[Federal Register Volume 76, Number 173 (Wednesday, September 7, 2011)]
[Notices]
[Pages 55449-55453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-22726]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65234; File No. SR-MSRB-2011-10]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Proposed Rule Change by the Municipal 
Securities Rulemaking Board Consisting of Amendments to MSRB Rule G-20 
(Gifts and Gratuities) and Related Amendments to MSRB Rule G-8 (Books 
and Records) and MSRB Rule G-9 (Preservation of Records), and To 
Clarify That Certain Interpretations by the Financial Industry 
Regulatory Authority and the National Association of Securities Dealers 
Would Be Applicable to Municipal Advisors

August 31, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on August 16, 2011, the Municipal Securities 
Rulemaking Board (the ``MSRB'') filed with the Securities and Exchange 
Commission (the ``Commission'' or ``SEC'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB has filed with the Commission a proposed rule change 
consisting of proposed amendments to MSRB Rule G-20 (on gifts and 
gratuities), which would apply the rule to municipal advisors, along 
with related proposed amendments to Rule G-8 (on books and records) and 
Rule G-9 (on preservation of records), and to clarify that certain 
interpretations by the Financial Industry Regulatory Authority 
(``FINRA'') of its gifts rule (FINRA Rule 3220) and its predecessor, 
the National Association of Securities Dealers (``NASD'') of its gift 
rule (NASD Rule 3060), would be applicable to municipal advisors. The 
MSRB requested that the proposed rule change be made effective on the 
date that rules defining the term ``municipal advisor'' under the 
Exchange Act are first made effective by the Commission.
    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 Changes

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

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

1. Purpose
    Existing MSRB Rule G-20. Rule G-20 was adopted by the MSRB to 
prevent brokers, dealers, and municipal securities dealers 
(``dealers'') from attempting to induce other 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 the 
organizations, including, but not limited to, acts of commercial 
bribery,\3\ and to help to ensure that dealers' municipal securities 
activities are undertaken in arm's-length, merit-based transactions in 
which conflicts of interest are minimized. The MSRB has interpreted 
Rule G-20 to preclude the payment by dealers of ``excessive or lavish'' 
entertainment or travel expenses of issuer personnel, as follows: \4\
---------------------------------------------------------------------------

    \3\ See MSRB Notice 2004-17 (June 15, 2004).
    \4\ See Rule G-20 Interpretation--Dealer Payments in Connection 
with the Municipal Securities Issuance Process (January 29, 2007); 
see also In the Matter of RBC Capital Markets Corporation, SEC Rel. 
No. 34-59439 (Feb. 24, 2009) (settlement in connection with broker-
dealer alleged to have violated MSRB Rules G-20 and G-17 for payment 
of lavish travel and entertainment expenses of city officials and 
their families associated with rating agency trips, which 
expenditures were subsequently reimbursed from bond proceeds as 
costs of issuance); In the Matter of Merchant Capital, L.L.C., SEC 
Rel. No. 34-60043 (June 4, 2009) (settlement in connection with 
broker-dealer alleged to have violated MSRB rules for payment of 
travel and entertainment expenses of family and friends of senior 
officials of issuer and reimbursement of the expenses from issuers 
and from proceeds of bond offerings).

    Payment of excessive or lavish entertainment or travel expenses 
may violate Rule G-20 if they result in benefits to issuer personnel 
that exceed the limits set forth in the rule, and can be especially 
problematic where such payments cover expenses incurred by family or 
other guests of issuer personnel. Depending on the specific facts 
and circumstances, excessive payments could be considered to be 
gifts or gratuities made to such issuer personnel in relation to the 
---------------------------------------------------------------------------
issuer's municipal securities activities.

    Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act'') \5\ authorized the MSRB to 
establish a comprehensive body of regulation for all municipal 
advisors.\6\ The Dodd-Frank Act requires the MSRB to adopt rules for 
municipal advisors that are designed to prevent fraudulent and 
manipulative acts and practices and to promote just and equitable 
principles of trade.\7\ It also expands the mission of the MSRB to 
include the protection of municipal entities \8\ and obligated persons, 
in addition to the protection of investors and the public interest.
---------------------------------------------------------------------------

