the need 
to issue additional guidance. In so doing, the MSRB will continue to be 
mindful of the importance of regulatory certainty for regulated 
entities as well as avoiding unnecessary discrepancies between the 
obligations of dealers and municipal advisors, including between 
municipal advisors that are also registered as dealers and municipal 
advisors that are not registered as dealers (that may include municipal 
advisors that are banks).
    Related to SIFMA's suggestion about adopting FINRA's social media 
guidance, are NAMA's questions regarding the MSRB's use of footnotes to 
reference FINRA's social media guidance and the SEC's social media 
guidance in the FAQs. Specifically, NAMA questions what the footnotes 
mean. The MSRB endeavors to promote regulatory consistency with other 
financial regulators, when appropriate. The MSRB provided certain 
references to where the MSRB is promoting regulatory consistency with 
the social media guidance of other regulators. Those footnotes, 
however, are not intended to suggest that regulated entities that are 
not already subject to the guidance issued by the SEC and FINRA are now 
obligated to act consistent with the MSRB's social media guidance as 
well as with the social guidance published by the SEC or FINRA.
Additional Guidance
    The request for comment solicited suggestions where additional 
guidance regarding social media use would be helpful.\41\ Commenters 
provided suggestions specifically relating to the social media guidance 
provided by the FAQs as discussed above, as well as to other relevant 
topics. NAMA suggested that the MSRB provide additional social media 
guidance specifically relating to disclaimers and hyperlinks. In 
addition, NAMA suggested that the MSRB provide municipal advisors 
guidance on the supervisory obligations related to the use of 
electronic communications technology by a firm's associated persons 
similar to FINRA's guidance in FINRA Regulatory Notice 07-59.\42\ NAMA 
noted that such guidance could be particularly helpful to small 
municipal advisors in assessing the compliance costs associated with 
social media usage.\43\ SIFMA also provided suggestions. Specifically, 
SIFMA provided a list of other issues that would benefit from further 
clarification that included, among other issues, the definition of 
advertising and exemptions thereof, and documentation standards.
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    \41\ Request for comment at 2.
    \42\ FINRA Regulatory Notice 07-59 (Dec. 2007).
    \43\ NAMA letter at 5-6. In addition, NAMA provided suggestions 
that were beyond the scope of the social media guidance that related 
to the fundamental text of Rule G-40 and the economic analysis of 
the compliance costs associated with Rule G-40.
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    Any comments that may not have been specifically addressed in the 
FAQs provide valuable input to inform the MSRB as it considers 
developing additional guidance.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \44\ and Rule 19b-
4(f)(6) thereunder.\45\
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    \44\ 15 U.S.C. 78s(b)(3)(A).
    \45\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2019-04 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2019-04. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the MSRB. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MSRB-2019-04 and should be submitted on 
or before March 27, 2019.

    For the Commission, pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03989 Filed 3-5-19; 8:45 am]
BILLING CODE 8011-01-P