Document ID: SEC-2015-1900-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Municipal Securities Rulemaking Board
Posted Date: 2015-11-13T05:00Z

[Federal Register Volume 80, Number 219 (Friday, November 13, 2015)]
[Notices]
[Pages 70271-70276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28806]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76381; File No. SR-MSRB-2015-09]

Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change Consisting of 
Proposed Amendments to Rule G-20, on Gifts, Gratuities and Non-Cash 
Compensation, and Rule G-8, on Books and Records To Be Made by Brokers, 
Dealers, Municipal Securities Dealers, and Municipal Advisors, and the 
Deletion of Prior Interpretive Guidance

November 6, 2015.

I. Introduction

    On September 2, 2015, the Municipal Securities Rulemaking Board 
(the ``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (``Commission'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change consisting of proposed amendments 
to MSRB Rule G-20 on gifts, gratuities and non-cash compensation, 
proposed amendments to MSRB Rule G-8, on books and records to be made 
by brokers, dealers, municipal securities dealers, and municipal 
advisors, and the deletion of prior interpretive guidance that would be 
codified by proposed amended Rule G-20 (the ``proposed rule change'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on September 22, 2015.\3\ The Commission received three 
comment letters on the proposed rule change.\4\ On

[[Page 70272]]

November 2, 2015, the MSRB submitted a response to these comments.\5\ 
This order approves the proposed rule change.
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    \3\ Securities Exchange Act Release No. 75932 (September 16, 
2015), 80 FR 57240 (September 22, 2015) (the ``Notice'').
    \4\ See Letters from Tamara K. Salmon, Senior Associate Counsel, 
Investment Company Institute (``ICI''), dated September 25, 2015 
(``ICI Letter''); Leslie M. Norwood, Managing Director and Associate 
General Counsel, Securities Industry and Financial Markets 
Association (``SIFMA''), dated October 13, 2015 (``SIFMA Letter''); 
and Terri Heaton, President, National Association of Municipal 
Advisors (``NAMA''), dated October 16, 2015 (``NAMA Letter'').
    \5\ See Letter from Michael L. Post, General Counsel--Regulatory 
Affairs, MSRB, dated November 2, 2015 (``MSRB Response Letter'').
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II. Description of the Proposed Rule Change

    Existing Rule G-20 is designed, in part, to minimize the conflicts 
of interest that arise when a dealer attempts to induce organizations 
active in the municipal securities market to engage in business with 
such dealers by means of personal gifts or gratuities given to 
employees of such organizations.\6\ According to the MSRB, the proposed 
rule change addresses improprieties and conflicts that may arise when 
municipal advisors and/or their associated persons \7\ give gifts or 
gratuities to employees who may influence the award of municipal 
advisory business.\8\ In summary, the MSRB has proposed amendments to 
Rule G-20 that would:
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    \6\ See MSRB Notice 2004-17 (June 15, 2004).
    \7\ MSRB Rule D-11 defines ``associated persons'' as follows: 
Unless the context otherwise requires or a rule of the Board 
otherwise specifically provides, the terms ``broker,'' ``dealer,'' 
``municipal securities broker,'' ``municipal securities dealer,'' 
``bank dealer,'' and ``municipal advisor'' shall refer to and 
include their respective associated persons. Unless otherwise 
specified, persons whose functions are solely clerical or 
ministerial shall not be considered associated persons for purposes 
of the Board's rules.
    \8\ See supra note 3 at 57240-41.
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     Extend the relevant existing provisions of Rule G-20 to 
municipal advisors and their associated persons and to gifts given in 
relation to municipal advisory activities;
     Consolidate and codify interpretive guidance, including 
interpretive guidance published by the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') and adopted by the MSRB and delete prior 
interpretive guidance that would be codified by proposed amended Rule 
G-20;
     Add a new provision prohibiting a regulated entity from 
seeking or obtaining reimbursement of certain entertainment expenses 
from the proceeds of an offering of municipal securities; and
     Make several revisions that are designed to assist 
brokers, dealers, and municipal securities dealers (``dealers'') and 
municipal advisors (dealers, together with municipal advisors, 
``regulated entities'') and their associated persons with their 
understanding of and compliance with Rule G-20.
    In summary, the MSRB has proposed amendments to Rule G-8 that 
would:
     Extend to municipal advisors the recordkeeping 
requirements related to Rule G-20 that currently apply to dealers; and
     Amend the rule language contained in Rule G-8(a)(xvii)(A), 
(B), and (C) applicable to dealers to reflect the revisions to proposed 
amended Rule G-20.

