Document ID: SEC-2019-1688-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2019-11-13T05:00Z

[Federal Register Volume 84, Number 219 (Wednesday, November 13, 2019)]
[Notices]
[Pages 61660-61670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24601]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87478; File No. SR-MSRB-2019-10]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 2 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1 and Amendment No. 2, To Amend and Restate the MSRB's 
August 2, 2012 Interpretive Notice Concerning the Application of Rule 
G-17 to Underwriters of Municipal Securities

November 6, 2019.

I. Introduction

    On August 1, 2019, the Municipal Securities Rulemaking Board (the 
``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'' or 
``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change (the 
``original proposed rule change'') to amend and restate the MSRB's 
August 2, 2012 interpretive notice concerning the application of MSRB 
Rule G-17 to underwriters of municipal securities (the ``2012 
Interpretive Notice'').\3\ The original proposed rule change was 
published for comment in the Federal Register on August 9, 2019.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The 2012 Interpretive Notice was approved by the SEC on May 
4, 2012 and became effective on August 2, 2012. See Release No. 34-
66927 (May 4, 2012); 77 FR 27509 (May 10, 2012) (File No. SR-MSRB-
2011-09); and MSRB Notice 2012-25 (May 7, 2012). The 2012 
Interpretive Notice is available here.
    \4\ Exchange Act Release No. 86572 (Aug. 5, 2019), 84 FR 39646 
(Aug. 9, 2019) (``Notice of Filing''). The comment period closed on 
August 30, 2019.
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    The Commission received three comment letters in response to the 
original proposed rule change.\5\ On September 10, 2019, the MSRB 
granted an extension of time for the Commission to act on the filing 
until November 7, 2019. On October 7, 2019, the MSRB responded to the 
comments \6\ and filed Amendment No. 1 to the original proposed rule 
change (``Amendment No. 1'').\7\ The Commission published notice of 
Amendment No. 1 in the Federal Register on October 15, 2019.\8\ In 
response to Amendment No. 1, the Commission received three comment 
letters.\9\ On October 31, 2019, the MSRB submitted a response to 
comments received on Amendment No. 1 \10\ and

[[Page 61661]]

filed Amendment No. 2 to the original proposed rule change (``Amendment 
No. 2'').\11\ This order approves the original proposed rule change, as 
modified by Amendment No. 1 and Amendment No. 2 (as so modified, the 
``proposed rule change''), on an accelerated basis.
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    \5\ See Letter to Secretary, Commission, from Tamara K. Salmon, 
Associate General Counsel, Investment Company Institute dated Aug. 
26, 2019 (the ``ICI Letter''), Letter to Secretary, Commission, from 
Leslie M. Norwood, Managing Director and Associate General Counsel, 
Securities Industry and Financial Markets Association, dated August 
30, 2019 (the ``First SIFMA Letter''); Letter to Secretary, 
Commission, from Susan Gaffney, Executive Director, National 
Association of Municipal Advisors, dated August 30, 2019 (the 
``First NAMA Letter'').
    \6\ See Letter to Secretary, Commission, from Gail Marshall, 
Chief Compliance Officer, MSRB, dated October 7, 2019 (the ``First 
Response Letter''), available at https://www.sec.gov/comments/sr-msrb-2019-10/srmsrb201910-6261133-193028.pdf.
    \7\ Amendment No. 1 is available at http://msrb.org/~/media/
Files/SEC-Filings/2019/MSRB-2019-10-A-1.ashx?.
    \8\ See Exchange Act Release No. 87255 (October 8, 2019), 84 FR 
55192 (October 15, 2019) (the ``Notice of Amendment No. 1''). The 
comment period closed on October 29, 2019.
    \9\ See Letter to Secretary, Commission, from Susan Gaffney, 
Executive Director, National Association of Municipal Advisors, 
dated October 29, 2019 (the ``Second NAMA Letter''); Letter to 
Secretary, Commission, from Leslie M. Norwood, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association, dated October 29, 2019 (the ``Second SIFMA Letter''); 
Letter to Secretary, Commission, from Michael Nicholas, Chief 
Executive Officer, Bond Dealers of America, dated October 29, 2019 
(the ``BDA Letter'').
    \10\ See Letter to Secretary, Commission, from Gail Marshall, 
Chief Compliance Officer, MSRB, dated October 31, 2019 (the ``Second 
Response Letter'' and, together with the First Response Letter, the 
``MSRB Response Letters''), available at https://www.sec.gov/comments/sr-msrb-2019-10/srmsrb201910-6381148-197768.pdf.
    \11\ Amendment No. 2 is available at http://msrb.org/~/media/
Files/SEC-Filings/2019/MSRB-2019-10-A-2.ashx?.
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II. Description of Proposed Rule Change

    As described more fully in the Notice of Filing, Amendment No. 1, 
and Amendment No. 2, the MSRB stated that the purpose of the proposed 
rule change is to update and streamline certain obligations specified 
in the 2012 Interpretive Notice (the 2012 Interpretive Notice, so 
amended by the proposed rule change, is referred to herein as the 
``Revised Interpretive Notice'') and, thereby, benefit issuers and 
underwriters of municipal securities alike by reducing the burdens 
associated with those obligations, including the obligation of 
underwriters to make, and the burden on issuers to acknowledge and 
review, written disclosures that itemize risks and conflicts that are 
unlikely to materialize during the course of a transaction, not unique 
to a given transaction or a particular underwriter where a syndicate is 
formed, and/or otherwise duplicative.\12\
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    \12\ See Notice of Filing.
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A. Incorporation of Subsequent MSRB Guidance Into Revised Interpretive 
Notice

