Document ID: SEC-2011-1133-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2011-08-08T04:00Z

[Federal Register Volume 76, Number 152 (Monday, August 8, 2011)]
[Notices]
[Pages 48197-48200]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19992]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65015; File No. SR-MSRB-2011-08]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed New Rule A-11, on Municipal Advisor 
Assessments, and New Form A-11-Interim

August 2, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 48198]]

``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 26, 2011, the Municipal Securities Rulemaking Board (``Board'' 
or ``MSRB'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
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 is filing with the SEC a proposed rule change consisting 
of (i) Proposed new Rule A-11, on municipal advisor assessments, and 
(ii) new Form A-11-Interim (the ``proposed rule change''). The MSRB 
requests that the proposed rule change be made effective October 1, 
2011.
    The text of the proposed rule change is available on the MSRB's Web 
site at http://www.msrb.org/Rules-and-Interpretations/SEC-Filings/2011-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

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

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

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

1. Purpose
    The proposed rule change consists of new Rule A-11, on municipal 
advisor assessments, and new Form A-11-Interim. The purpose of the 
proposed rule change is to levy a reasonable interim assessment to 
defray a portion of the costs and expenses of operating and 
administering the MSRB, including in particular the increased costs and 
expenses attributable to the regulation of municipal advisors that the 
MSRB began to incur upon being vested with rulemaking authority in this 
area under the Dodd-Frank Wall Street Reform and Consumer Protection 
Act.\3\ The MSRB expects the interim assessment to remain in effect in 
the form proposed in the proposed rule change for a limited period of 
time during which the MSRB would examine the nature of the municipal 
advisory activities undertaken by municipal advisors as well as the 
manner and level of compensation received by municipal advisors for 
such municipal advisory activities (the ``MSRB municipal advisor 
study'').\4\ Based on the MSRB's findings, the MSRB would then consider 
whether to replace the interim assessment with a permanent form of 
assessment on municipal advisors that would, together with other MSRB 
assessments payable by municipal advisors, brokers, dealers and 
municipal securities dealers, provide for reasonable assessments that 
are fairly and equitably apportioned among all market participants 
subject to MSRB regulation and that do not impose an undue burden on 
small municipal advisors.
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    \3\ Public Law 111-203.
    \4\ Concurrent with the filing of this proposed rule change, the 
MSRB published for comment a draft amendment to proposed Rule A-11 
and draft Form A-11-Survey pursuant to which the MSRB would collect 
the necessary information from municipal advisors to undertake such 
examination. See MSRB Notice 2011-34 (July 26, 2011). The MSRB would 
file the draft Rule A-11 amendment and draft Form A-11-Survey with 
the Commission prior to undertaking such collection of information.
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    The interim assessment under proposed Rule A-11 would consist of an 
annual assessment equal to $300 for each assessable professional 
reported or required to be reported by a municipal advisor to the MSRB 
on Form A-11-Interim for each fiscal year. Completed Form A-11-Interim 
and payment of the interim assessment would be due by November 30 of 
each year. Form A-11-Interim would be completed and submitted, and the 
interim assessment would be paid, in the manner set forth in the 
Instructions for Interim Municipal Advisor Assessment and Form A-11-
Interim.
    For purposes of the interim assessment, an assessable professional 
of a municipal advisor would, pursuant to proposed Rule A-11(b)(i), 
consist of any natural person who is an associated person of the 
municipal advisor who has received compensation or other payments from 
the municipal advisor (excluding reimbursement for out-of-pocket 
expenses) includable in such person's gross income for federal income 
tax purposes in the amount of $10,000 or more during the fiscal year of 
the MSRB for which the municipal advisor is submitting Form A-11-
Interim and who provides services in connection with the municipal 
advisor's municipal advisory activities as defined in Rule D-13. Such 
services include, but are not limited to:
    (A) Engaging in municipal advisory business \5\ with a municipal 
entity or obligated person;
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    \5\ Proposed Rule A-11(b)(ii) would define municipal advisory 
business as the provision of advice to or on behalf of a municipal 
entity or an obligated person with respect to municipal financial 
products or the issuance of municipal securities.
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    (B) soliciting \6\ municipal advisory business with a municipal 
entity or obligated person on its own behalf or soliciting third-party 
business; \7\
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    \6\ Under proposed Rule A-11(b)(iii), an associated person of a 
municipal advisor would be viewed as soliciting municipal advisory 
business if the associated person undertakes any direct or indirect 
communication with a municipal entity or obligated person for the 
purpose of obtaining or retaining: (A) Municipal advisory business 
for such municipal advisor with a municipal entity or obligated 
person; or (B) third-party business.
    \7\ Proposed Rule A-11(b)(iv) would define third-party business 
as an engagement by a municipal entity of another person that does 
not control, is not controlled by, or is not under common control 
with the person soliciting such engagement, where such other person 
is: (A) A broker, dealer, municipal securities dealer, or municipal 
advisor engaging or seeking an engagement with such municipal entity 
in connection with municipal financial products or the issuance of 
municipal securities; or (B) an investment adviser (as defined in 
section 202 of the Investment Advisers Act of 1940) providing or 
seeking to provide investment advisory services to or on behalf of 
such municipal entity.
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    (C) providing research or analytical services to other personnel of 
the municipal advisor engaged in the services described in paragraph 
(A) or (B) above or to clients of the municipal advisor, where such 
research or analytic services are related to the services described in 
paragraph (A) or (B) above;
    (D) acting as supervisor of any person described in paragraph (A), 
(B) or (C) above with respect to such person's services as described in 
paragraph (A), (B) or (C) above;
    (E) acting as supervisor of any person described in paragraph (D) 
above up through and including the Chief Executive Officer or similarly 
situated official; or
    (F) serving as a member of the municipal advisor's executive or 
management committee or similarly situated officials, if any.
    Notwithstanding the foregoing, a municipal advisor would not be 
required to include on Form A-11-Interim as an assessable professional 
any associated person (i) Who otherwise qualifies as an assessable 
professional if such associated person is included on Form A-11-Interim 
for such fiscal year as an assessable professional of another municipal 
advisor that controls, is