Extension of Rule G-20 to Municipal Advisors and Municipal Advisory 
Activities

    The MSRB has proposed to extend to municipal advisors and their 
associated persons: (i) The general dealer prohibition of gifts or 
gratuities in excess of $100 per person per year in relation to the 
municipal securities activities of the recipient's employer (the ``$100 
limit''); (ii) the exclusions contained in the existing rule from that 
general prohibition (including certain consolidations and the 
codifications of prior interpretive guidance) and the addition of 
bereavement gifts to those exclusions; and (iii) the existing exclusion 
relating to contracts of employment or compensation for services. 
Proposed section (g) of Rule G-20, on non-cash compensation in 
connection with primary offerings, is not being extended to municipal 
advisors or to associated persons thereof.
(i) General Prohibition of Gifts or Gratuities in Excess of $100 per 
Year
    The MSRB has proposed section (c) of Rule G-20 which extends to a 
municipal advisor and its associated persons the provision that 
currently prohibits a dealer and its associated persons, in certain 
circumstances, from giving directly or indirectly any thing or service 
of value, including gratuities (``gifts''), in excess of $100 per year 
to a person (other than an employee of the dealer). The prohibited 
payments or services by a regulated entity or associated persons would 
be those provided in relation to the municipal securities activities or 
municipal advisory activities of the employer of the recipient (other 
than an employee of the regulated entity).
(ii) Exclusions From the $100 Limit
    The MSRB has proposed section (d) of Rule G-20 which extends to a 
municipal advisor and its associated persons the provision that 
excludes certain gifts from the $100 limit of proposed section (c) as 
long as the conditions articulated by proposed section (d) and the 
relevant subsection, as applicable, are met. Section (d) states that 
gifts, in order to be excluded from the $100 limit, must not give rise 
to any apparent or actual material conflict of interest.
    Proposed section (d) of Rule G-20 includes subsections (d)(i) 
through (d)(iv) and (d)(vi) which consolidate and codify interpretive 
guidance that the MSRB provided in MSRB Notice 2007-06 (the ``2007 MSRB 
Gifts Notice'').\9\ The 2007 MSRB Gifts Notice's interpretive guidance 
also included FINRA guidance that the MSRB had adopted by 
reference.\10\ Further, proposed subsection (d)(v) would codify FINRA 
interpretive guidance relating to bereavement gifts that the MSRB 
previously had not adopted.\11\
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    \9\ See Dealer Payments in Connection with the Municipal 
Issuance Process, MSRB Notice 2007-06 (Jan. 29, 2007).
    \10\ See 2007 MSRB Gifts Notice (reminding dealers of the 
application of Rule G-20 and Rule G-17 in connection with certain 
payments made and expenses reimbursed during the municipal bond 
issuance process, and stating that the National Association of 
Securities Dealers, Inc.'s (``NASD'') guidance provided in NASD 
Notice to Members 06-69 (Dec. 2006) to assist dealers in complying 
with NASD Rule 3060 applies as well to comparable provisions of Rule 
G-20).
    \11\ See supra note 3 at 57242.
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    The MSRB has proposed subsection (d)(i) of Rule G-20 which extends 
to a municipal advisor and its associated persons the current exclusion 
of a gift of meals or tickets to theatrical, sporting, and other 
entertainment given by a dealer or its associated persons from the $100 
limit if they are a ``normal business dealing.'' Such exclusion is 
subject to the limitations as described in proposed subsection (d)(i).
    Proposed subsections (d)(ii) through (iv) establish three 
categories of gifts that were previously excluded from the $100 limit 
under the category of ``reminder advertising'' in the rule language 
regarding ``normal business dealings'' in existing section (b) of Rule 
G-20. The MSRB has proposed to delete the concept of ``reminder 
advertising'' from the ``normal business dealings'' exclusion under 
current paragraph (b). This amendment would clarify the types of gifts 
in the nature of reminder advertising that would be excluded from the 
$100 limit. These changes conform draft amended paragraph (d) with 
current FINRA interpretive guidance that the MSRB has stated applies to 
Rule G-20.\12\ These three categories are:
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    \12\ Id. at 57241.
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     Gifts commemorative of a business transaction, such as a 
desk ornament or

