Title: Municipal Securities Rulemaking Board Reform Act of 2019
Policy area: Finance and Financial Sector

Summary:
Municipal Securities Rulemaking Board Reform Act of 2019
This bill generally revises requirements related to the Municipal Securities Rulemaking Board. Among other things, it establishes additional requirements for board members, limits board member compensation, and requires the confirmation of board members by the Securities and Exchange Commission.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 1236 Introduced in Senate (IS)]

<DOC>






116th CONGRESS
  1st Session
                                S. 1236

To amend the Securities Exchange Act of 1934 to clarify the composition 
of the membership of the Municipal Securities Rulemaking Board, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 30, 2019

  Mr. Kennedy introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
To amend the Securities Exchange Act of 1934 to clarify the composition 
of the membership of the Municipal Securities Rulemaking Board, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Municipal Securities Rulemaking 
Board Reform Act of 2019''.

SEC. 2. THE MUNICIPAL SECURITIES RULEMAKING BOARD.

    (a) In General.--Section 15B of the Securities Exchange Act of 1934 
(15 U.S.C. 78o-4) is amended--
            (1) by striking subsection (b) and inserting the following:
    ``(b) Municipal Securities Rulemaking Board.--
            ``(1) Membership.--
                    ``(A) Definitions.--For the purposes of this 
                paragraph, a person is associated with--
                            ``(i) a municipal securities broker if that 
                        person is--
                                    ``(I) a partner, officer, director, 
                                or branch manager of a municipal 
                                securities broker;
                                    ``(II) a person occupying a similar 
                                status as, or performing similar 
                                functions as, a person described in 
                                subclause (I);
                                    ``(III) any other employee of a 
                                municipal securities broker who is 
                                engaged in the management, direction, 
                                supervision, or performance of any 
                                activities relating to the business of 
                                effecting transactions in municipal 
                                securities for the account of others; 
                                or
                                    ``(IV) a person directly or 
                                indirectly controlling, controlled by, 
                                or under common control with a 
                                municipal securities broker;
                            ``(ii) a municipal securities dealer if the 
                        person is a person associated with a municipal 
                        securities dealer; and
                            ``(iii) a municipal advisor if the person 
                        is a person associated with a municipal 
                        advisor.
                    ``(B) Composition of board.--
                            ``(i) In general.--The Municipal Securities 
                        Rulemaking Board (referred to in this section 
                        as the `Board') shall be composed of 15 
                        members, or such other number of members as 
                        specified by the Commission under clause (ii), 
                        who shall be--
                                    ``(I) appointed from among 
                                prominent individuals of integrity and 
                                reputation; and
                                    ``(II) knowledgeable of matters 
                                relating to the municipal securities 
                                markets.
                            ``(ii) Commission alterations.--The 
                        Commission may alter the number of members that 
                        constitute the Board if that number is an odd 
                        number.
                    ``(C) Public representatives and regulated 
                representatives.--
                            ``(i) Public representatives.--A majority 
                        of the membership of the Board shall be 
                        individuals who were not associated with a 
                        municipal securities broker, municipal 
                        securities dealer, or municipal advisor during 
                        the 5-year period preceding the date on which 
                        those individuals are appointed to the Board 
                        (referred to in this subsection as `public 
                        representatives')--
                                    ``(I) not less than 1 of whom shall 
                                be representative of institutional or 
                                retain investors in municipal 
                                securities;
                                    ``(II) not less than 1 of whom 
                                shall be representative of municipal 
                                entities; and
                                    ``(III) not less than 1 of whom 
                                shall be a member of the public with 
                                knowledge or experience in the 
                                municipal industry.
                            ``(ii) Regulated representatives.--Other 
                        than public representatives, the members of the 
                        Board shall be individuals who are associated 
                        with a broker, dealer, municipal securities 
                        dealer, or municipal advisor (referred to in 
                        this subsection as `regulated 
                        representatives')--
                                    ``(I) not less than 1 of whom shall 
                                be associated with and representative 
                                of brokers, dealers, or municipal 
                                securities dealers that are not banks 
                                or subsidiaries, departments, or 
                                divisions of banks (referred to in this 
                                subsection as `broker-dealer 
                                representatives');
                                    ``(II) not less than 1 of whom 
