Document ID: SEC-2023-0491-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2023-05-08T04:00Z

[Federal Register Volume 88, Number 88 (Monday, May 8, 2023)]
[Notices]
[Pages 29774-29777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-09686]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97423; File No. SR-MSRB-2023-04]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend MSRB Rule G-27 To Further Extend the Current Regulatory 
Relief for Remote Office Inspections Through June 30, 2024 and Amend 
MSRB Rule G-16 To Delete Temporary Relief for the Initiation of 
Periodic Compliance Examinations of Dealers by the Examining 
Authorities

May 2, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that, on April 27, 2023, the Municipal Securities 
Rulemaking Board (``MSRB'' or ``Board'') 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 to (i) 
amend Supplementary Material .01, Temporary Relief for Completing 
Office Inspections, of MSRB Rule G-27, on Supervision, to further 
extend the current regulatory relief and permit brokers, dealers and 
municipal securities dealers (each, individually ``dealer'' and 
collectively ``dealers'') to conduct office inspections due to be 
completed during calendar year 2023 remotely through December 31, 2023, 
and office inspections due to be completed during calendar year 2024 
remotely through June 30, 2024; and (ii) delete Supplementary Material 
.01, Temporary Relief for Completing Periodic Compliance Examination, 
of MSRB Rule G-16, on periodic compliance examinations, which provided 
temporary relief for the initiation of periodic compliance examinations 
of dealers by registered securities associations \3\ and appropriate 
regulatory agencies \4\ (collectively, the ``examining authorities'') 
(collectively the ``proposed rule change''). The MSRB has designated 
the proposed rule change as constituting a ``noncontroversial'' rule 
change under section 19(b)(3)(A) \5\ of the Act and Rule 19b-4(f)(6) 
\6\ thereunder, which renders the proposal effective upon receipt of 
this filing by the Commission. The MSRB proposes an operative date of 
July 1, 2023.
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    \3\ Section 15B(c)(7)(A)(i) of the Exchange Act provides that 
periodic examinations of municipal securities brokers and municipal 
securities dealers shall be conducted by a registered securities 
association, in the case of municipal securities brokers and 
municipal securities dealers that are members of such association. 
The Financial Industry Regulatory Authority (``FINRA'') is currently 
the only registered securities association. See https://www.sec.gov/rules/sro.shtml.
    \4\ Pursuant to section 15B(c)(7)(A)(ii) of the Exchange Act, 
municipal securities brokers and municipal securities dealers who 
are not members of a registered securities association shall be 
examined by their appropriate regulatory agency. The term 
``appropriate regulatory agency'' when used with respect to 
municipal securities dealers means, in part, the Office of the 
Comptroller of the Currency (``OCC''), the Board of Governors of the 
Federal Reserve System (``FRB''), and the Federal Deposit Insurance 
Corporation (``FDIC''). See 15 U.S.C. 78c(a)(34)(A). The Commission 
also has the authority to examine all registered municipal 
securities dealers if the Commission deems it necessary or 
appropriate in the public interest, for the protection of investors, 
or otherwise in furtherance of the purpose of the Exchange Act. See 
15 U.S.C. 78q(b)(1).
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
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    The text of the proposed rule change is available on the MSRB's 
website at https://msrb.org/2023-SEC-Filings, at

[[Page 29775]]