[[Page 70273]]

Lucite tombstone (proposed subsection (d)(ii));
     de minimis gifts, such as pens and notepads (proposed 
subsection (d)(iii)); and
     promotional gifts of nominal value that bear an entity's 
corporate or other business logo and that are substantially below the 
$100 limit (proposed subsection (d)(iv)).
    Proposed subsection (d)(v) of Rule G-20 excludes bereavement gifts 
which are reasonable and customary for the circumstances from the $100 
limit. According to the MSRB, proposed subsection (d)(v) of Rule G-20 
codifies FINRA interpretive guidance currently applicable to dealers 
relating to bereavement gifts that the MSRB previously had not 
adopted.\13\
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    \13\ Id. at 57242.
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    Finally, the MSRB has proposed subsection (d)(vi) of Rule G-20 
which excludes personal gifts given upon the occurrence of infrequent 
life events, such as a wedding gift or a congratulatory gift for the 
birth of a child. According to the MSRB, this proposed subsection 
consolidates and codifies the FINRA personal gift guidance currently 
applicable to dealers.\14\
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    \14\ Id.
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    The ``frequency'' and ``extensiveness'' limitations applicable to 
proposed subsection (d)(i) of Rule G-20 would not apply to proposed 
subsections (d)(ii) through (vi). The MSRB has proposed to modify those 
limitations to better reflect the characteristics of the gifts 
described in proposed subsections (d)(ii) through (vi).\15\ According 
to the MSRB, gifts described in those subsections in the proposed rule 
change are by their nature given infrequently and/or are of such 
nominal value that retaining the requirement that such gifts be ``not 
so frequent or extensive'' would be unnecessarily duplicative of the 
description of these gifts and could result in confusion.\16\
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    \15\ Id.
    \16\ Id.
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    To assist regulated entities with their understanding of the 
exclusions described and with their compliance with the rule, the MSRB 
has provided guidance in the Supplementary Material. Paragraph .03 of 
the Supplementary Material provides guidance regarding promotional 
gifts and ``other business logos'' including what would constitute an 
``other business logo.'' Paragraph .04 of the Supplementary Material 
provides guidance regarding personal gifts including factors that 
should be considered when determining whether a gift is given in 
connection with the municipal securities or municipal advisory services 
of the employer of the recipient.
(iii) Exclusion for Compensation Paid as a Result of Contracts of 
Employment or Compensation for Services
    The MSRB has proposed section (f) which extends to municipal 
advisors the exclusion from the $100 limit in existing Rule G-20(c) for 
contracts of employment with or compensation for services that are 
rendered pursuant to a prior written agreement meeting certain content 
requirements. The MSRB has stated that proposed section (f) would 
clarify that the exclusion applies only to the compensation paid as a 
result of certain employment contracts, and does not apply to the 
existence or creation of employment contracts. The MSRB further stated 
that proposed section (f) is only a clarification and would not alter 
the requirements currently applicable to dealers.\17\
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    \17\ Id.
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Consolidation and Codification of MSRB and FINRA Interpretive Guidance