    The MSRB stated that the proposed rule change would integrate 
certain concepts (with revisions as described in the Notice of Filing, 
Amendment No. 1, and Amendment No. 2) from (i) the MSRB's 
implementation guidance dated July 18, 2012 concerning the 2012 
Interpretive Notice (the ``Implementation Guidance'') \13\ and (ii) the 
regulatory guidance dated March 25, 2013 answering certain frequently 
asked questions regarding the 2012 Interpretive Notice (the ``FAQs'') 
\14\ into the Revised Interpretive Notice, thereby consolidating the 
Implementation Guidance, FAQs, and the Revised Interpretive Notice into 
a single publication.\15\
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    \13\ See MSRB Notice 2012-38 (July 18, 2012).
    \14\ See MSRB Notice 2013-08 (Mar. 25, 2013).
    \15\ See Notice of Filing.
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i. Applicability of the Revised Interpretive Notice to the Continuous 
Offering of Municipal Fund Securities
    The MSRB noted that the Implementation Guidance makes clear that 
the 2012 Interpretive Notice applies not only to primary offerings of 
new issues of municipal bonds and notes by an underwriter, but also to 
a dealer serving as primary distributor (but not to dealers serving 
solely as selling dealers) in a continuous offering of municipal fund 
securities, such as interests in 529 savings plans.\16\ In the original 
proposed rule change, the MSRB incorporated this concept from the 
Implementation Guidance, adding a reference to Achieving a Better Life 
Experience (ABLE) programs.\17\ In response to concerns raised in the 
comments to the original proposed rule change, the MSRB proposed in 
Amendment No. 1 and Amendment No. 2 to modify the proposed rule change 
to state, ``[t]his notice does not apply to a dealer acting as a 
primary distributor in a continuous offering of municipal fund 
securities.'' \18\ Thus, the MSRB stated, the original proposed rule 
change, as revised by Amendment No. 1 and Amendment No. 2, makes clear 
that the specific fair dealing duties outlined in the proposed rule 
change--which articulate the delivery of certain disclosures at 
particular times during the course of an underwriting transaction--
would not be applicable to the situations of a dealer serving as a 
primary distributor in a continuous offering of municipal fund 
securities.\19\ The MSRB noted that Amendment No. 1 did not revise the 
portion of the text of the original proposed rule change indicating 
that the fair dealing obligations outlined in the interpretive notice 
may serve as one of many bases for dealers acting in a capacity not 
specifically addressed therein--such as a dealer serving as a primary 
distributor in a continuous offering of municipal fund securities--to 
determine how to establish appropriate policies and procedures for 
ensuring it meets its fair dealing obligations under Rule G-17.\20\
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    \16\ Id.
    \17\ Id.
    \18\ See Amendment No. 1, Amendment No. 2.
    \19\ See Amendment No. 1.
    \20\ Id.
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ii. Applicability of the Revised Interpretive Notice to a Primary 
Offering That Is Placed With Investors by a Placement Agent
    The MSRB noted that the Implementation Guidance provides that no 
type of underwriting is wholly excluded from the application of the 
2012 Interpretive Notice, including certain private placement 
activities.\21\ The MSRB stated that the proposed rule change would 
incorporate this concept from the Implementation Guidance into the 
Revised Interpretive Notice with certain revisions, as discussed in 
further detail in the Notice of Filing and Amendment No. 1.\22\ 
Pursuant to Amendment No. 1, the MSRB added language to the Revised 
Interpretive Notice clarifying that the disclosures delivered by an 
underwriter to an issuer must not be inaccurate or misleading, and that 
nothing in the Revised Interpretive Notice should be construed as 
requiring an underwriter to make a disclosure to an issuer that is 
false.\23\
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    \21\ See Notice of Filing.
    \22\ See Notice of Filing, Amendment No. 1.
    \23\ See Amendment No. 1.
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    In addition, the MSRB stated that the proposed rule change would 
update the 2012 Interpretive Notice by incorporating supplemental 
language into the Revised Interpretive Notice intended to harmonize it 
with the Commission's adoption of its permanent rules regarding the 
registration and record-keeping requirements applicable to municipal 
advisors, and related exclusions and exceptions, which went into effect 
after the effective date of the 2012 Interpretive Notice.\24\ The MSRB 
stated that it believes that the guidance provided by this harmonizing 
language is in keeping with the existing references included in the 
2012 Interpretive Notice and its guidance regarding the existence of 
other relevant or similar legal obligations that could have a bearing 
on an underwriter's fair dealing obligations under Rule G-17.\25\
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    \24\ See Notice of Filing.
    \25\ Id.
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iii. Statements Regarding Negotiated Offerings and Defining Negotiated 
and Competitive Offerings for Purposes of the Revised Interpretive 
Notice
    The MSRB stated that by its terms, and as presently stated in the 
Implementation Guidance, the 2012 Interpretive Notice applies primarily 
to negotiated offerings of municipal securities, with many of its 
provisions not applicable to competitive offerings.\26\ The MSRB noted 
that the Implementation Guidance clarified what constitutes a 
negotiated offering for purposes of the 2012 Interpretive Notice, and 
the MSRB stated that the proposed rule change would incorporate this 
language into the Revised Interpretive Notice.\27\
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    \26\ Id.
    \27\ Id.

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[[Page 61662]]

iv. Applicability of the Revised Interpretive Notice to Persons Other 
Than Issuers of Municipal Securities
    The MSRB noted that the 2012 Interpretive Notice outlines the 
duties that a dealer owes to an issuer of municipal securities when the 
dealer underwrites a new issuance, and that the Implementation Guidance 
provides that the 2012 Interpretive Notice ``does not set out the 
underwriter's fair dealing obligations to other parties involved with a 
municipal securities financing, including a conduit borrower.'' \28\ 
The MSRB stated that the proposed rule change would incorporate the 
language from the Implementation Guidance into the Revised Interpretive 
Notice with conforming revisions, stating ``[t]his notice does not set 
out the underwriter's fair-practice duties to other parties to a 
municipal securities financing (e.g., conduit borrowers).'' \29\
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    \28\ Id.
    \29\ Id.
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v. Statements Regarding Underwriters' Discouragement of the Engagement 
of a Municipal Advisor
    The MSRB noted that the Implementation Guidance further clarifies 
the scope of the prohibition included in the 2012 Interpretive Notice, 
affirming that an underwriter must not recommend that the issuer not 
retain a municipal advisor.\30\ The MSRB stated that the proposed rule 
change would incorporate this concept into the Revised Interpretive 
Notice certain revisions, as more fully discussed in the Notice of 
Filing, providing that ``Underwriters also must not recommend issuers 
not retain a municipal advisor. Accordingly, underwriters may not 
discourage issuers from using a municipal advisor or otherwise imply 
that the hiring of a municipal advisor would be redundant because the 
sole underwriter or underwriting syndicate can provide the services 
that a municipal advisor would.'' \31\
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    \30\ Id.
    \31\ Id.
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vi. Statements Regarding Third-Party Payments
    The MSRB noted that the Implementation Guidance clarifies the 
obligation of underwriters to disclose certain third-party payments, as 
well as other payments, values or credits received by an 
underwriter.\32\ The MSRB stated that proposed rule change would 
incorporate the language from the Implementation Guidance into the 
Revised Interpretive Notice, with certain revisions, including the 
removal of language regarding ``normal course of business'' payments 
that the MSRB believed was redundant, as more fully described in the 
Notice of Filing.\33\
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    \32\ Id.
    \33\ Id.
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vii. Need for Each Underwriter in a Syndicate To Deliver Dealer-
Specific Conflicts of Interest When Applicable
    The MSRB noted that the FAQs clarify what disclosures may be 
effected by a syndicate manager on behalf of co-managing underwriters 
in the syndicate. The MSRB stated that the proposed rule change would 
incorporate the relevant language from the FAQs into the Revised 
Interpretive Notice with certain revisions, including the technical 
clarification that such disclosures apply to ``actual material 
conflicts of interest'' and ``potential material conflicts of 
interest'' in order to make the statements consistent with related 
amendments in the proposed rule change, as more fully described in the 
Notice of Filing.\34\
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    \34\ Id.
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viii. Statements Regarding the Timing for the Delivery of Certain 
Disclosures
    The MSRB noted that the Implementation Guidance and FAQs clarify 
the timing for the delivery of the disclosures under the 2012 
Interpretive Notice.\35\ The MSRB stated that the proposed rule change 
would incorporate these timing concepts from the Implementation 
Guidance and FAQs into the Revised Interpretive Notice with certain 
revisions (e.g., by utilizing the Revised Interpretive Notice's defined 
terms of ``standard disclosure,'' ``dealer-specific disclosures,'' and 
``transaction-specific disclosures'').\36\
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    \35\ Id.
    \36\ Id.
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    The MSRB stated that the proposed rule change also would 
incorporate the concept that the timelines are defined to ensure that 
underwriters act promptly to deliver disclosures in light of all the 
relevant facts and circumstances, but are not ``intended to establish 
strict, hair-trigger tripwires resulting in mere technical rule 
violations.'' \37\
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    \37\ Id.
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ix. Statements Regarding Whether Underwriters May Rely on Certain 
Representations of Issuer Officials
    The MSRB noted that the FAQs clarify the circumstances under which 
an underwriter may rely on the representations of issuer officials.\38\ 
The MSRB stated that the proposed rule change would incorporate this 
language from the FAQs into the Revised Interpretive Notice with 
clarifying language regarding the relevance of facts discovered during 
the course of an underwriter's due diligence, including diligence 
related to the transaction generally or pursuant to an underwriter's 
own determination of whether it has any actual material conflicts of 
interest or potential material conflicts of interest.\39\ Specifically, 
the Revised Interpretive Notice supplements the existing statement from 
the FAQs with language intended to clarify that if an underwriter 
becomes aware of a fact through the normal course of its diligence that 
would lead it to doubt a representation of an issuer official, such 
information may rise to the level of a red flag that would not allow 
the underwriter to reasonably rely on the written representation.\40\
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    \38\ Id.
    \39\ Id.
    \40\ Id.
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x. Statements Regarding an Underwriter Having a Reasonable Basis for 
Its Representations and Other Material Information Provided to Issuers
    The MSRB noted that the 2012 Interpretive Notice states that 
underwriters must ``have a reasonable basis for representations and 
other material information provided to issuers'' and clarifies that the 
obligation ``extends to the reasonableness of assumptions underlying 
the material information being provided,'' and that the Implementation 
Guidance further contextualizes this reasonable basis standard.\41\ The 
MSRB stated that the proposed rule change would incorporate this 
language from the Implementation Guidance into the Revised Interpretive 
Notice with certain revisions, including removing certain language 
regarding an underwriter's use of assumptions, which the MSRB believed 
was potentially confusing and redundant, as further described in the 
Notice of Filing.\42\
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    \41\ Id.
    \42\ Id.
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xi. Statements Regarding Whether a Particular Recommended Financing 
Structure or Product Is Complex
    The MSRB noted that the 2012 Implementation Guidance contains a 
description of a ``complex municipal securities financing'' that is 
further clarified in the Implementation Guidance.\43\ The MSRB further 
noted the 2012 Interpretive Notice then provides a non-exclusive, 
illustrative list of examples of new issue structures