    \5\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \6\ ``Municipal advisor'' is defined in Section 15B(e)(4) of the 
Exchange Act.
    \7\ See Section 15B(b)(2)(C) of the Exchange Act.
    \8\ ``Municipal entity'' is defined in Section 15B(e)(8) of the 
Exchange Act as ``any State, political subdivision of a State, or 
municipal corporate instrumentality of a State, including--(A) any 
agency, authority, or instrumentality of the State, political 
subdivision, or municipal corporate instrumentality; (B) any plan, 
program, or pool of assets sponsored or established by the State, 
political subdivision, or municipal corporate instrumentality or any 
agency, authority, or instrumentality thereof; and (C) any other 
issuer of municipal securities.''
---------------------------------------------------------------------------

    Proposed amendments to MSRB Rule G-20. Pursuant to the authority 
granted to it by the Dodd-Frank Act, the MSRB is proposing the 
amendments to Rule G-20. Just as the existing rule helps to ensure that 
dealers' municipal securities activities are undertaken in arm's-
length, merit-based transactions in which conflicts of interest are 
minimized, the MSRB seeks to reduce the potential for conflicts of 
interest in municipal advisory activities.\9\ The

[[Page 55450]]

proposed amendments to Rule G-20 would help to ensure that engagements 
of municipal advisors, as well as engagements of dealers, other 
municipal advisors, and investment advisers for which municipal 
advisors serve as solicitors, are awarded on the basis of merit and not 
as a result of gifts made to employees controlling the award of such 
business. The proposed amendments to Rule G-20 would make the rule 
applicable to municipal advisors and would:
---------------------------------------------------------------------------

    \9\ MSRB Rule D-13 defines the term ``municipal advisory 
activities'' by reference to Section 15B(e)(4)(A) of the Exchange 
Act (i.e., (i) providing advice to municipal entities or obligated 
persons on municipal financial products or the issuance of municipal 
securities and (ii) solicitations of municipal entities on behalf of 
others).
    Section 15B(e)(9) of the Exchange Act defines the term 
``solicitation of a municipal entity or obligated person'' to mean: 
``a direct or indirect communication with a municipal entity or 
obligated person made by a person, for direct or indirect 
compensation, on behalf of a broker, dealer, municipal securities 
dealer, municipal advisor, or investment adviser (as defined in 
section 202 of the Investment Advisers Act of 1940) that does not 
control, is not controlled by, or is not under common control with 
the person undertaking such solicitation for the purpose of 
obtaining or retaining an engagement by a municipal entity or 
obligated person of a broker, dealer, municipal securities dealer, 
or municipal advisor for or in connection with municipal financial 
products, the issuance of municipal securities, or of an investment 
adviser to provide investment advisory services to or on behalf of a 
municipal entity.''
---------------------------------------------------------------------------

     Prohibit municipal advisors, in connection with their 
municipal advisory activities, from, directly or indirectly, making a 
gift or permitting a gift to be made in excess of $100 per year to a 
natural person other than an employee or partner of the municipal 
advisor, if such gifts are in relation to the activities of the 
employer of the recipient of the gift;\10\
---------------------------------------------------------------------------

    \10\ See proposed Rule G-20(a). The ``municipal advisory 
activities'' of the municipal advisor covered by the proposed 
amendments to Rule G-20(a) would include both advice provided to 
municipal entities and obligated persons and solicitations of 
municipal entities on behalf of third parties. For example, the 
proposed rule amendments would apply to gifts and entertainment 
provided by a municipal advisor to employees of municipal entities 
and obligated persons for which the municipal advisor is providing 
advice or seeking to provide advisory services. It would also apply 
to gifts and entertainment provided by a municipal advisor to 
employees of municipal entities being solicited by a municipal 
advisor to award business to a client of the municipal advisor 
(e.g., employees of a public pension fund who could influence the 
pension fund's decision award investment advisory business). Even if 
a municipal advisor is not then engaging in any municipal advisory 
activities with a municipal entity or obligated person, a gift that 
could be reasonably viewed as an attempt by the municipal advisor to 
curry favor with a municipal entity or obligated person for the 
purpose of becoming engaged to undertake municipal advisory 
activities at some point in the future also would be covered by the 
provisions of proposed Rule G-20.
---------------------------------------------------------------------------

     Provide certain exemptions from the above prohibition, 
including: (i) occasional gifts of meals or tickets to theatrical, 
sporting, and other entertainments hosted by the municipal advisor; or 
(ii) legitimate business functions sponsored by the municipal advisor 
that are recognized by the Internal Revenue Service as deductible 
business expenses;\11\
---------------------------------------------------------------------------