    As discussed, the MSRB has proposed to consolidate and codify 
existing FINRA interpretive guidance previously adopted by the MSRB and 
incorporate additional relevant FINRA interpretive guidance that has 
not previously been adopted by the MSRB in both Rule G-20 text and the 
Supplementary Material. While FINRA's interpretive guidance regarding 
bereavement gifts was not formerly adopted by the MSRB, the MSRB 
believes that this guidance will be appropriate for regulated entities 
as it is consistent with the purpose and scope of proposed amended Rule 
G-20. Further, the MSRB stated its belief that the consolidation and 
codification of the applicable interpretive guidance will promote 
compliance with the rule and create efficiencies for regulated entities 
and regulatory enforcement agencies.\18\
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    \18\ Id.
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    In addition to the interpretive guidance discussed above, proposed 
paragraphs .01, .02, and .05 of the Supplementary Material would 
provide guidance relating to the valuation and the aggregation of gifts 
and to the applicability of state laws. Proposed paragraph .01 of the 
Supplementary Material would state that a gift's value should be 
determined generally according to the higher of its cost or market 
value. Proposed paragraph .02 of the Supplementary Material would state 
that regulated entities must aggregate all gifts that are subject to 
the $100 limit given by the regulated entity and each associated person 
of the regulated entity to a particular recipient over the course of a 
year however ``year'' is selected to be defined by the regulated 
entity. Proposed paragraphs .01 and .02 reflect existing FINRA 
interpretive guidance regarding the aggregation of gifts for purposes 
of its gift rules, which the MSRB has previously adopted.
    Proposed paragraph .05 of the Supplementary Material would remind 
regulated entities that, in addition to all the requirements of 
proposed amended Rule G-20, regulated entities may also be subject to 
other duties, restrictions, or obligations under state or other laws 
and that proposed amended Rule G-20 would not supersede any more 
restrictive provisions of state or other laws applicable to regulated 
entities or their associated persons.

Prohibition of Reimbursement for Entertainment Expenses

    The MSRB has also proposed section (e) of Rule G-20 which provides 
that a regulated entity is prohibited from requesting or obtaining 
reimbursement for certain entertainment expenses from the proceeds of a 
municipal securities offering. The MSRB stated its belief that this 
provision would address a matter highlighted by a recent FINRA 
enforcement action. Proposed section (e) provides that an entertainment 
expense excludes ``ordinary and reasonable expenses for meals hosted by 
the regulated entity and directly related to the offering for which the 
regulated entity was retained.'' The MSRB has stated that proposed 
section (e) is intended to allow the continuation of the generally 
accepted market practice of a regulated entity advancing normal travel 
costs to personnel of a municipal entity or obligated person for 
business travel related to a municipal securities issuance and 
obtaining reimbursement for such costs.\19\
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    \19\ Id.
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Additional Proposed Amendments to Rule G-20

    In addition to the previously discussed proposed amendments to Rule 
G-20, the MSRB proposed several amendments which it believes will 
assist readers with their understanding of and compliance with Rule G-
20.\20\ These proposed amendments include (i) a revised rule title, 
(ii) a new provision stating the rule's purpose, and (iii) a re-
ordering of existing provisions and additional defined terms.
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    \20\ Id.

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[[Page 70274]]

Recordkeeping Requirements

    The MSRB has proposed amendments to Rule G-8 which extend to 
municipal advisors the recordkeeping requirements related to Rule G-20 
that currently apply to dealers. Municipal advisor recordkeeping 
requirements would be identical to the recordkeeping requirements to 
which dealers would be subject in proposed amended Rule G-8(a)(xvii)(A) 
and (B).
    The MSRB has proposed to amend the language contained in Rule G-
8(a)(xvii)(A), (B), and (C) applicable to dealers, to reflect the 
revisions to proposed amended Rule G-20. Proposed amended paragraph 
(a)(xvii)(A) provides that a separate record of any gift or gratuity 
subject to the general limitation of proposed amended Rule G-20(c) must 
be made and kept by dealers (emphasis added to amended rule text). 
Paragraph (a)(xvii)(B) would be amended to clarify that dealers must 
make and keep records of all agreements referred to in proposed amended 
Rule G-20(f) and records of all compensation paid as a result of those 
agreements (emphasis added to proposed amended rule text). The proposed 
amendments would also track the reordering of sections in proposed 
amended Rule G-20 and provide greater specificity as to the records 
that a dealer must maintain by referencing the terms used in proposed 
amended Rule G-20.
    The proposed rule change would extend the provisions of existing 
Rule G-8 to require that municipal advisors as well as dealers make and 
keep records of: gifts given that are subject to the $100 limit; and 
all agreements referred to in proposed section (f) (on compensation for 
services) and records of compensation paid as a result of those 
agreements.