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 MSRB has continued to monitor the impact of the coronavirus 
disease on municipal market participants and how dealers' operations 
and business models have evolved during the public health crisis. The 
MSRB previously filed proposed rule changes for immediate effectiveness 
with the SEC in April 2020,\7\ in December 2020,\8\ in October 2021,\9\ 
in March 2022,\10\ and in November 2022 \11\ (``April 2020 relief,'' 
``December 2020 relief,'' ``October 2021 relief,'' ``March 2022 
relief,'' and ``November 2022 relief,'' respectively). In connection 
with the April 2020 relief, the MSRB provided an extension of time for 
dealers to complete certain supervisory obligations, including, among 
other things, that office inspections due to be conducted during 
calendar year 2020 could be conducted by March 31, 2021, but with the 
expectation that dealers would conduct their inspections on-site. The 
December 2020 relief provided dealers with the option to conduct their 
office inspections remotely that were due to be completed by March 31, 
2021 (for calendar year 2020) and those for calendar year 2021, subject 
to certain conditions. The October 2021 relief provided an additional 
extension of time permitting dealers to continue to conduct office 
inspections remotely through June 30, 2022, for their office 
inspections that were due to be completed for calendar year 2022.\12\ 
The March 2022 relief allowed for dealers to complete office 
inspections, due to be completed during calendar year 2022, remotely 
through December 31, 2022. The November 2022 relief allowed for dealers 
to conduct office inspections, due to be completed during calendar year 
2023, remotely through June 30, 2023.
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    \7\ See Exchange Act Release No. 88694 (April 20, 2020), 85 FR 
23088 (April 24, 2020) (File No. SR-MSRB-2020-01).
    \8\ See Exchange Act Release No. 90621 (December 9, 2020), 85 FR 
81254 (December 15, 2020) (File No. SR-MSRB-2020-09).
    \9\ See Exchange Act Release No. 93435 (October 27, 2021), 86 FR 
60522 (November 2, 2021) (File No. SR-MSRB-2021-06).
    \10\ See Exchange Act Release No. 94383 (March 9, 2022), 87 FR 
14596 (March 15, 2022) (File No. SR-MSRB-2022-01).
    \11\ See Exchange Act Release No. 96346 (November 17, 2022), 87 
FR 71719 (November 23, 2022) (File No. SR-MSRB-2022-08).
    \12\ The MSRB noted in the October 2021 relief that it would 
continue to monitor the effectiveness of remote office inspections 
on dealers' overall supervisory systems and would consider more 
long-term regulatory initiatives that align with and promote the 
evolving ways dealers are doing business and supervising the 
activities of a dealer and its associated persons. See Exchange Act 
Release No. 93435 (October 27, 2021), 86 FR 60522 (November 2, 2021) 
(File No. SR-MSRB-2021-06). The MSRB is still undertaking such 
review.
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    The MSRB understands that a large number of firms have implemented 
a hybrid work environment in which particular business functions 
continue to be de-centralized. Therefore, the November 2022 relief was 
intended to allow dealers time to address ongoing challenges related to 
variations of telework arrangements.\13\ The MSRB believes that an 
additional extension allowing dealers to conduct office inspections 
remotely through the first half of the calendar year (June 30, 2024), 
would provide dealers with the necessary time to continue to assess the 
current and future state of work and evolve their current supervisory 
practices to better support an integrated hybrid work environment.
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    \13\ See Exchange Act Release No. 96346 (November 17, 2022), 87 
FR 71719 (November 23, 2022) (File No. SR-MSRB-2022-08).
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    Relatedly, in October 2022, FINRA submitted a proposed rule filing 
with the SEC to extend its remote office inspection relief through the 
earlier of the effective date of its proposed remote office inspection 
pilot program,\14\ if approved, or the end of calendar year 2023.\15\ 
The MSRB believes the extension of time through the first half of the 
calendar year (June 30, 2024), will afford the industry time, including 
the MSRB, to better assess the impact of FINRA's open rulemaking 
initiative pending with the Commission, and provide greater regulatory 
certainty as to the length of time dealers can operate under the 
current regulatory relief to aid dealers' ability to plan for the 
coming year.
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    \14\ See Exchange Act Release No. 95452 (August 9, 2022), 87 FR 
50144 (August 15, 2022) (File No. SR-FINRA-2022-021). FINRA proposes 
to amend FINRA Rule 3110, on supervision, to adopt a voluntary, 
three-year remote inspection pilot program to allow FINRA member 
firms to elect to conduct inspections of some or all of a firm's 
branch offices and locations remotely without an on-site visit to 
such office or location, subject to specified terms and conditions.
    \15\ See Exchange Act Release No. 96241 (November 4, 2022), 87 
FR 67969 (November 10, 2022) (File No. SR-FINRA-2022-030).
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    To that end, the MSRB is proposing amendments to Supplementary 
Material .01 of MSRB Rule G-27. Specifically, the proposed amendments 
to Supplementary Material .01 of MSRB Rule G-27 would allow dealers to 
satisfy their office inspection obligations by permitting dealers to 
conduct office inspections, due to be completed in calendar year 2023, 
remotely for the remainder of calendar year 2023, as well as allow 
dealers to conduct calendar year 2024 office inspections remotely 
through June 30, 2024.\16\
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    \16\ As the MSRB has noted in the past, pursuant to Rule G-
27(g)(ii)(A)(7), a temporary location established in response to the 
implementation of a business continuity plan is not deemed an office 
for purposes of complying with the office inspection obligations, 
under MSRB Rule G-27. See supra note 7.
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    The conditions required to be met for dealers to avail themselves 
of the option to conduct office inspections remotely would remain 
unchanged under Rule G-27. However, amendments are being proposed to 
paragraphs (a) and (d) of Supplementary Material .01 to reflect the 
additional extension of time under the proposed rule change. Pursuant 
to paragraphs (b)-(d) of Supplementary Material .01 of MSRB Rule G-27, 
as currently effective, dealers electing to conduct their office 
inspections remotely must (i) amend or supplement their written 
supervisory procedures as appropriate to provide for remote inspections 
that are reasonably designed to assist in detecting and preventing 
violations of, and achieving compliance with, applicable securities 
laws and regulations, and with applicable Board rules; (ii) use remote 
office inspections as part of an effective supervisory system, which 
would include the ongoing review of activities and functions occurring 
at all offices and locations whether or not the dealer conducts 
inspections remotely; and (iii) make and maintain a centralized record 
for each of the calendar years 2020, 2021, 2022, and for calendar year 
2023 through June 30, 2023, separately identifying all offices or 
locations that had inspections that were conducted remotely; and any 
offices or locations for which the dealer determined to impose 
additional supervisory procedures or more frequent monitoring as 
provided for under paragraph (c) of Supplementary Material .01, of MSRB 
Rule G-27. Thus, under the proposed