    \11\ See proposed Rule G-20(b).
---------------------------------------------------------------------------

     Permit contracts of employment or compensation for 
services rendered by a person other than an employee of the municipal 
advisor; provided that there is a written agreement \12\ between the 
municipal advisor and the person who is to perform such services, prior 
to the time of employment or before the services are rendered;\13\
---------------------------------------------------------------------------

    \12\ The written agreement must include the nature of the 
proposed services, the amount of the proposed compensation, and the 
written consent of such person's employer.
    \13\ See proposed Rule G-20(c).
---------------------------------------------------------------------------

     Remove gifts of reminder advertising as a permissible 
exemption from the $100 gift limit of Rule G-20(a) for municipal 
advisors and dealers;\14\ and
---------------------------------------------------------------------------

    \14\ See proposed Rule G-20(b). Those gifts would be addressed, 
instead, by NASD Notice to Members 06-69 (December 2006), which the 
proposed rule change would make applicable to municipal advisors 
(``NASD Notice to Members 06-69'').
---------------------------------------------------------------------------

     Clarify that existing FINRA and NASD interpretations of 
the FINRA and NASD gift rules, respectively,\15\ apply to comparable 
MSRB provisions of Rule G-20 applicable to municipal advisors, with new 
FINRA interpretations of its gifts rule made applicable to municipal 
advisors if the MSRB determines that it is appropriate to do so and 
receives the approval of the Commission. All NASD and FINRA 
interpretations that would be made applicable to municipal advisors by 
this proposed rule change are cited in this filing and would be posted 
on the MSRB Web site, and cited in the MSRB Rule Book, as 
interpretations of comparable provisions of Rule G-20.
---------------------------------------------------------------------------

    \15\ See NASD Notice to Members 06-69; FINRA Interpretive Letter 
to Amal Aly, SIFMA (Reasonable and Customary Bereavement Gifts) 
dated December 17, 2007; FINRA Interpretive Letter to Charles 
Wiegert, NFP Securities dated March 15, 2001; and Interpretive 
Letter to Henry H. Hopkins and Sarah McCafferty, T. Rowe Price 
Investment Services, Inc. dated June 10, 1999.

Municipal advisors would not be subject to Rule G-20(d), which relates 
to non-cash compensation in connection with primary offerings.
    Proposed amendments to MSRB Rule G-8 and Rule G-9. The proposed 
amendments to Rule G-20 would necessitate related amendments to Rule G-
8 (on books and records) and Rule G-9 (on preservation of records). The 
proposed amendments to Rules G-8 and G-9 would subject municipal 
advisors to the same recordkeeping and record retention requirements to 
which dealers would be subject under amended Rule G-20. Specifically, 
the proposed amendments to Rule G-8 would require municipal advisors 
and dealers to create and maintain records of any gifts referred to in 
Rule G-20 \16\ and all agreements for services referred to in Rule G-20 
along with the compensation paid as a result of such agreements. The 
proposed amendments to Rule G-9 would require municipal advisors to 
preserve the records required to be made pursuant to the proposed 
amendments to Rule G-8 for six years.
---------------------------------------------------------------------------

    \16\ The requirement to keep a record of all gifts, including 
those of business meals and entertainment and sponsored business 
functions would be a new requirement for dealers, as well as 
municipal advisors. Those gifts are covered by Rule G-20(b). 
Previously, only records of gifts covered by Rule G-20(a) were 
required to be kept.
---------------------------------------------------------------------------

2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2) of the Exchange Act, which provides that:

    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.

    Section 15B(b)(2)(C) of the Exchange Act provides that the rules of 
the MSRB shall:

be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in municipal securities and 
municipal financial products, to remove impediments to and perfect 
the mechanism of a free and open market in municipal securities and 
municipal financial products, and, in general, to protect investors, 
municipal entities, obligated persons, and the public interest.