[[Page 61663]]

that constitute a complex municipal securities financing.\44\
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    \43\ Id.
    \44\ Id.
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    The MSRB stated that the proposed rule change would incorporate 
this language from the Implementation Guidance into the Revised 
Interpretive Notice with conforming revisions and an update to the 
illustrative, non-exclusive list of interest rate benchmarks to include 
the Secured Overnight Financing Rate (SOFR).\45\ The MSRB stated that 
it believes this edit is a necessary update to ensure that the Revised 
Interpretive Notice would reflect current market practices.\46\
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    \45\ Id.
    \46\ Id.
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xii. Statements Regarding the Specificity of Disclosures
    The MSRB noted that the 2012 Interpretive Notice provides that an 
underwriter of a negotiated issue that recommends a complex municipal 
securities transaction or product to an issuer has an obligation to 
disclose all financial material risks known to the underwriter and 
reasonably foreseeable at the time of the disclosure, financial 
characteristics, incentives, and conflicts of interest regarding the 
transaction or product.\47\ The MSRB further noted that the 
Implementation Guidance provided clarification and additional guidance 
with respect to this obligation, as further described in the Notice of 
Filing.\48\ The MSRB stated that the proposed rule change would 
incorporate the language from the Implementation Guidance into the 
Revised Interpretive Notice with certain revisions as further described 
in the Notice of Filing and Amendment No. 1, including the removal of 
the statement regarding how such disclosures might assist issuers.\49\
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    \47\ Id.
    \48\ Id.
    \49\ See Notice of Filing, Amendment No. 1. See also ``Amending 
the Nature, timing and Manner of Disclosures--Assignment of 
responsibility for the Standard Disclosures and Transaction-Specific 
Disclosures,'' infra.
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xiii. Statements Regarding Profit Sharing Arrangements
    The MSRB noted that the 2012 Interpretive Notice states that, 
``[a]rrangements between the underwriter and an investor purchasing new 
issue securities from the underwriter according to which profits 
realized from the resale by such investor of the securities are 
directly or indirectly split or otherwise shared with the underwriter 
also would, depending on the facts and circumstances (including in 
particular if such resale occurs reasonably close in time to the 
original sale by the underwriter to the investor), constitute a 
violation of the underwriter's fair dealing obligation under Rule G-
17.'' \50\ The MSRB stated that the proposed rule change would 
incorporate into the Revised Interpretive Notice additional language 
from the Implementation Guidance, which reads, in relevant part, 
``[u]nderwriters should be mindful that, depending on the facts and 
circumstances, such an arrangement may be inferred from a purposeful 
but not otherwise justified pattern of transactions or other course of 
action, even without the existence of a formal written agreement.'' 
\51\
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    \50\ See Notice of Filing.
    \51\ Id.
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B. Amending the Nature, Timing, and Manner of Disclosures

    The MSRB stated that the proposed rule change would define certain 
categories of underwriter disclosures and assign the responsibility for 
the delivery of certain disclosures to the syndicate manager in 
circumstances where a syndicate is formed, as described below and as 
further described in the Notice of Filing and Amendment No. 1.\52\
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    \52\ See Notice of Filing, Amendment No. 1.
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i. Definitions of Certain Categories of Underwriter Disclosures
    The MSRB stated that the proposed rule change would define the 
following terms in order to delineate a dealer's various fair dealing 
obligations under the Revised Interpretive Notice: ``standard 
disclosures'' as collectively referring to the disclosures concerning 
the role of an underwriter and an underwriter's compensation; ``dealer-
specific disclosures'' as collectively referring to the disclosures 
concerning an underwriter's actual material conflicts of interest and 
potential material conflicts of interest; and ``transaction-specific 
disclosures'' as collectively referring to the disclosures concerning 
the material aspects of financing structures that the underwriter 
recommends.\53\
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    \53\ See Notice of Filing.
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ii. Assignment of Responsibility for the Standard Disclosures and 
Transaction-Specific Disclosures
    The MSRB noted that the 2012 Interpretive Notice states that a 
syndicate manager is permitted, but not required, to make the standard 
disclosures and the transaction-specific disclosures on behalf of the 
other underwriters in the syndicate.\54\ The MSRB stated that the 
amendments in the original proposed rule change would obligate only the 
syndicate manager \55\ of a syndicate--or sole underwriter, as the case 
may be--to make the standard disclosures and transaction-specific 
disclosures and would eliminate any obligation of other co-managing 
underwriters in the syndicate to make the standard disclosures and 
transaction-specific disclosures.\56\ In response to concerns raised in 
the comments to the original proposed rule change, the MSRB proposed in 
Amendment No. 1 to modify the original proposed rule change to state 
that the underwriter making a recommendation to an issuer regarding a 
financing structure or product, including, when applicable, a Complex 
Municipal Securities Financing Recommendation,\57\ has the fair dealing 
obligation to deliver the applicable transaction-specific 
disclosures.\58\ Consequently, the MSRB stated, pursuant to Amendment 
No. 1, when the syndicate manager (or any other underwriter in the 
syndicate) is not the underwriter making the recommendation of a 
financing structure or product to the issuer, such underwriter does not 
have a fair dealing obligation under the proposed rule change to 
deliver the transaction-specific disclosures with respect to such 
financing structure or product.\59\
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    \54\ Id.
    \55\ As defined in Exhibit 5 to Amendment No. 2.
    \56\ See Notice of Filing.
    \57\ As defined in Exhibit 5 to Amendment No. 2.
    \58\ See Amendment No. 1.
    \59\ Id.
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    In addition, the MSRB stated that the proposed rule change provides 
that any disclosures delivered by a syndicate manager prior to or 
concurrent with the formation of a syndicate would not need to be 
identified as delivered in the capacity of the syndicate manager or 
otherwise redelivered ``on behalf'' of the syndicate.\60\
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    \60\ See Notice of Filing.
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    The MSRB further noted that, pursuant to the proposed rule change, 
each member of the syndicate would remain responsible for ensuring the 
delivery of any dealer-specific disclosures if, but only if, such 
syndicate member had actual material conflicts of interest or potential 
material conflicts of interest that must be disclosed.\61\
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    \61\ Id.
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iii. Separate Identification of the Standard Disclosures
    The MSRB noted that the 2012 Interpretive Notice currently permits 
the delivery of omnibus disclosure documents, in which the standard