Implementation Date

    The MSRB requested that the proposed rule change be approved with 
an implementation date six months after the Commission approval date 
for all changes.

III. Summary of Comments Received and the MSRB's Response

    As noted previously, the Commission received three comment letters 
on the proposed rule change.\21\ The commenters generally support the 
proposed rule change.\22\ However, some commenters asked for further 
clarification and provided suggestions to the proposed rule change.\23\ 
In response to an earlier request for comment by the MSRB on the draft 
amendments to Rules G-20 and G-8,\24\ the MSRB received eight comment 
letters and responded to the comments in the Notice. In the MSRB 
Response Letter, the MSRB incorporated by reference its response to 
comments made in the Notice noting that the three comments received on 
the proposed rule change were the same or substantially similar to the 
comments made in response to the MSRB Request for Comment.\25\ The MSRB 
believes the proposed rule change is appropriately tailored and 
responded to the commenters as discussed below.
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    \21\ See supra note 4.
    \22\ Id.
    \23\ Id.
    \24\ Request for Comment on Draft Amendments to MSRB Rule G-20, 
on Gifts, Gratuities and Non-Cash Compensation, to Extend its 
Provisions to Municipal Advisors, MSRB Notice 2014-18 (Oct. 23, 
2014) (``MSRB Request for Comment'').
    \25\ See supra note 5.
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A. Application of Proposed Amended Rule G-20(c) to Certain Recipients

    NAMA commented that under the MSRB's proposed Rule G-20, the $100 
limit would seem not to apply to gifts given to employees or officials 
of municipal entities or obligated persons because such persons, for 
the most part, do not engage in ``municipal advisory activities.'' \26\ 
NAMA noted that the MSRB indicated in the Notice that prior 
interpretive guidance made clear issuer personnel are considered to 
engage in ``municipal securities activities'' and requested that the 
MSRB codify this guidance in Rule G-20.\27\ The MSRB responded to NAMA 
stating that the language of both existing Rule G-20 and proposed 
amended Rule G-20 applies to gifts given in relation to this broad term 
``municipal securities activities.'' \28\
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    \26\ See NAMA Letter.
    \27\ Id.
    \28\ See supra notes 5 and 24.
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    NAMA also commented that many municipal official and governing 
board members are not employees of municipal entities or obligated 
persons, and therefore it appears that G-20 does not apply to gifts 
given to non-employee officials of municipal entities and obligated 
persons.\29\ The MSRB responded by stating that it believes for 
purposes of existing and proposed amended Rule G-20, elected and 
appointed officials are considered employees of the governmental entity 
on behalf of which they act as agent or representative.\30\
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    \29\ See NAMA Letter.
    \30\ See supra notes 5 and 24.
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B. Changing the Amount of the $100 Limit

    In its comments, NAMA proposed that the $100 limit be raised to 
$250 per person per year which would aid in limiting conflicts of 
interest and also align Rule G-20 with MSRB Rule G-37.\31\ NAMA stated 
that in Rule G-37 the MSRB determined that the contribution level of 
$250 was sufficient to address the needs of individuals seeking to give 
political contributions while not allowing those contributions to be so 
excessive as to allow the contributor to gain undue influence.\32\ NAMA 
proposed that supplementary material be added to state, in effect, that 
occasional gifts of meals or tickets to theatrical, sporting, and other 
entertainments that are hosted by the regulated entity would be 
presumed to be so extensive as to raise a question of propriety if they 
exceed $250 in any year in conjunction with any gifts provided under 
Rule G-20(c).\33\ NAMA asserted that because the purposes of Rule G-20 
and Rule G-37 both are meant to limit a dealer's or a municipal 
advisor's ability to gain undue influence through the giving of gifts 
or contributions that the rules should be written similarly.\34\
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    \31\ See NAMA Letter.
    \32\ Id.
    \33\ Id.
    \34\ Id.
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    The MSRB responded to NAMA by stating that Rule G-37 is designed to 
address potential political corruption that may result from pay-to-play 
practices,\35\ and as such, is tailored in light of First Amendment 
concerns. Existing Rule G-20 is designed to address commercial bribery 
by minimizing the conflicts of interest that arise when a dealer 
attempts to induce organizations active in the municipal securities 
market to engage in business with such dealer by means of gifts or 
gratuities given to employees of such organizations.\36\ The MSRB 
stated that Rules G-37 and G-20 address substantially different 
regulatory needs in different legal contexts, and therefore the dollar 
amounts are likewise justifiably different.\37\
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    \35\ See supra notes 5 and 24.
    \36\ Id.
    \37\ Id.
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C. ``Normal Business Dealings''