The proposed rule change is consistent with Section 15B(b)(2) and 
Section 15B(b)(2)(C) of the Exchange Act because it would reduce the 
potential for conflicts of interest in municipal advisory activities. 
The proposed amendments to Rule G-20 would also help ensure that 
engagements of municipal advisors, as well as engagements of dealers, 
municipal advisors, and investment advisers for which municipal 
advisors serve as solicitors, are awarded on the basis of

[[Page 55451]]

merit and not as a result of gifts made to employees controlling the 
award of such business. The proposed amendments to Rules G-8 and G-9 
would assist in the enforcement of Rule G-20 by requiring that dealers 
and municipal advisors create and maintain records of any gifts 
referred to in Rule G-20 and all agreements for services referred to in 
Rule G-20, along with the compensation paid as a result of such 
agreements.
    Section 15B(b)(2)(L)(iv) of the Exchange Act requires that rules 
adopted by the Board:

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.

    While the proposed rule change will affect all municipal advisors, 
it is a necessary regulatory burden because it hampers practices that 
can harm municipal entities and their citizens by contributing to the 
violation of the public trust of elected officials that might allow 
gifts to influence their decisions regarding the awarding of municipal 
advisory business. While the proposed rule change may burden some small 
municipal advisors, any such burden is outweighed by the need to 
protect their issuer clients.

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 and dealers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    On February 22, 2011, the MSRB requested comment on draft 
amendments to Rule G-20.\17\ The MSRB received eight comment letters 
(``Comment Letters'') from the following commenters: (1) Catholic 
Finance Corporation (``CFC''); (2) Robert Fisher (``Mr. Fisher''); (3) 
Municipal Regulatory Consulting LLC (``MRC''); (4) National Association 
of Independent Public Finance Advisors (``NAIPFA''); (5) Public 
Financial Management (``PFM''); (6) Securities Industry and Financial 
Markets Association (``SIFMA''); and (7) WM Financial Strategies (``WM 
Financial'').
---------------------------------------------------------------------------

    \17\ See MSRB Notice 2011-16 (February 22, 2011) (``Notice'').
---------------------------------------------------------------------------

    The Comment Letters are summarized by topic as follows:
     Comment: The draft amendments to Rule G-20 would prohibit 
payments for ordinary business expenses of municipal advisors, 
including, but not limited to, rent and salaries.
    Mr. Fisher and PFM stated that a literal reading of the draft 
amendments to Rule G-20 would restrict payments made by a municipal 
advisor related to any part of their municipal advisory business, 
including the payment of rent and the purchasing of supplies. SIFMA 
noted that it understood why the wording of the gift prohibition for 
municipal advisors differed from that of the gift prohibition for 
dealers (i.e., municipal entities do not have municipal advisory 
activities), but requested that the MSRB clarify that the municipal 
advisor provision was intended to be interpreted in the same manner as 
the dealer provision. NAIPFA stated that the proposed amendments would 
curtail gifts and gratuities given by municipal advisors for the 
purpose of soliciting municipal advisory business while leaving the 
rule for dealers unchanged, which would allow such gift giving related 
to dealer solicitations of municipal securities business.
    MSRB Response: The MSRB did not intend for the draft amendments to 
Rule G-20 to apply to municipal advisors in a different manner than the 
rule currently applies to dealers. The difference in wording between 
draft Rule G-20(a)(ii) (applicable to municipal advisors) and Rule G-
20(a)(i) (applicable to dealers) was not substantive. However, the MSRB 
has determined to revise the draft amendments to Rule G-20 to clarify 
that dealers and municipal advisors are subject to the same gift 
limits. Those revisions are reflected in the proposed amendments to 
Rule G-20(a).
    For the avoidance of doubt, the proposed amendments to Rule G-20 
that are part of the proposed rule change use the word ``gift,'' rather 
than ``payment'' in section (a). Such amendment would clarify that the 
thing or service of value to be given would have to be an actual gift 
and not payments and/or costs associated with normal business 
activities of the municipal advisor or the dealer. Because of the use 
of the term ``gift,'' the proposed amendments would remove references 
to the terms ``gratuity'' and ``gratuities,'' which are subsumed within 
the term ``gift.''
     Comment: The MSRB should clarify that references to 
``persons'' in the rule mean ``natural persons,'' consistent with 
previous MSRB interpretive guidance.\18\
    This change would have the effect of permitting charitable 
contributions without violation of the rule.
---------------------------------------------------------------------------

    \18\ The MSRB has previously stated that, for purposes of Rule 
G-20, the term ``person'' refers only to a natural person and that 
Rule G-20 is intended to discourage municipal securities 
professionals from attempting to induce individual employees from 
acting in a manner inconsistent with their obligations to, or 
contrary to the interests of, their employers. See Rule G-20; 
Interpretive Letter, ``Person'' (March 19, 1980).
---------------------------------------------------------------------------