[[Page 61664]]

disclosures need not be separately identified from the transaction-
specific disclosures and dealer-specific disclosures.\62\ The proposed 
rule change would require the separate identification and formatting of 
the standard disclosures (i.e., disclosures concerning the role of the 
underwriter and the underwriter's compensation) from the transaction-
specific disclosure and the dealer-specific disclosures.\63\
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    \62\ Id.
    \63\ Id.
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iv. Meaning of ``Recommendation'' for Purposes of Disclosures Related 
to Complex Municipal Securities Financings
    The MSRB noted that the 2012 Interpretive Notice provides that an 
underwriter in a negotiated offering that recommends a complex 
municipal securities financing to an issuer must disclose the material 
financial characteristics of the complex municipal securities 
financing, as well as the material financial risks of the financing 
that are known to the underwriter and reasonably foreseeable at the 
time of the disclosure (a ``complex municipal securities financing 
disclosure'').\64\ As the MSRB further noted, the Implementation 
Guidance provides that the requirement to provide a complex municipal 
securities financing disclosure is triggered if: the new issue is sold 
in a negotiated offering; the new issue is a complex municipal 
securities financing; and such financing was recommended by the 
underwriter.\65\ The MSRB stated that these aspects of the 2012 
Interpretive Notice would remain applicable under the Revised 
Interpretive Notice.\66\
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    \64\ Id.
    \65\ Id.
    \66\ Id.
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    However, the MSRB noted that the 2012 Interpretive Notice does not 
define the term ``recommendation'' for purposes of this 
requirement.\67\ The MSRB stated that it believes it is important to 
provide this clarification to facilitate dealer compliance with the 
proposed rule change. Therefore, as further described in the Notice of 
Filing, the MSRB stated that the proposed rule change would clarify 
that a communication by an underwriter is a ``recommendation'' that 
triggers the obligation to deliver a complex municipal securities 
financing disclosure if--given its content, context, and manner of 
presentation -- the communication reasonably would be viewed as a call 
to action to engage in a complex municipal securities financing or 
reasonably would influence an issuer to engage in a particular complex 
municipal securities financing.\68\
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    \67\ Id.
    \68\ Id.
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v. ``Reasonably Likely'' Standard for Disclosure of Potential Material 
Conflicts of Interest
    The MSRB noted that the 2012 Interpretive Notice currently requires 
the underwriter to disclose to the issuer any actual material conflicts 
of interest and any potential material conflicts of interest, and that 
the Implementation Guidance provides guidance as to when such 
obligation is triggered.\69\ The MSRB stated that these aspects of the 
2012 Interpretive Notice would remain applicable under the Revised 
Interpretive Notice. However, the MSRB noted, the proposed rule change 
provides that an underwriter's potential material conflict of interest 
must be disclosed as part of the dealer-specific disclosures if, but 
only if, the potential material conflict of interest is ``reasonably 
likely'' to mature into an actual material conflict of interest during 
the course of that specific transaction.\70\ The MSRB noted that the 
proposed rule change will not diminish an underwriter's fair dealing 
obligation to update, or otherwise supplement, its dealer-specific 
disclosures in circumstances when a previously undisclosed potential 
conflict of interest later ripens into an actual material conflict of 
interest.\71\
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    \69\ Id.
    \70\ Id.
    \71\ Id.
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vi. Underwriters Are Not Obligated To Provide Written Disclosure of 
Conflicts of Other Parties
    As the MSRB noted, the 2012 Interpretive Notice requires 
underwriters to provide issuers with certain standard disclosures, 
dealer-specific disclosures, and transaction-specific disclosures, when 
and if applicable. By their respective definitions, the standard 
disclosures cover generic conflicts of interest that could apply to any 
underwriter in any underwriting; the dealer-specific disclosures are 
the actual material conflicts of interest and potential material 
conflicts of interest generally unique to a specific underwriter; and 
the transaction-specific disclosures relate to the specific financing 
structure recommended by an underwriter.\72\ The MSRB stated that the 
proposed rule change would expressly state that underwriters are not 
required to make any written disclosures on the part of issuer 
personnel or any other parties to the transaction as part of the 
standard disclosures, dealer-specific disclosures, or the transaction-
specific disclosures.\73\
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    \72\ Id.
    \73\ Id.
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vii. Disclosures Must Be ``Clear and Concise''
    The MSRB noted that the 2012 Interpretive Notice currently requires 
disclosures to be ``designed to make clear to such official the subject 
matter of such disclosures and their implications for the issuer.'' 
\74\ The MSRB stated that the proposed rule change would provide that 
an underwriter's disclosures must be delivered in a ``clear and 
concise'' manner.\75\
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    \74\ Id.
    \75\ Id.
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viii. Definition of Municipal Entity
    The MSRB noted that the 2012 Interpretive Notice currently provides 
a definition of ``municipal entity'' that references Section 15B(e)(8) 
under the Exchange Act.\76\ In light of the Commission's definition 
contained in Exchange Act Rule 15Ba1-1 \77\ and the MSRB's definition 
of ``municipal entity'' as used under Rule G-42, both of which were 
adopted after the publication of the 2012 Interpretive Notice, the MSRB 
stated that the proposed rule change would incorporate a specific 
reference to this rule definition, in addition to the general statutory 
definition, to avoid any confusion about the scope of the Revised 
Interpretive Notice and to promote harmonization with Exchange Act Rule 
15Ba1-1 and Rule G-42.\78\
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    \76\ Id.
    \77\ See Registration of Municipal Advisors, Release No. 34-
70462 (September 20, 2013), 78 FR 67467 (hereinafter, the ``MA Rule 
Adopting Release'') (November 12, 2013) (available at http://www.sec.gov/rules/final/2013/34-70462.pdf).
    \78\ See Notice of Filing.
---------------------------------------------------------------------------

C. Additional Standard Disclosure Regarding the Engagement of Municipal 
Advisors

    The MSRB noted that the 2012 Interpretive Notice currently requires 
an underwriter to make five discrete statements regarding the 
underwriter's role as part of the standard disclosures, including a 
disclosure that, ``unlike a municipal advisor, the underwriter does not 
have a fiduciary duty to the issuer under the federal securities laws 
and is, therefore, not required by federal law to act in the best 
interest of the issuer without regard to its own or other interests.'' 
\79\ The MSRB stated that the proposed rule change would incorporate

[[Page 61665]]

a new standard disclosure that ``the issuer may choose to engage the 
services of a municipal advisor with a fiduciary obligation to 
represent the issuer's interests in the transaction.'' \80\
---------------------------------------------------------------------------

    \79\ Id.
    \80\ Id.
---------------------------------------------------------------------------