[[Page 48199]]

controlled by, or is under common control with such municipal advisor, 
or (ii) whose functions are solely clerical or ministerial.
    Proposed Form A-11-Interim would require that municipal advisors 
provide information about the number of assessable professionals who, 
during the fiscal year for which the assessment is calculated, were 
principal/supervisory personnel or other advisory personnel. Principal/
supervisory personnel would consist of any assessable professional who 
is either described in paragraph (D), (E) or (F) of the definition of 
assessable professional or who is a partner or other equity owner of 
the municipal advisor firm having a cumulative ownership interest 
representing at least 2.5% of the firm. All other assessable 
professionals would be reported as other advisory personnel. The 
interim assessment would be calculated based on the sum of principal/
supervisory personnel and other advisory personnel.\8\ Because of the 
gross income threshold in the definition of assessable professional, 
municipal advisors that generate revenues of less than $10,000 in 
connection with their municipal advisory activities during the fiscal 
year typically would not have any assessable professionals to report 
for such fiscal year and therefore would not be required to pay the 
interim assessment.\9\
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    \8\ Proposed Form A-11-Interim also would require that municipal 
advisors provide information about the number of personnel at the 
firm that are engaged solely in non-municipal advisory activities. 
This information would be used to better understand the extent to 
which municipal advisory activities represent only a portion of 
firms' overall activities but would not be used to calculate the 
interim assessment.
    \9\ All municipal advisors would be required to submit completed 
Form A-11-Interim, even if such municipal advisors have no 
assessable professionals to report.
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    The MSRB requests that the proposed rule change be made effective 
October 1, 2011, which is the first day of the MSRB's fiscal year. 
Municipal advisors would be required to submit completed Form A-11-
Interim and to make payment of the interim assessment by November 30, 
2011, based on information for the period from October 1, 2010 through 
September 30, 2011. If in any subsequent fiscal year the MSRB has not 
yet replaced the interim assessment with a permanent form of assessment 
as described above, municipal advisors would be required to submit 
completed Form A-11-Interim and to make payment of the interim 
assessment by November 30 of such fiscal year based on information for 
the prior fiscal year.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(J) of the Securities Exchange Act of 1934, as amended 
(the ``Exchange Act''), which provides that the MSRB's rules shall:

provide that each municipal securities broker, municipal securities 
dealer, and municipal advisor shall pay to the Board such reasonable 
fees and charges as may be necessary or appropriate to defray the 
costs and expenses of operating and administering the Board.

    In addition, Section 15B(b)(2)(L)(iv) of the Exchange Act requires 
that rules adopted by the MSRB:

not impose a regulatory burden on small municipal advisors that is 
not necessary or appropriate in the public interest and for the 
protection of investors, municipal entities, and obligated persons, 
provided that there is robust protection of investors against fraud.