    MRC requested that the MSRB speak directly to the issue of 
charitable contributions by incorporating language addressing such 
concerns in Rule G-20, or in guidance applicable to either Rule G-20 or 
Rule G-17, that charitable contributions are not gifts for purposes of 
Rule G-20 and are not covered by Rule G-20 because Rule G-20 only 
covers gifts to natural persons. MRC also stated that it is unclear if 
certain charitable (or similar) contributions might constitute an 
unfair practice and thereby cause a municipal advisor making the 
contribution to violate Rule G-17. NAIPFA also requested guidance and 
clarification regarding charitable contributions that are made either 
as a result of a solicitation from an employee or elected official of a 
municipal entity or with a view toward influencing the decision-making 
of an employee or elected official of a municipal entity.
    MSRB Response: The MSRB believes that the concerns raised by MRC 
will be addressed by amendments to the rule that would change the term 
``persons'' to ``natural persons.'' Such amendment would clarify that 
Rule G-20 covers gifts to individuals and not organizations. In 
response to the concerns raised by MRC and NAIPFA, the Board has 
previously determined that the occasional pay to play problems that 
might be associated with the solicitation of charitable contributions 
by issuers do not outweigh the benefits of such contributions and that 
such restrictions would have a negative impact on charitable giving. 
The proposed rule change does not address gifts under Rule G-17. The 
MSRB will take MRC's comment regarding the potential applicability of 
Rule G-17 to gifts under advisement for when it considers future 
interpretations of Rule G-17.
     Comment: The draft amendments to Rule G-20 should include 
an exception to the prohibition of gifts, grants, loans, and other 
financial assistance or services by a section 501(c)(3) organization 
within its exempt purpose for the benefit of other nonprofit 
corporations.

[[Page 55452]]

    CFC stated that the proposed rulemaking should include an exception 
to the prohibition on payments for any thing of value donated by a 
municipal advisor that is a nonprofit entity as previously determined 
by the Internal Revenue Service under Section 501(c)(3) of the Internal 
Revenue Code, so long as such donation is within the exempt purpose of 
such entity.
    MSRB Response: The MSRB has determined to use the term ``natural 
person,'' which has the effect of permitting gifts to be made to 
organizations.
     Comment: The draft amendments to Rule G-20 should prohibit 
gift giving and/or provide an annual cap for de minimis gifts in order 
to prevent pay to play activities under the rule.
    Mr. Fisher suggested a general prohibition on gifts under draft 
Rule G-20(a), subject to a $100 safe harbor for de minimis gifts. 
NAIPFA recommended a prohibition on occasional gifts and, along with WM 
Financial, suggested an annual gift or gratuity maximum of $100 with 
the aggregate of all gifts, gratuities, and entertainment not to exceed 
$250 annually.
    MSRB Response: Rule G-20 is intended to prevent commercial bribery 
and certain activities, such as excessive gift giving, from influencing 
dealer and municipal advisor selection. The purpose of the proposed 
amendments to Rule G-20 is only to extend the existing rule to 
municipal advisors. The proposed amendments would not impose more 
stringent limitations at this time. However, should the MSRB become 
aware of abusive behavior in this area, it might determine to revisit 
these comments.
     Comment: The draft amendments should apply to gifts to 
family members of issuer personnel because such gifts can be 
problematic.
    NAIPFA stated that the proposed amendments to Rule G-20 should 
apply to gifts and gratuities given to family members of issuer 
personnel.
    MSRB Response: The MSRB has previously stated that the intent of 
the rule is not to restrict social relationships that do not suggest 
impropriety.\19\ The MSRB believes that an expansion of the rule to 
family members, as suggested by NAIPFA, would unduly burden dealers and 
municipal advisors. The MSRB notes, however, that both the existing 
rule and the proposed amendments prohibit indirect, as well as direct, 
gifts. A gift to a family member of someone in a position to award 
business to a municipal advisor would violate the rule if it was 
indirectly a gift to the person awarding the business and it violated 
the rule's limits.
---------------------------------------------------------------------------

    \19\ See File No. SR-MSRB-77-12.
---------------------------------------------------------------------------