D. Permit Email Read Receipt To Serve as Issuer Acknowledgement

    The MSRB noted that the 2012 Interpretive Notice currently requires 
underwriters to attempt to receive written acknowledgement of receipt 
by the official of the issuer other than by evidence of automatic email 
receipt.\81\ The MSRB stated that the proposed rule change would permit 
an email read receipt to serve as the issuer's acknowledgement under 
the Revised Interpretive Notice.\82\ The proposed rule change would 
define the term ``email read receipt'' to mean ``an automatic response 
generated by a recipient issuer official confirming that an email has 
been opened.'' The MSRB stated that it believes that this proposed 
change will not compromise issuer protection, because the proposed rule 
change would require the email read receipt to come from an issuer 
official that is not party to a conflict, based on the underwriter's 
knowledge, and either has been specifically identified by the issuer to 
receive such disclosure communications or, in the absence of such 
specific identification, is an issuer official who the underwriter 
reasonably believes has the authority to bind the issuer by contract 
with the underwriter. The MSRB further stated that the proposed rule 
change would also clarify that, ``[w]hile an email read receipt may 
generally be an acceptable form of an issuer's written acknowledgement 
under this notice, an underwriter, may not rely on such an email read 
receipt as an issuer's written acknowledgement where such reliance is 
unreasonable under all of the facts and circumstances, such as where 
the underwriter is on notice that the issuer official to whom the email 
is addressed has not in fact received or opened the email.'' \83\
---------------------------------------------------------------------------

    \81\ Id.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

E. Other Technical and Conforming Amendments

    The MSRB stated that the proposed rule change would make certain 
other technical and conforming changes to the proposed rule change, as 
described in detail in the Notice of Filing, Amendment No. 1, and 
Amendment No. 2.\84\
---------------------------------------------------------------------------

    \84\ See Notice of Filing, Amendment No. 1, Amendment No. 2.
---------------------------------------------------------------------------

    In the Notice of Filing, the MSRB stated that it will publish a 
regulatory notice within 90 days of the publication of approval of the 
proposed rule change in the Federal Register, and such notice will 
specify the compliance date for the amendments described in the 
proposed rule change, which in any case shall be not less than 90 days, 
nor more than one year, following the date of the notice establishing 
such compliance date.\85\ The MSRB is requesting accelerated approval 
of Amendment No. 1 and Amendment No. 2.\86\
---------------------------------------------------------------------------

    \85\ See Notice of Filing.
    \86\ See Amendment No. 1, Amendment No. 2.
---------------------------------------------------------------------------

III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received three comment letters 
in response to the Notice of Filing and three comment letters in 
response to Amendment No. 1. The MSRB responded to the comment letters 
on the Notice of Filing in its First Response Letter,\87\ and the MSRB 
responded to the comment letters on Amendment No. 1 in its Second 
Response Letter.\88\ One commenter expressed its support for the 
original proposed rule change \89\ and for Amendment No. 1.\90\
---------------------------------------------------------------------------

    \87\ See First Response Letter.
    \88\ See Second Response Letter.
    \89\ See First NAMA Letter.
    \90\ See Second NAMA Letter.
---------------------------------------------------------------------------

A. Application to Underwriters of Municipal Fund Securities

    In the original proposed rule change, the MSRB proposed to revise 
the 2012 Interpretive Notice to incorporate existing language from the 
Implementation Guidance clarifying the application of the notice ``to a 
dealer serving as a primary distributor (but not to dealers serving 
solely as selling group members) in a continuous offering of municipal 
fund securities, such as interests in 529 savings plans and Achieving a 
Better Life Experience (ABLE) programs.'' \91\ In response to the 
Notice of Filing, one commenter requested that the MSRB revise the 
original proposed rule change to further ``distinguish the disclosure 
required of 529 underwriters from those required of bond offering 
underwriters'' and recommended specific revisions in this regard.\92\ 
For example, the commenter requested that the standard disclosures 
concerning the underwriter's role under the original proposed rule 
change allow such disclosures to be amended ``to the extent applicable 
to the nature of the relationship with the issuer.'' \93\
---------------------------------------------------------------------------

    \91\ See Notice of Filing.
    \92\ See ICI Letter.
    \93\ Id.
---------------------------------------------------------------------------

    The MSRB responded that it believes there is merit to the 
commenter's view that the proposed rule change ``should provide 
additional guidance regarding its application to underwriters of 529 
plans,'' but that the MSRB did not believe incorporating the specific 
revisions proposed by the commenter would be prudent because such 
revisions may reduce the clarity of the disclosure obligations 
applicable to other underwriters and, thereby, reduce the overall 
clarity of the Revised Interpretive Notice.\94\ The MSRB further stated 
that it believes that the commenter's comments regarding the need to 
provide more clarity in this regard would be better addressed in an 
interpretation or other guidance separately issued under Rule G-17 that 
more narrowly considers the fair dealing obligations of dealers serving 
as primary distributors in a continuous offering of municipal fund 
securities.\95\
---------------------------------------------------------------------------

    \94\ See First Response Letter.
    \95\ Id.
---------------------------------------------------------------------------

    Consequently, rather than incorporating the specific text proposed 
by the commenter, the MSRB, in Amendment No. 1 and Amendment No. 2, 
incorporated a revision to the original proposed rule change that, the 
MSRB stated, would strike the relevant text incorporated from the 
Implementation Guidance, which, as filed, would clarify the application 
of the original proposed rule change to the circumstances of a 
continuous offering of municipal fund securities.\96\ The proposed rule 
change, as amended by Amendment No.1 and Amendment No. 2, would replace 
this language with a statement that ``[t]his notice does not apply to a 
dealer acting as a primary distributor in a continuous offering of 
municipal fund securities.'' \97\ The MSRB further states that it 
intends to make clear that the specific fair practice duties outlined 
in the Revised Interpretive Notice articulating the delivery of certain 
disclosures at particular times during the course of an underwriting 
transaction would not be applicable to the situations of a dealer 
serving as a primary distributor in a continuous offering of municipal 
fund securities.\98\
---------------------------------------------------------------------------

    \96\ Id.
    \97\ Id.
    \98\ Id.
---------------------------------------------------------------------------

B. Delivery of Complex Municipal Securities Financing Disclosures

    In response to the Notice of Filing, one commenter expressed 
concern that the text of the original proposed rule change did not 
identify ``who needs to provide transaction specific disclosures for a 
swap recommendation if not made

[[Page 61666]]

by the syndicate manager or sole manager.'' \99\ This commenter 
encouraged the MSRB to amend the original proposed rule change to make 
clear that ``the duty to provide such disclosures should remain with 
the underwriter or dealer providing or recommending the derivatives, 
even after a syndicate is formed.'' \100\ The commenter stated that 
``recommendations on derivatives require specialized knowledge and . . 
. in this case, the underwriter or dealer making the recommendation and 
otherwise providing the derivative product be responsible for making 
the appropriate transaction-specific disclosures on the material 
aspects of this financing structure to the issuer.'' \101\
---------------------------------------------------------------------------

    \99\ See First SIFMA Letter.
    \100\ Id.
    \101\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it believes that there is merit to this point 
and agreed with the commenter's suggestion that the original proposed 
rule change should be amended to clarify in the amended revised 
interpretive notice that, except in limited circumstances, the 
underwriter making a financing recommendation to an issuer has a fair 
dealing obligation to deliver the requisite transaction-specific 
disclosures.\102\ More specifically, the MSRB agreed with the 
commenter's view that the duty to provide a complex municipal 
securities financing disclosure generally should remain with the dealer 
``recommending'' a financing structure and/or ``providing'' a specific 
product within that structure (such as a derivative product), ``even 
after the syndicate is formed.'' \103\
---------------------------------------------------------------------------

    \102\ See First Response Letter.
    \103\ Id.
---------------------------------------------------------------------------

    Accordingly, pursuant to Amendment No. 1, the MSRB revised the 
original proposed rule change to make clear that: (1) The underwriter 
making a recommendation to the issuer regarding a financing structure 
has the fair dealing obligation to deliver the applicable transaction-
specific disclosures, and (2), conversely, when the syndicate manager 
(or any other underwriter in the syndicate) is not the underwriter 
making such a recommendation to the issuer, then such underwriter does 
not have a fair dealing obligation under the amended revised 
interpretive notice to deliver the transaction-specific 
disclosures.\104\ The MSRB stated that it believes that these revisions 
in Amendment No. 1 are responsive to this comment and are consistent 
with the goal of the Board's retrospective review of the 2012 
Interpretive Notice.\105\ The MSRB also believes that these revisions 
in Amendment No. 1 will continue to reduce the number of duplicative 
disclosures that an issuer receives during the course of a transaction 
involving an underwriting syndicate.\106\
---------------------------------------------------------------------------