                                shall be associated with and 
                                representative of municipal securities 
                                dealers that are banks or subsidiaries, 
                                departments, or divisions of banks 
                                (referred to in this subsection as 
                                `bank representatives'); and
                                    ``(III) not less than 1 of whom 
                                shall be associated with a municipal 
                                advisor (referred to in this subsection 
                                as `advisor representatives').
                    ``(D) Limitation.--The membership of the Board 
                shall, at all times, be as evenly divided as possible 
                between the number of public representatives and 
                regulated representatives, taking into account the 
                requirement under subparagraph (C)(i) that the majority 
                of the membership of the Board shall be public 
                representatives.
                    ``(E) Appointment of board members.--
                            ``(i) Initial board.--Not later than 180 
                        days after the date of enactment of the 
                        `Municipal Securities Rulemaking Board Reform 
                        Act of 2019', the Commission shall, subject to 
                        clause (ii)--
                                    ``(I) appoint a Chairperson of the 
                                Board and all other initial members of 
                                the Board; and
                                    ``(II) designate a term of service 
                                for each member appointed under 
                                subclause (I).
                            ``(ii) Interim board.--
                                    ``(I) In general.--Before 
                                appointing the initial members of the 
                                Board under clause (i), the Commission 
                                may, without regard to the limitations 
                                in subparagraph (C), appoint not more 
                                than 3 individuals to serve as interim 
                                members of the Board who shall be 
                                responsible for ensuring the continuity 
                                of the operations of the Board until 
                                the Commission appoints those initial 
                                members.
                                    ``(II) Membership.--In making an 
                                appointment under subclause (I), the 
                                Commission shall select from among 
                                individuals of integrity and reputation 
                                and who are knowledgeable of matters 
                                relating to the municipal securities 
                                markets.
                                    ``(III) Authority.--The members of 
                                the interim Board appointed under this 
                                subparagraph may exercise all of the 
                                authority of the Board under this 
                                section.
                    ``(F) Vacancies.--A vacancy on the Board--
                            ``(i) shall not affect the authority of the 
                        Board under this section; and
                            ``(ii) shall be filled by the Commission.
                    ``(G) Term of service.--The term of service for 
                each Board member shall be 3 years, plus the amount of 
                time necessary for the appointment of a successor, 
                except that--
                            ``(i) the term of service for a member 
                        appointed under subparagraph (E)(i), other than 
                        the Chairperson of the Board, shall expire in 
                        increments, with--
                                    ``(I) \1/3\ of the terms of the 
                                members so appointed expiring on the 
                                date that is 1 year after the date on 
                                which those members are appointed;
                                    ``(II) \1/3\ of the terms of the 
                                members so appointed expiring on the 
                                date that is 2 years after the date on 
                                which those members are appointed; and
                                    ``(III) \1/3\ of the terms of the 
                                members so appointed expiring on the 
                                date that is 3 years after the date on 
                                which those members are appointed;
                            ``(ii) the term of service for a member 
                        appointed under subparagraph (E)(ii) shall be 
                        not more than 180 days; and
                            ``(iii) any Board member appointed to fill 
                        a vacancy on the Board before the expiration of 
                        the term with respect to that vacancy shall be 
                        appointed only for the remainder of that term.
                    ``(H) Removal.--A member of the Board shall be 
                removable at will by the Commission.
            ``(2) Rules.--The Board shall propose and adopt rules to 
        effect the purposes of this title with respect to transactions 
        in municipal securities effected by brokers, dealers, and 
        municipal securities dealers and advice provided to or on 
        behalf of municipal entities or obligated persons by brokers, 
        dealers, municipal securities dealers, and municipal advisors 
        with respect to municipal financial products, the issuance of 
        municipal securities, and solicitations of municipal entities 
        or obligated persons undertaken by brokers, dealers, municipal 
        securities dealers, and municipal advisors and that, at a 
        minimum, shall--
                    ``(A) provide that no municipal securities broker 
                or municipal securities dealer shall effect any 
                transaction in, or induce or attempt to induce the 
                purchase or sale of, any municipal security, and no 
                broker, dealer, municipal securities dealer, or 
                municipal advisor shall provide advice to or on behalf 
                of a municipal entity or obligated person with respect 