     Comment: The draft amendments to Rule G-8 (on books and 
records) are burdensome and unnecessary because they would require 
municipal advisors to collect all third-party employment and service 
agreements of any kind. In addition, the draft amendments to Rule G-8 
do not require reporting of gifts made under existing Rule G-20(b) or 
the draft amendments to Rule G-20(b).
    PFM stated that the draft recordkeeping requirements increase the 
data-collection burden of municipal advisors to collect all third party 
employment and service agreements of any kind. NAIPFA stated that the 
fact that existing Rule G-8 and the draft amendments to Rule G-8 do not 
require the reporting of gifts made under Rule G-20(b) exacerbates the 
potential for pay to play as it relates to such ``occasional gifts'' 
that are permitted under the rule.
    MSRB Response: The MSRB has determined not to make changes to Rule 
G-20 as a result of PFM's comment in order to maintain consistency of 
the recordkeeping requirements of the rule for dealers and municipal 
advisors. The MSRB notes that records of employment agreements need 
only be kept if a municipal advisor is employing some other person's 
employee, such as an obligated person client's employee. The MSRB also 
notes that the recordkeeping requirements would facilitate municipal 
advisor compliance with proposed Rule G-20 and assist enforcement 
agencies in monitoring compliance with the rule.
    The MSRB has considered NAIPFA's comment and has determined to 
require municipal advisors and dealers to maintain records of all gifts 
provided under Rule G-20. Rule G-8 does not currently require 
recordkeeping of gifts that are described in Rule G-20(b) (e.g., tax 
deductible business meals and entertainment).\20\ While gifts provided 
under Rule G-20(b) must not be so frequent or so extensive as to raise 
any question of propriety, the MSRB believes records of such gifts 
would assist with enforcement efforts. The proposed amendments would 
likely not be burdensome because, in most cases, records are already 
kept of such gifts when reimbursement is sought, even if only for 
Federal income tax purposes. Therefore, from a practical standpoint, 
the amendments would merely add a requirement that records of such 
gifts be kept even though reimbursement is not sought. Accordingly, the 
recordation of all gifts that are given or permitted to be given under 
Rule G-20 would be required under Rule G-8(a)(xvii)(A) as it applies to 
dealers and proposed Rule G-8(h)(ii) as it applies to municipal 
advisors.
---------------------------------------------------------------------------

    \20\ Records of gifts under Rule G-20(a) are required to be 
kept.
---------------------------------------------------------------------------

     Comment: The MSRB should confirm that (i) guidance under 
existing Rule G-20 applies to all provisions of the proposed rulemaking 
and (ii) relevant FINRA guidance would be applicable to the rule as 
amended as it has previously applied to the existing rule.
    SIFMA requested that the MSRB reiterate its intent to apply 
relevant FINRA guidance to the proposed amendments. SIFMA also 
requested that the MSRB confirm that existing guidance under Rule G-20 
applies to all provisions of the proposed rule change.
    MSRB Response: The MSRB has previously provided that FINRA and NASD 
interpretations of comparable provisions of their gifts rules will 
apply to dealers unless otherwise specified by the MSRB.\21\ While the 
MSRB believes that the existing FINRA and NASD interpretations should 
also be applicable to municipal advisors, new FINRA interpretations of 
its gifts rule will not automatically be applicable to municipal 
advisors. New FINRA interpretations of its gifts rule will be made 
applicable to municipal advisors if the MSRB determines that it is 
appropriate to do so and receives the approval of the SEC. All NASD and 
FINRA interpretations that would be made applicable to municipal 
advisors by this proposed rule change are cited in this filing and 
would be posted on the MSRB Web site, and cited in the MSRB Rule Book, 
as interpretations of comparable provisions of Rule G-20.
---------------------------------------------------------------------------

    \21\ See File No. SR-MSRB-2005-02.
---------------------------------------------------------------------------

    The MSRB intends that existing MSRB interpretive guidance under 
Rule G-20 would be equally applicable to Rule G-20, as amended by the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days 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.

[[Page 55453]]

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 Exchange Act. Interested persons are also 
invited to submit views and arguments as to whether they can 
effectively comment on the proposed rule change prior to the date of 
final adoption of the Commission's permanent rules for the registration 
of municipal advisors. 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 [email protected]. Please include 
File Number SR-MSRB-2011-10 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-2011-10. 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-2011-10 
and should be submitted on or before September 28, 2011.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-22726 Filed 9-6-11; 8:45 am]
BILLING CODE 8011-01-P