    \104\ Id.
    \105\ Id.
    \106\ Id.
---------------------------------------------------------------------------

C. Application to Underwriters Serving as Placement Agents

    In the original proposed rule change, the MSRB proposed to revise 
the 2012 Interpretive Notice to incorporate existing language from the 
Implementation Guidance that clarifies the application of the 2012 
Interpretive Notice to circumstances in which a dealer serves as an 
agent of an issuer in the placement of the issuer's municipal 
securities.\107\ In response to the Notice of Filing, one commenter 
expressed concerns regarding this portion of the original proposed rule 
change.\108\ The commenter encouraged the MSRB to strike the language 
in footnote 12 of Exhibit 5 of the original proposed rule change and 
replace it with language that grants dealers the flexibility to omit 
and disclaim certain fair dealing disclosures when an engagement with 
an issuer to place municipal securities makes such disclosures not 
true.\109\ Specifically, the commenter requested that the proposed 
language in footnote 12 of Exhibit 5 be replaced with the following 
statement, ``[i]f the nature of the engagement makes one or more of the 
required disclosures not true, then it should be permissible to omit 
such disclosures and disclaim such in the relevant engagement letter.'' 
\110\
---------------------------------------------------------------------------

    \107\ See Notice of Filing.
    \108\ See First SIFMA Letter.
    \109\ Id.
    \110\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it believes there is merit to the commenter's 
concern that the Revised Interpretive Notice should not be interpreted 
to require a dealer serving as an agent to an issuer in the placement 
of the issuer's municipal securities to deliver inaccurate 
disclosures.\111\ Therefore, the MSRB proposed in Amendment No. 1, to 
revise the original proposed rule change to supplement the existing 
language with the following text, ``[a]s a threshold matter, the 
disclosures delivered by an underwriter to an issuer must not be 
inaccurate or misleading, and nothing in this notice should be 
construed as requiring an underwriter to make a disclosure to an issuer 
that is false.'' \112\ The MSRB stated that it believes this revision 
to be a clarifying change, because an underwriter's overarching fair 
dealing obligation under Rule G-17 prohibits it from engaging in any 
deceptive or dishonest practice.\113\
---------------------------------------------------------------------------

    \111\ See First Response Letter.
    \112\ Id.
    \113\ Id.
---------------------------------------------------------------------------

D. Certain Standardized Disclosures for Complex Municipal Securities 
Financing

    In response to Amendment No. 1, two commenters raised concerns 
about the standardized disclosures with respect to complex municipal 
securities financings.\114\ One commenter expressed concerns that the 
proposed rule change would create a vague and imprecise standard for 
determining what is a complex municipal securities financing and what 
kinds of information related to the transaction would need to be 
disclosed and under what conditions.\115\ The commenter stated that 
underwriters need more precision and guidance around this standard in 
order to implement sound compliance and consistent disclosures, and 
urged the MSRB to revise this element of the proposed rule change.\116\ 
Another commenter stated that its members read the term 
``individualized'' in the proposed rule changed to mean that standard 
or model disclosures are designed to be clear, concise and tailored to 
the specific type or class of financing, and not a book of disclosures 
relating to all potential types of financings, and requested 
confirmation from the MSRB that this interpretation is accurate.\117\
---------------------------------------------------------------------------

    \114\ See BDA Letter, Second SIFMA Letter.
    \115\ See BDA Letter.
    \116\ Id.
    \117\ See Second SIFMA Letter.
---------------------------------------------------------------------------

    The MSRB stated that it generally agrees with the statement that it 
would be consistent with the current text of the proposed rule change, 
as well as the intent of the original proposed rule change, for an 
underwriter to develop policies and procedures that provide for the 
development and delivery of certain standardized transaction-specific 
disclosures for complex municipal securities financings for which an 
underwriter anticipates commonly recommending to its issuer clients 
(``Standardized Complex Municipal Securities Transaction 
Disclosures'').\118\ The MSRB further provided that, assuming that the 
content of such Standardized Complex Municipal Securities Transaction 
Disclosure is (a) drafted in a clear and concise manner for issuer 
personnel of both greater and lesser degrees of sophistication and (b) 
otherwise consistent with the requirements of the Revised Interpretive

[[Page 61667]]

Notice, the proposed rule change would only require the underwriter to 
tailor the content of such Standardized Complex Municipal Securities 
Transaction Disclosure to the extent that such disclosure did not fully 
describe the material financial features and risks unique to that 
particular recommended financing in such a clear and concise manner for 
the issuer personnel receiving the disclosure.\119\ The MSRB stated 
that it does not need to amend the proposed rule change to address this 
comment because, as outlined in the Second Response Letter and as noted 
by the commenter, the concept can be reasonably understood from the 
existing language of the amended proposed rule change.\120\
---------------------------------------------------------------------------

    \118\ See Second Response Letter.
    \119\ Id.
    \120\ Id.
---------------------------------------------------------------------------

    In response to the commenter's concern that the standard for 
determining what is a complex municipal securities financing is vague, 
the MSRB stated that it previously has addressed these concerns in its 
previous statements.\121\
---------------------------------------------------------------------------

    \121\ Id.
---------------------------------------------------------------------------

E. Tiered Disclosure Requirements Based on Issuer Characteristics

    In response to the Notice of Filing, and again in response to 
Amendment No. 1, one commenter stated that it believes that tiered 
disclosure requirements may be beneficial to issuers and 
underwriters.\122\ The commenter requested that the MSRB ``provide 
examples of concrete hypotheticals in order to provide clarity to 
regulated dealers regarding how the content of [the] transaction-based 
disclosures may potentially vary by issuer sophistication and still 
survive regulatory scrutiny.'' \123\
---------------------------------------------------------------------------

    \122\ See First SIFMA Letter, Second SIFMA Letter.
    \123\ See First SIFMA Letter.
---------------------------------------------------------------------------

    The MSRB noted that the proposed rule change sets out a principles-
based approach to an underwriter's fair dealing obligation to deliver 
certain disclosures and incorporates existing hypothetical examples 
from the Implementation Guidance and FAQs.\124\ The MSRB stated that it 
evaluated formal disclosure tiers and declined to adopt such tiers or 
other disclosure requirements based on rigid issuer classifications in 
response to prior stakeholder comments because the MSRB believes there 
is not an obvious, appropriate methodology for classifying issuers in a 
manner that would advance the policies underlying the 2012 Interpretive 
Notice or that would materially relieve burdens for underwriters or 
issuers, and requiring different disclosure standards for different 
issuers may have unintended consequences that compromise issuer 
protections.\125\ The MSRB stated that the comments do not alter the 
MSRB's conclusions in this regard.\126\
---------------------------------------------------------------------------

    \124\ See First Response Letter.
    \125\ See First Response Letter, Second Response Letter.
    \126\ Id.
---------------------------------------------------------------------------