[[Page 29776]]

rule change, the dates within paragraphs (a) and (d) of Supplementary 
Material .01, of MSRB Rule G-27, would be revised to include the 
remainder of calendar year 2023 and calendar year 2024 through June 30, 
2024, for conducting remote office inspections and with respect to the 
related documentation requirement for dealers that elect to conduct 
their inspections remotely.
    The proposed rule change also deletes Supplementary Material .01, 
Temporary Relief for Completing Periodic Compliance Examinations, of 
MSRB Rule G-16, on periodic compliance examination, that provided 
temporary relief for completing periodic examinations of dealers by 
registered securities associations and appropriate regulatory 
agencies.\17\ Supplementary Material .01, of MSRB Rule G-16, currently 
provides that any examination initiated between January 1, 2020 and 
March 31, 2021 is deemed to have occurred in calendar year 2020. As 
that time period has since passed and the Supplementary Material is no 
longer relevant, the proposed rule change deletes this Supplementary 
Material in order to streamline the rule.
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    \17\ See Exchange Act Release No. 90621 (December 9, 2020), 85 
FR 81254 (December 15, 2020) (File No. SR-MSRB-2020-09).
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2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
section 15B(b)(2)(C) of the Exchange Act,\18\ which provides that the 
MSRB's rules shall be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in municipal securities and municipal 
financial products, to remove impediments to and perfect the mechanism 
of a free and open market in municipal securities and municipal 
financial products, and, in general, to protect investors, municipal 
entities, obligated persons, and the public interest.
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    \18\ 15 U.S.C. 78o-4(b)(2)(C).
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    The proposed rule change is designed to provide dealers additional 
time to comply with certain obligations under MSRB rules for a 
temporary period of time and greater regulatory certainty as to the 
length of time dealers can operate under the current regulatory relief 
to aid dealers' ability to plan for the coming year. The proposed rule 
change does not relieve dealers from compliance with their core 
regulatory obligations to establish and maintain a system to supervise 
the activities of each of their associated persons that is reasonably 
designed to achieve compliance with applicable rules and regulations, 
and with applicable MSRB rules, which serve to protect investors, 
municipal entities, obligated persons, and the public interest. The 
MSRB believes that an additional extension affording dealers the option 
to conduct remote inspections, due to be completed in calendar year 
2023, as well as the option to conduct remote office inspections, due 
to be completed in calendar year 2024, for the first half of the 
calendar year (June 30, 2024), is a prudent regulatory approach. This 
approach will allow dealers time to continue to adapt their supervisory 
practices to long-term hybrid work arrangements while continuing to 
serve the important investor protection and public interest objectives 
of the inspection obligations. Lastly, the proposed rule change also 
will alleviate some of the operational challenges dealers may be 
experiencing, which will allow them to more effectively allocate 
resources to the operations that facilitate 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.\19\
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    \19\ The proposed rule change only creates the option for 
dealers to conduct office inspections remotely through June 30, 
2024. With that in mind, dealers should consider whether, under 
their particular operating conditions, electing to conduct the 
required office inspections remotely would be reasonable under facts 
and circumstances.
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    The proposed rule change to remove outdated references to the 
regulatory relief that is no longer applicable would ensure that rule 
provisions are clear, accurate, and streamlined, thereby facilitating 
compliance and promoting just and equitable principles of trade by 
clarifying the regulatory obligations under MSRB rules.

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

    Section 15B(b)(2)(C) of the Act requires that MSRB rules be 
designed not to impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.\20\ In fact, 
the MSRB does not believe that the proposed rule change will have any 
burden on competition because the proposed rule change treats all 
dealers equally in that all dealers have the option to elect to conduct 
remote inspections remotely through June 30, 2024. The goal of the 
proposed rule change is to grant additional time for dealers to focus 
their time on the establishment and integration of long-term hybrid 
work arrangements--recognizing the use of a remote work force and 
transformative technology to decentralize functions--while also 
balancing the regulatory obligation to establish office inspection 
schedules for the first half of 2024 and meet their office inspection 
obligations, under Supplementary Material .01 of Rule G-27. The 
temporary relief afforded does not alter dealers' underlying 
obligations under Rule G-27 and with applicable MSRB rules that 
directly serve investor protection.
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    \20\ 15 U.S.C. 78o-4(b)(2)(C).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received on the 
proposed rule change.

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 \21\ and Rule 19b-
4(f)(6) \22\ thereunder. 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.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please 
include File Number SR-MSRB-2023-04 on the subject line.

[[Page 29777]]

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2023-04. 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 (https://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. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to File Number SR-MSRB-2023-04 and should be 
submitted on or before May 30, 2023.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.\23\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09686 Filed 5-5-23; 8:45 am]
BILLING CODE 8011-01-P