                to municipal financial products or the issuance of 
                municipal securities, unless such municipal securities 
                broker or municipal securities dealer meets such 
                standards of operational capability and such municipal 
                securities broker or municipal securities dealer and 
                every natural person associated with such municipal 
                securities broker or municipal securities dealer meets 
                such standards of training, experience, competence, and 
                such other qualifications as the Board finds necessary 
                or appropriate in the public interest or for the 
                protection of investors and municipal entities or 
                obligated persons. In connection with the definition 
                and application of such standards the Board may--
                            ``(i) appropriately classify municipal 
                        securities brokers, municipal securities 
                        dealers, and municipal advisors (taking into 
                        account relevant matters, including types of 
                        business done, nature of securities other than 
                        municipal securities sold, and character of 
                        business organization), and persons associated 
                        with municipal securities brokers, municipal 
                        securities dealers, and municipal advisors;
                            ``(ii) specify that all or any portion of 
                        such standards shall be applicable to any such 
                        class; and
                            ``(iii) require persons in any such class 
                        to pass tests administered in accordance with 
                        subsection (c)(7);
                    ``(B) 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; and not be designed to permit 
                unfair discrimination among customers, municipal 
                entities, obligated persons, municipal securities 
                brokers, municipal securities dealers, or municipal 
                advisors, to fix minimum profits, to impose any 
                schedule or fix rates of commissions, allowances, 
                discounts, or other fees to be charged by municipal 
                securities brokers, municipal securities dealers, or 
                municipal advisors, to regulate by virtue of any 
                authority conferred by this title matters not related 
                to the purpose of this title or the administration of 
                the Board, or to impose any burden on competition not 
                necessary or appropriate in furtherance of the purposes 
                of this title;
                    ``(C) if the Board deems appropriate, provide for 
                the arbitration of claims, disputes, and controversies 
                relating to transactions in municipal securities and 
                advice concerning municipal financial products, except 
                that no person other than a municipal securities 
                broker, municipal securities dealer, municipal advisor, 
                or person associated with such a municipal securities 
                broker, municipal securities dealer, or municipal 
                advisor may be compelled to submit to such arbitration 
                except at his instance and in accordance with section 
                29;
                    ``(D) provide for the periodic examination in 
                accordance with subsection (c)(7) of municipal 
                securities brokers, municipal securities dealers, and 
                municipal advisors to determine compliance with 
                applicable provisions of this title, the rules and 
                regulations thereunder, and the rules of the Board. 
                Such rules shall specify the minimum scope and 
                frequency of such examinations and shall be designed to 
                avoid unnecessary regulatory duplication or undue 
                regulatory burdens for any such municipal securities 
                broker, municipal securities dealer, or municipal 
                advisor;
                    ``(E) include provisions governing the form and 
                content of quotations relating to municipal securities 
                which may be distributed or published by any municipal 
                securities broker, municipal securities dealer, or 
                person associated with such a municipal securities 
                broker or municipal securities dealer, and the persons 
                to whom such quotations may be supplied. Such rules 
                relating to quotations shall be designed to produce 
                fair and informative quotations, to prevent fictitious 
                or misleading quotations, and to promote orderly 
                procedures for collecting, distributing, and publishing 
                quotations;
                    ``(F) 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;
                    ``(G) define the term `separately identifiable 
                department or division', as that term is used in 
                section 3(a)(30), in accordance with specified and 
                appropriate standards to assure that a bank is not 
                deemed to be engaged in the business of buying and 
                selling municipal securities through a separately 
                identifiable department or division unless such 
                department or division is organized and administered so 
                as to permit independent examination and enforcement of 
                applicable provisions of this title, the rules and 
                regulations thereunder, and the rules of the Board and 
                so that a separately identifiable department or 
                division of a bank may be engaged in activities other 
                than those relating to municipal securities;
                    ``(H) provide for the operation and administration 
                of the Board, the compensation of the members of the 
                Board (subject to the rule issued by the Commission 
                under section 2(b)(1)(B) of the `Municipal Securities 
                Rulemaking Board Reform Act of 2019'), and the 
                appointment and compensation of such employees, 
                attorneys, and consultants as may be necessary or 
                appropriate to carry out the functions of the Board 
                under this section;