F. Standard for the Disclosure of Potential Material Conflicts of 
Interest

    In response to the Notice of Filing, and again in response to 
Amendment No. 1, two commenters requested that the MSRB amend the 
original proposed rule change to require only disclosures of actual 
conflicts of interest.\127\ The MSRB noted that the 2012 Interpretive 
Notice currently requires the underwriter to disclose to the issuer any 
actual material conflicts of interest and any potential material 
conflicts of interest, which requirement is triggered if: The new issue 
is sold in a negotiated underwriting; the matter to be disclosed 
represents a conflict of interest, either in reality or potentially; 
and any such actual or potential conflict of interest is material.\128\ 
The MSRB stated that these aspects of the 2012 Interpretive Notice 
would remain applicable under the proposed rule change. However, the 
proposed rule change would provide that an underwriter's potential 
material conflict of interest must be disclosed as part of the dealer-
specific disclosures if, but only if, the potential material conflict 
of interest is ``reasonably likely'' to mature into an actual material 
conflict of interest during the course of that specific 
transaction.\129\ This MSRB further noted that this revision would 
reduce a dealer's burden by narrowing the dealer-specific disclosures 
currently required under the 2012 Interpretive Notice from all 
potential material conflicts to those potential material conflicts that 
meet this more focused standard.\130\
---------------------------------------------------------------------------

    \127\ See First SIFMA Letter, Second SIFMA Letter, BDA Letter.
    \128\ See First Response Letter.
    \129\ Id.
    \130\ Id.
---------------------------------------------------------------------------

    The MSRB reiterated that, as indicated in the Notice of Filing, it 
believes that the disclosure of material conflicts of interest remains 
significant to an issuer's evaluation of the dealer providing 
underwriting services, which justifies the obligation for underwriters 
to continue to provide these disclosures.\131\ To the degree that an 
underwriter has knowledge that a material conflict of interest does not 
currently exist, but is reasonably likely to ripen into an actual 
material conflict of interest during the course of the underwriting 
transaction, the MSRB stated that it continues to believe that the 
municipal securities market is best served by the underwriter providing 
advanced notification to the issuer of the likelihood of such material 
conflict of interest, rather than waiting to disclose the conflict 
until it has ripened into an actual conflict.\132\
---------------------------------------------------------------------------

    \131\ See First Response Letter, Second Response Letter.
    \132\ Id.
---------------------------------------------------------------------------

G. Standard Disclosure Regarding the Engagement of a Municipal Advisor

    In response to the Notice of Filing, and again in response to 
Amendment No. 1, two commenters requested that the MSRB amend the 
original proposed rule change to eliminate the new standard disclosure 
that ``the issuer may choose to engage the services of a municipal 
advisor with a fiduciary obligation to represent the issuer's interests 
in the transaction.'' \133\ One commenter also stated that the Revised 
Interpretive Notice should make clear that neither municipal advisors 
nor underwriters may misrepresent the services and duties that the 
other is permitted to provide.\134\ The MSRB reiterated that it 
believes that this additional disclosure will further clarify the 
distinctions between an underwriter--who is subject to a duty of fair 
dealing when providing advice regarding the issuance of municipal 
securities to municipal entities--and a municipal advisor--who is 
subject to a federal statutory fiduciary duty when providing advice 
regarding the issuance of municipal securities to municipal entities--
and, thereby, would promote the protection of municipal entity issuers 
in accordance with the MSRB's statutory mandate at a relatively minimal 
burden to underwriters.\135\ The MSRB acknowledged that the additional 
disclosure would cause underwriters to incur costs associated with 
revising their policies and procedures and delivering the new 
disclosure in their standard disclosures during transactions; however, 
the MSRB concluded that any costs associated with the proposed rule 
change would be outweighed by its benefits.\136\ The MSRB further 
stated that, because the Revised Interpretive Notice is limitedly 
focused on underwriters' fair dealing obligations to issuers, not the 
duties of loyalty and care that municipal advisors

[[Page 61668]]

owe their municipal entity clients, the Revised Interpretive Notice is 
not the appropriate vehicle to address the duties of municipal 
advisors, recognizing that MSRB Rule G-42, on the duties of non-
solicitor municipal advisors, effectively prohibits a municipal advisor 
from knowingly misrepresenting its services or the services of an 
underwriter.\137\
---------------------------------------------------------------------------

    \133\ See First SIFMA Letter, Second SIFMA Letter, BDA Letter.
    \134\ See Second SIFMA Letter.
    \135\ See First Response Letter, Second Response Letter.
    \136\ See Second Response Letter.
    \137\ Id.
---------------------------------------------------------------------------

H. Interaction of Proposed Rule Change With Pending Matters

    In response to the Notice of Filing, and again in response to 
Amendment No. 1, two commenters expressed concerns about the 
interaction of the proposed rule change with other pending 
matters.\138\ One commenter \139\ expressed concerns that the text of 
the proposed rule change may ``front-run'' a related issue that is now 
under consideration by the Commission regarding the duties of municipal 
placement agents under the federal securities laws.\140\ Another 
commenter expressed the belief that the MSRB missed an important and 
timely opportunity to provide substantial compliance efficiencies by 
combining and integrating underwriter disclosures required under MSRB 
Rules G-17 and G-23, and urged the MSRB to do so.\141\ The MSRB 
declined to address these concerns, stating that the matters that 
commenters requested the MSRB address are outside the scope of the 
proposed rule change, which does not pertain to the duties of municipal 
advisors.\142\
---------------------------------------------------------------------------

    \138\ See First SIFMA Letter, Second SIFMA Letter, BDA Letter.
    \139\ See First SIFMA Letter, Second SIFMA Letter.
    \140\ See ``Notice of Proposed Exemptive Order Granting a 
Conditional Exemption from the Broker Registration Requirements of 
Section l5(a) of the Securities Exchange Act of 1934 for Certain 
Activities of Registered Municipal Advisors,'' Exchange Act Release 
No. 87204 (Oct. 2, 2019), 84 FR 54062 (Oct. 9, 2019).
    \141\ See BDA Letter.
    \142\ See First Response Letter, Second Response Letter.
---------------------------------------------------------------------------

I. Compliance Date for the Proposed Rule Change

    In response to Amendment No. 1, one commenter requested that the 
MSRB set a compliance date of one year from the date the proposed rule 
change's amendments to the 2012 Interpretive Notice are final.\143\ The 
commenter requested this timeframe to allow ``sufficient time'' for 
dealers to implement the proposed rule change's amendments and revise 
their policies and procedures.\144\ The MSRB noted that it had 
indicated in the original proposed rule change that, if the proposed 
rule change is approved by the Commission, it will publish a regulatory 
notice within 90 days of the publication of such approval in the 
Federal Register and such notice would specify the compliance date for 
the amendments described in the proposed rule change, which in any case 
would be not less than 90 days, nor more than one year, following the 
date of the regulatory notice.\145\ The MSRB stated that this is 
consistent with the commenter's request.\146\ The MSRB will work with 
stakeholders, as needed, to determine reasonable compliance dates for 
the changes, recognizing the commenter's request for at least a one-
year compliance timeline given that policy and procedures would need to 
be updated to conform to the proposed rule change.\147\
---------------------------------------------------------------------------

    \143\ See Second SIFMA Letter.
    \144\ Id.
    \145\ See Second Response Letter.
    \146\ Id.
    \147\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the original proposed rule 
change, the comment letters received, the MSRB Response Letters, 
Amendment No. 1, and Amendment No. 2. The Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to the MSRB.
    In particular, the proposed rule change, as modified by Amendment 
No. 1 and Amendment No. 2, is consistent with Section 15B(b)(2)(C) of 
the Act.\148\ Section 15B(b)(2)(C) of the Act requires that the MSRB's 
rules 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.\149\
---------------------------------------------------------------------------

