II 116th CONGRESS 1st Session S. 1236 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.

1. Short title This Act may be cited as the Municipal Securities Rulemaking Board Reform Act of 2019 . 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).