    The proposed rule change would establish an interim assessment on 
municipal advisors that would help to defray a portion of the costs and 
expenses of operating and administering the MSRB's regulatory and 
related activities in connection with municipal advisors until such 
time as a permanent assessment is established based on the planned MSRB 
municipal advisor study described above. Although the amounts raised 
through the interim assessment would not be sufficient to pay all on-
going costs of regulation of municipal advisors and also would be 
insufficient to cover costs already incurred in connection with the 
regulation of municipal advisors since the MSRB commenced such 
regulatory activities on October 1, 2010, the MSRB believes that it is 
reasonable and appropriate to impose the interim assessment pending 
establishment of the final form of municipal advisor assessment.
    In approving a 2010 MSRB proposal to increase the MSRB's 
transaction fee and to establish a new technology fee payable by 
brokers, dealers and municipal securities dealers,\10\ the Commission 
recognized ``the concerns raised by some commenters that the increase 
in transaction fees and the new technology fee will be used to 
subsidize municipal advisor regulation'' and noted that the MSRB had 
taken certain initial steps to assess municipal advisor fees \11\ and 
expected to assess other fees on municipal advisors as appropriate. 
Currently, under MSRB Rule A-13, brokers, dealers and municipal 
securities dealers pay an underwriting fee of $.03 per $1000 par value 
of municipal securities purchased in a primary offering (with certain 
exceptions), a transaction fee of $.01 per $1000 par value of sale 
transactions of municipal securities (with certain exceptions), and a 
technology fee of $1 for each sale transaction of municipal securities, 
in addition to an initial fee of $100 under MSRB Rule A-12 and an 
annual fee of $500 under MSRB Rule A-14. For the MSRB fiscal year ended 
September 30, 2010, the underwriting fee generated $13,984,780 and the 
transaction fee generated $6,940,551.\12\ The technology fee became 
effective on January 1, 2011 and therefore the MSRB did not generate 
any revenue from this fee for the MSRB fiscal year ended September 30, 
2010.\13\ In addition, for the MSRB fiscal year ended September 30, 
2010, the initial fee generated $8,500 and the annual fee generated 
$1,010,321.
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    \10\ See Exchange Act Release No. 63621 (File No. SR-MSRB-2010-
10) (December 29, 2010) (the ``2010 Dealer Fee Order'').
    \11\ See Exchange Act Release No. 63313 (File No. SR-MSRB-2010-
14) (November 12, 2010) (the ``2010 Municipal Advisor Fee Order''). 
Municipal advisors pay an initial fee of $100 under MSRB Rule A-12 
and an annual fee of $500 under MSRB Rule A-14, both amounts being 
equal to the annual and initial fees paid by brokers, dealers and 
municipal securities dealers under those rules.
    \12\ The amount of the transaction fee was increased from $.005 
per $1000 par value of sale transactions to .01 per $1000 par value 
of sale transactions beginning January 1, 2011. The MSRB previously 
estimated that this increase in the transaction fee would generate 
an estimated $7 million of additional revenue annually. See 2010 
Dealer Fee Order.
    \13\ The MSRB previously estimated that the new technology fee 
would generate an estimated $10 million of revenue annually. See 
2010 Dealer Fee Order.
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    Municipal advisors do not pay the underwriting, transaction or 
technology fee described above. The payment of the initial fee became 
obligatory for municipal advisors on January 1, 2011 and, as of July 
22, 2011, approximately 495 municipal advisors not previously 
registered with the MSRB have paid the initial fee in connection with 
registering with the MSRB as municipal advisors, generating 
approximately $49,500 from these new municipal advisor registrants.\14\ 
The payment of the annual fee also became obligatory for municipal 
advisors on January 1, 2011 and, as of July 22, 2011, these newly 
registered municipal advisors have paid the annual fee in connection 
with their first year as registered municipal advisors in an aggregate 
amount of approximately $247,500. The MSRB expects that, together with 
the initial fee and annual fee, the proposed interim assessment payable 
by municipal advisors would

[[Page 48200]]

generate well under 10 percent of the MSRB's total annual revenue in 
the fiscal year beginning October 1, 2011.\15\ Thus, the MSRB believes 
that the burden on municipal advisors of the proposed interim 
assessment would be reasonable and appropriate and would be relatively 
small compared to the burden of fees and assessments paid by brokers, 
dealers and municipal securities dealers.
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    \14\ The amount generated from the initial fee is expected to be 
significantly lower in future years since such fee is payable by 
each municipal advisor only once upon initial registration with the 
MSRB.
    \15\ Approximately 185 brokers, dealers and municipal securities 
dealers previously registered with the MSRB as such have also 
registered with the MSRB as municipal advisors as of July 22, 2011 
and such firms also would be subject to the proposed interim 
assessment.
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    The amount of the interim assessment payable by each municipal 
advisor firm would be dependent on the number of assessable 
professionals of the firm and therefore would result in lower 
assessments for smaller municipal advisor firms and would bear a 
reasonable relationship with the level of municipal advisory activities 
undertaken by each municipal advisor firm. In addition, as noted above, 
because of the gross income threshold in the definition of assessable 
professional, municipal advisors that generate revenues of less than 
$10,000 in connection with their municipal advisory activities during 
the fiscal year typically would not have any assessable professionals 
to report for such fiscal year and therefore would not be required to 
pay the interim assessment. Accordingly, the interim assessment would 
minimize the regulatory burden on small municipal advisors.

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

    The MSRB does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Exchange Act since it would apply equally to all 
municipal advisors based on the number of assessable professionals of 
each firm.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
 Send an e-mail to rule-comments@sec.gov. Please include File 
Number SR-MSRB-2011-08 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2011-08. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Web site (http://www.sec.gov/rules/sro.shtml). Copies 
of the submission, all subsequent amendments, all written statements 
with respect to the proposed rule change that are filed with the 
Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street, NE., Washington, 
DC 20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the MSRB's offices. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-MSRB-2011-08 and should be submitted on or before August 
29, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19992 Filed 8-5-11; 8:45 am]
BILLING CODE 8011-01-P