                    ``(I) 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, which shall specify the amount of such fees 
                and charges, which may include charges for failure to 
                submit to the Board, or to any information system 
                operated by the Board, within the prescribed 
                timeframes, any items of information or documents 
                required to be submitted under any rule issued by the 
                Board;
                    ``(J) establish the terms and conditions under 
                which any broker, dealer, or municipal securities 
                dealer may sell, or prohibit any broker, dealer, or 
                municipal securities dealer from selling, any part of a 
                new issue of municipal securities to a related account 
                of a broker, dealer, or municipal securities dealer 
                during the underwriting period; and
                    ``(K) with respect to municipal advisors--
                            ``(i) prescribe means reasonably designed 
                        to prevent acts, practices, and courses of 
                        business as are not consistent with a municipal 
                        advisor's fiduciary duty to its clients;
                            ``(ii) provide continuing education 
                        requirements for municipal advisors;
                            ``(iii) provide professional standards; and
                            ``(iv) 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.
            ``(3) Board authority.--The Board, in conjunction with or 
        on behalf of any Federal financial regulator or self-regulatory 
        organization, may--
                    ``(A) establish information systems; and
                    ``(B) assess such reasonable fees and charges for 
                the submission of information to, or the receipt of 
                information from, such systems from any persons which 
                systems may be developed for the purposes of serving as 
                a repository of information from municipal market 
                participants or otherwise in furtherance of the 
                purposes of the Board, a Federal financial regulator, 
                or a self-regulatory organization, except that the 
                Board--
                            ``(i) may not charge a fee to municipal 
                        entities or obligated persons to submit 
                        documents or other information to the Board or 
                        charge a fee to any person to obtain, directly 
                        from the Internet site of the Board, documents 
                        or information submitted by municipal entities, 
                        obligated persons, brokers, dealers, municipal 
                        securities dealers, or municipal advisors, 
                        including documents submitted under the rules 
                        of the Board or the Commission; and
                            ``(ii) shall not be prohibited from 
                        charging commercially reasonable fees for 
                        automated subscription-based feeds or similar 
                        services, or for charging for other data or 
                        document-based services customized upon request 
                        of any person, made available to commercial 
                        enterprises, municipal securities market 
                        professionals, or the general public, whether 
                        delivered through the Internet or any other 
                        means, that contain all or part of the 
                        documents or information, subject to approval 
                        of the fees by the Commission under section 
                        19(b).
            ``(4) Guidance.--The Board may provide guidance and 
        assistance in the enforcement of, and examination for, 
        compliance with the rules of the Board to the Commission, a 
        registered securities association under section 15A, or any 
        other appropriate regulatory agency, as applicable.
            ``(5) Meetings.--The Board, the Commission, and a 
        registered securities association under section 15A, or the 
        designees of the Board, the Commission, or such association, 
        shall meet not less frequently than 2 times a year--
                    ``(A) to describe the work of the Board, the 
                Commission, and the registered securities association 
                involving the regulation of municipal securities; and
                    ``(B) to share information about--
                            ``(i) the interpretation of the Board, the 
                        Commission, and the registered securities 
                        association of Board rules; and
                            ``(ii) examination and enforcement of 
                        compliance with Board rules.
            ``(6) Rule of construction.--Nothing in this section shall 
        be construed to impair or limit the power of the Commission 
        under this title.''; and
            (2) in subsection (c)(7)--
                    (A) in subparagraph (A), in the matter preceding 
                clause (i), by striking ``(b)(2)(E)'' and inserting 
                ``(b)(2)(D)''; and
                    (B) in subparagraph (B), in the first sentence, by 
                striking ``(b)(2)(E)'' and inserting ``(b)(2)(D)''.
    (b) Rulemakings.--
            (1) Securities and exchange commission.--The Securities and 
        Exchange Commission--
                    (A) may issue any rules to carry out this Act that 
                may be necessary or appropriate in the public interest 
                or for the protection of investors; and
                    (B) shall issue a final rule that provides the 
                maximum compensation for a member of the Municipal 
                Securities Rulemaking Board.
            (2) Municipal securities rulemaking board.--Not later than 
        60 days after the date on which the Securities and Exchange 
        Commission has completed the appointment of the initial members 
        of the Municipal Securities Rulemaking Board under section 
        15B(b)(1)(E) of the Securities Exchange Act of 1934, as added 
        by subsection (a), the Municipal Securities Rulemaking Board 
        shall submit to the Commission any notice of a proposed change 
        to the rules of the Board that is required as a result of the 
        amendments made by subsection (a).
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