    NAMA commented that proposed amended Rule G-20(d), which sets forth 
the exclusions from the $100 limit, leaves open opportunities for 
abuse.\38\ NAMA expressed specific concern regarding proposed 
subsection (d)(i), which would, under certain circumstances, exclude 
from the $100 limit the giving of occasional meals or tickets to 
theatrical, sporting or

[[Page 70275]]

entertainment events.\39\ In NAMA's view, regulated entities would be 
able to engage in otherwise impermissible gift giving under the guise 
of ``normal business dealings,'' and such gift giving likely would 
result in the improper influence that Rule G-20 was designed to 
curtail.\40\ NAMA suggested modifying the amended rule to impose an 
aggregate limit of $250 on all gifts given as part of ``normal business 
dealings'' and gifts and gratuities given under proposed subsection (c) 
believing the aggregate limit would be consistent with the dollar 
threshold used in MSRB Rule G-37.\41\
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    \38\ See NAMA Letter.
    \39\ Id.
    \40\ Id.
    \41\ Id.
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    The MSRB responded that in order to curtail any abuse of the 
exception to the $100 limit, proposed amended Rule G-20 places 
conditions on the excluded gifts, including those that fall under 
``normal business dealings.'' \42\ All of the gifts described in 
proposed section (d) would be excluded only if they do not ``give rise 
to any apparent or actual material conflict of interest,'' and, under 
proposed section (d)(i), ``normal business dealing'' gifts would be 
excluded only if they are not ``so frequent or so extensive as to raise 
any question of propriety.'' \43\ The MSRB further stated that dealers 
and municipal advisors are subject to the fundamental fair-dealing 
obligations of MSRB Rule G-17.\44\ The MSRB stated that Rule G-17 
likely addresses at least some of the concerns raised by NAMA by 
prohibiting regulated entities from characterizing excessive or lavish 
expenses for the personal benefit of issuer personnel as an expense of 
the issue, as such behavior could possibly constitute a deceptive, 
dishonest or unfair practice.\45\
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    \42\ See supra notes 5 and 24.
    \43\ Id.
    \44\ Id.
    \45\ Id.
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D. Incorporation of Applicable FINRA Interpretive Guidance

    ICI commented that the MSRB should incorporate the relevant 
portions of certain NASD guidance regarding the value of promotional 
items into Rule G-20.\46\ ICI also encouraged the MSRB to do so in 
order to ease the compliance burden on regulated entities as well as 
make clear that the monetary limits in Rule G-20 do not apply to 
``customary Lucite tombstones, plaques or other similar solely 
decorative items commemorating a business transaction, even when such 
items have a cost of more than $100.'' \47\
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    \46\ See ICI Letter.
    \47\ Id.
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    In response to ICI, the MSRB stated that such interpretive guidance 
published by NASD has been incorporated into proposed amended Rule G-
20.\48\ The MSRB also stated that proposed Rule G-20(d)(ii) provides 
that the general $100 limitation does not apply to ``[g]ifts that are 
solely decorative items commemorating a business transaction, such as a 
customary plaque or desk ornament (e.g., Lucite tombstone).'' \49\ The 
MSRB noted that this description does not contain a monetary limit, and 
therefore the provision fully addresses ICI's comment.\50\
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    \48\ See supra note 5.
    \49\ Id.
    \50\ Id.
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E. Recordkeeping Requirements