    \148\ 15 U.S.C. 78o-4(b)(2)(C).
    \149\ Id.
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change is consistent 
with the provisions of Section 15B(b)(2)(C) of the Act because it will 
protect municipal entities from fraudulent and manipulative acts and 
practices, remove impediments to and perfect the mechanism of a free 
and open market, and promote just and equitable principles of trade.
    The Commission believes that the proposed rule change would promote 
the protection of municipal entities by protecting them from fraudulent 
and manipulative acts and practices. By (i) Specifying which 
underwriters are obligated to deliver the ``standard disclosures,'' 
``transaction-specific disclosures'' and ``dealer-specific 
disclosures'';, (ii) requiring the separate identification and 
formatting of the standard disclosures by underwriters; and (iii) 
requiring that disclosures be clear and concise, the proposed rule 
change will enable issuers to more efficiently and carefully evaluate 
the information contained in the disclosures they do receive, which may 
result in better-informed issuers. Further, the Commission believes the 
addition by the proposed rule change of a new standard disclosure that 
the issuer may choose to engage the services of a municipal advisor 
with a fiduciary obligation to represent the issuer's interests in the 
transaction will promote the protection of municipal entities by 
expressly informing them that they may obtain the advice of a municipal 
advisor, who would serve as a fiduciary to the issuer.
    The Commission believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market, and 
promote just and equitable principles of trade by clarifying and 
streamlining underwriters' disclosure obligations to municipal entity 
issuers, thereby facilitating more efficient compliance with those 
obligations. By incorporating certain provisions of the Implementation 
Guidance and FAQs, with certain revisions, into the Revised 
Interpretive Notice, the proposed rule change provides for a single 
consolidated document to which underwriters may look, facilitating the 
efficient identification of any applicable fair dealing obligations. By 
(i) specifying that the standard disclosures and many transaction-
specific disclosures should be sent to issuers only from the syndicate 
manager or sole underwriter; (ii) clarifying that underwriters are not 
obligated to provide written disclosures regarding the conflicts of 
issuer personnel or other parties to the transaction; and (iii) 
providing that disclosures must be made in a clear and concise manner, 
the proposed rule change would remove impediments to and perfect the 
mechanism of a free and open market, and promote just and

[[Page 61669]]

equitable principles of trade, by eliminating certain redundant and 
generic disclosures currently delivered by underwriters to issuers that 
provide little, if any, informational benefits to issuers, but do 
create non-trivial compliance and recordkeeping burdens on 
underwriters. By clarifying the definition of Complex Municipal 
Securities Financing Recommendation, and specifying the particular 
underwriter that must provide these particularized transaction-specific 
disclosures to issuers, the proposed rule change would promote just and 
equitable principles of trade by eliminating legal ambiguity under the 
Revised Interpretive Notice, thereby reducing the compliance burden for 
underwriters without diminishing the protection of municipal entities. 
By specifying that the underwriter making a Complex Municipal 
Securities Financing Recommendation must provide the transaction-
specific disclosure for that recommendation, the proposed rule change 
may improve the accuracy and usefulness of such disclosures to 
municipal entities.
    The Commission further believes that proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market by clarifying which potential material conflicts of interest 
must be disclosed by underwriters and at what time. This portion of the 
proposed rule change may reduce the volume of initial conflicts 
disclosures that must be provided, limiting such disclosures to those 
conflicts that are most concrete and probable, and therefore most 
useful to issuers at that time.
    The Commission further believes that the proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market, and facilitate transactions in municipal securities, by 
permitting an email read receipt to serve as the issuer's 
acknowledgement of receipt of the applicable disclosures under the 
Revised Interpretive Notice. This provision of the proposed rule change 
would improve the efficiency of the disclosure process by allowing 
underwriters to seek, and issuers to provide, acknowledgement 
electronically through the built-in, automatic process of an email 
system. The Commission believes that municipal entities would continue 
to be protected under the Revised Interpretive Notice because the 
underwriter would have a fair dealing obligation to receive the email 
read receipt from a specific official identified as the issuer's 
primary contact for the receipt of such disclosures or from an issuer 
official that the underwriter reasonably believes has authority to bind 
the issuer by contract with the underwriter. In addition, the proposed 
rule change would not permit an underwriter to rely on an email read 
receipt as an issuer's acknowledgement where such reliance is 
unreasonable under all of the facts and circumstances, such as where 
the underwriter is on notice that the issuer official to whom the email 
is addressed has not in fact received or opened the email. Further, the 
recipient of such an automatic email read receipt request would still 
have the option to not provide this form of acknowledgement.
    In approving the proposed rule change, the Commission also has 
considered the impact of the proposed rule change, on efficiency, 
competition, and capital formation.\150\ The Commission believes that 
the proposed rule change clarifies underwriter disclosure obligations 
and will streamline certain obligations specified in the 2012 
Interpretive Notice and, thereby, reduce the burdens associated with 
those obligations, including the obligation of underwriters to make, 
and the burden on issuers to acknowledge and review, written 
disclosures that are duplicative, itemize risks and conflicts that are 
not reasonably likely to materialize during the course of a 
transaction, and/or are not unique to a particular transaction or 
underwriting engagement. The Commission further believes that the 
proposed rule change may increase the efficiency of certain market 
practices, such as enhancing the ability of issuers to efficiently and 
properly evaluate the risks associated with a given transaction 
(thereby improving the protection of issuers), including by separately 
identifying the different categories of disclosures, providing 
additional clarity to underwriters regarding the scope of their 
regulatory obligations to municipal entity issuers, and permitting an 
email read receipt to serve the issuer's acknowledgment of receipt of 
disclosures in certain circumstances, thereby reducing the burdens of 
obtaining acknowledgment in those cases.
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    \150\ 15 U.S.C. 78c(f).
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    As noted above, the Commission received three comment letters on 
the Notice of Filing and three comment letters on Amendment No. 1. The 
Commission believes that the MSRB, through its responses and through 
Amendment No. 1 and Amendment No. 2, has addressed commenters' 
concerns.
    For the reasons noted above, the Commission believes that the 
proposed rule change is consistent with the Act.

V. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
to the proposed rule change is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use of 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-2019-10 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-2019-10. 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; we do 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-2019-10 and should be submitted on or before 
December 4, 2019.

VI. Accelerated Approval of Proposed Rule Change

    The Commission finds good cause for approving the original proposed 
rule

[[Page 61670]]

change, as modified by Amendment No. 1 and Amendment No. 2, prior to 
the 30th day after the date of publication of the Notices of Amendment 
No. 1 and Amendment No. 2 in the Federal Register. As discussed above, 
Amendment No. 1 proposes to revise the original proposed rule change to 
state that (1) the underwriter making a recommendation to the issuer 
regarding a financing structure, including, when applicable, a Complex 
Municipal Securities Financing Recommendation, has the fair dealing 
obligation to deliver the applicable transaction-specific disclosures 
and (2) the notice does not apply to a dealer acting as a primary 
distributor in a continuous offering of municipal fund securities. 
Amendment No. 1 and Amendment No. 2 otherwise propose to revise the 
original proposed rule change with technical modifications intended to 
more precisely define the scope of its application and/or to promote 
clarity in its interpretation. The MSRB has stated that it believes 
that the modifications to the original proposed rule change are 
responsive to commenters, and are consistent with the original proposed 
rule change.\151\
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    \151\ See Amendment No. 1, Amendment No. 2.
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    For the foregoing reasons, the Commission finds good cause for 
approving the original proposed rule change, as modified by Amendment 
No. 1 and Amendment No. 2, on an accelerated basis, pursuant to Section 
19(b)(2) of the Act.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\152\ that the proposed rule change (SR-MSRB-2019-10) be, and 
hereby is, approved on an accelerated basis.
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    \152\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\153\
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    \153\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24601 Filed 11-12-19; 8:45 am]
BILLING CODE 8011-01-P