    NAMA commented that a regulated entity should be required to 
maintain records for gifts that are subject to either the normal 
business dealing exclusion under proposed amended Rule G-20(c) or Rule 
G-20(d)(i).\51\ NAMA noted that gifts that constitute normal business 
dealings under proposed amended Rule G-20(d)(i) require recordkeeping 
to comply with certain requirements of the Internal Revenue Service and 
of various municipalities.\52\ Therefore, according to NAMA, imposing a 
recordkeeping requirement would not be an entirely new burden, would 
provide protection against pay-to-play activities and would provide a 
means to determine whether such gifts give rise to questions of 
impropriety or conflicts of interest.\53\ NAMA also commented that to 
allow for meaningful enforcement the MSRB should require a regulated 
entity to keep records of any personal gifts given pursuant to proposed 
amended Rule G-20(d)(iv) that were paid for, directly or indirectly, by 
the regulated entity.\54\
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    \51\ See NAMA Letter.
    \52\ Id.
    \53\ Id.
    \54\ Id.
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    The MSRB responded to NAMA stating that it believes that the 
recordkeeping requirements of Rule G-8(h) that relate to Rule G-20 
should be limited to items that are subject to the $100 limit so as to 
continue to align recordkeeping under Rule G-20 with existing FINRA 
recordkeeping requirements for dealers.\55\ The MSRB further stated 
that significant safeguards are already in place, including Rules G-27, 
G-44, and G-17, which weigh against imposing the additional 
recordkeeping burdens on regulated entities.\56\ The MSRB further noted 
that it reminded dealers in its 2007 MSRB Gifts Notice on Rule G-20 
that they must have supervisory policies and procedures in place under 
Rule G-27 that are reasonably designed to prevent and detect violations 
of Rule G-20 (and of other applicable securities laws).\57\ The MSRB 
also stated that recently adopted Rule G-44, on supervision and 
compliance obligations of municipal advisors, imposes similar 
supervisory requirements on municipal advisors.\58\ Finally, the MSRB 
notes that they reminded dealers in 2007 in particular contexts that 
the making of payments that might not otherwise be subject to Rule G-20 
could constitute separate violations of Rule G-17, which currently 
applies to municipal advisors and dealers.\59\
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    \55\ See supra notes 5 and 24.
    \56\ Id.
    \57\ Id.
    \58\ Id.
    \59\ Id.
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    SIFMA commented that it objects to the requirement that brokers, 
dealers and municipal securities dealers keep records related to Rule 
G-20 for a period of six years because municipal advisors only need to 
retain them for five years.\60\ The MSRB responded to SIFMA stating 
that this topic is addressed in MSRB Rule G-9 which was not included as 
part of the proposed rule change and therefore no revision to the 
proposed rule change is necessary.\61\
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    \60\ See SIFMA Letter.
    \61\ See supra note 5.
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V. Discussion and Commission Findings

    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 is consistent with Sections 15B(b)(2) and 15B(b)(2)(C) of the 
Act. Section 15B(b)(2) of the Act provides that the MSRB shall propose 
and adopt rules to effect the purposes of that title with respect to 
transactions in municipal securities effected by brokers, dealers, and 
municipal securities dealers and advice provided to or on behalf of 
municipal entities or obligated persons by brokers, dealers, municipal 
securities dealers, and municipal advisors with respect to municipal 
financial products, the issuance of municipal securities, and 
solicitations of municipal entity or obligated persons undertaken by 
brokers, dealers, municipal securities dealers, and municipal 
advisors.\62\ Section 15B(b)(2)(C) of the Act requires that the MSRB's 
rules shall be designed to

[[Page 70276]]

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.'' \63\
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    \62\ 15 U.S.C. 78o-4(b)(2).
    \63\ 15 U.S.C. 78o-4(b)(2)(C).
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    The proposed rule change would help prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade and protect investors, municipal entities, obligated persons, 
and the public interest by reducing, or at least exposing, the 
potential for conflicts of interests in municipal advisory activities 
by extending the policies embodied in existing Rule G-20 to municipal 
advisors and their associated persons and establishing a common 
standard for all regulated entities that operate in the municipal 
securities market. The proposed rule change would help ensure that 
engagements of municipal advisors, as well as engagements of dealers, 
are awarded on the basis of merit and not as a result of gifts made to 
employees controlling the award of such business. In addition, by 
prohibiting the reimbursement of entertainment expenses from the 
proceeds of a municipal securities issuance, the proposed rule change 
will provide regulated entities with clear notice and guidance 
regarding MSRB regulation of such matters. Further, codifying certain 
applicable MSRB interpretive guidance and adopting and codifying 
certain FINRA interpretive guidance will increase awareness of such 
guidance by regulated entities and in turn improve compliance and help 
prevent inadvertent violations of Rule G-20.
    In addition, the proposed amendments to Rule G-8 will assist in the 
enforcement of Rule G-20 by extending the relevant existing 
recordkeeping requirements of Rule G-8 that currently are applicable to 
dealers to municipal advisors. Regulated entities will be required to 
create and maintain records in a consistent manner which the Commission 
believes will allow organizations that examine regulated entities to 
more precisely monitor and promote compliance with the proposed rule 
change. Increased compliance with the proposed rule change would likely 
reduce the frequency and magnitude of conflicts of interests that could 
potentially result in harm to investors, municipal entities, or 
obligated persons, or undermine the public's confidence in the 
municipal securities market.
    The Commission finds that the proposed rule change is consistent 
with Section 15B(b)(2)(L)(iv) of the Act, in that it does 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.\64\ While the proposed 
rule change would affect all municipal advisors, including small 
municipal advisors, the Commission believes the proposed rule change is 
a necessary and appropriate regulatory burden in order to limit 
practices that could harm investors, municipal entities and obligated 
persons. The proposed rule change will likely reduce the frequency and 
severity of violations of the public trust by elected officials and 
others involved in the issuance of municipal securities that might 
otherwise have their decisions regarding the award of municipal 
advisory business influenced by the gifts given by regulated entities 
and their associated persons. Further, codifying certain interpretive 
guidance will help minimize compliance costs which will benefit all 
regulated entities, including small municipal advisors. While the 
proposed rule change would burden some small municipal advisors, the 
Commission believes that such burden is outweighed by the need to 
maintain the integrity of the municipal securities market and to 
preserve investor and public confidence in the municipal securities 
market, including the bond issuance process.
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    \64\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
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    In addition, the Commission finds that the proposed rule change is 
consistent with Section 15B(b)(2)(G) of the Act which provides that the 
MSRB's rules shall prescribe records to be made and kept by municipal 
securities brokers, municipal securities dealers, and municipal 
advisors and the periods for which such records shall be preserved.\65\ 
The proposed rule change would extend the provisions of existing Rule 
G-8 to require that municipal advisors as well as dealers make and keep 
records related to Rule G-20 as amended by the proposed rule change.
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    \65\ 15 U.S.C. 78o-4(b)(2)(G).
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    In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation.\66\ The Commission believes the proposed rule change 
will help promote competition. By extending the relevant current 
restrictions embodied in existing MSRB Rule G-20 to municipal advisors 
and their municipal advisory activities, the proposed rule change will 
promote merit-based and price-based competition for municipal advisory 
services and limit the selection or retention of a municipal advisor 
based on the receipt of gifts. A market where regulated entities 
compete on the basis of price and quality of services is more likely to 
provide a level playing field for existing regulated entities within 
which to operate and also encourages the entry of new providers. By 
extending the policies embodied in existing MSRB Rule G-20 to municipal 
advisors and their municipal advisory activities, the proposed rule 
change will also establish common standards for dealers and municipal 
advisors that operate in the same municipal securities market. The 
Commission also believes that by codifying certain interpretive 
guidance, the proposed rule change will clarify the obligations of 
dealers and municipal advisors and ease compliance burdens. The 
Commission believes that the effect of the proposed rule is beneficial 
and the proposed changes will help maintain the integrity of the 
municipal securities market and preserve investor and public 
confidence.
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    \66\ 15 U.S.C. 78c(f).
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    As noted above, the Commission received three comment letters on 
the filing. The Commission believes that the MSRB through its responses 
has addressed commenters concerns. For the reasons noted above, 
including those discussed in the MSRB Response Letter, the Commission 
believes that the proposed rule change is consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\67\ that the proposed rule change (SR-MSRB-2015-09) be, and hereby 
is, approved.
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    \67\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\68\
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    \68\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-28806 Filed 11-12-15; 8:45 am]
 BILLING CODE 8011-01-P