[Federal Register Volume 77, Number 114 (Wednesday, June 13, 2012)]
[Rules and Regulations]
[Pages 35263-35264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14440]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 275
[Release No. IA-3418; File No. S7-18-09]
RIN 3235-AK39
Political Contributions by Certain Investment Advisers: Ban on
Third-Party Solicitation; Extension of Compliance Date
AGENCY: Securities and Exchange Commission.
ACTION: Final rule; extension of compliance date.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``Commission'' or
``SEC'') is extending the date by which advisers must comply with the
ban on third-party solicitation in rule 206(4)-5 under the Investment
Advisers Act of 1940, the ``pay to play'' rule. The Commission is
extending the compliance date in order to ensure an orderly transition
for advisers and third-party solicitors as well as to provide
additional time for them to adjust compliance policies and procedures
after the transition.
DATES: Effective date: The effective date for this release is June 11,
2012. The effective date for the ban on third-party solicitation under
rule 206(4)-5 of the Investment Advisers Act of 1940 remains September
13, 2010.
Compliance date: The compliance date for the ban on third-party
solicitation is extended until nine months after the compliance date of
a final rule adopted by the Commission by which municipal advisor firms
must register under the Securities Exchange Act of 1934. Once such
final rule is adopted, we will issue the new compliance date for the
ban on third-party solicitation in a notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Vanessa M. Meeks, Attorney-Adviser, or
Melissa A. Roverts, Branch Chief, at (202) 551-6787 or [email protected],
Office of Investment Adviser Regulation, Division of Investment
Management, U.S. Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: On July 1, 2010, the Commission adopted rule
206(4)-5 [17 CFR 275.206(4)-5] (the ``Pay to Play Rule'') under the
Investment Advisers Act of 1940 [15 USC 80b] (``Advisers Act'') to
prohibit an investment adviser from providing advisory services for
compensation to a government client for two years after the adviser or
certain of its executives or employees (``covered associates'') make a
contribution to certain elected officials or candidates.\1\ As adopted,
rule 206(4)-5 also prohibited an adviser and its covered associates
from providing or agreeing to provide, directly or indirectly, payment
to any third-party for a solicitation of advisory business from any
government entity on behalf of such adviser, unless such third-party
was an SEC-registered investment adviser or a registered broker or
dealer subject to pay to play restrictions adopted by a registered
national securities association (the ``third-party solicitor ban'').\2\
Rule 206(4)-5 became effective on September 13, 2010, and, as adopted,
the third-party solicitor ban's compliance date was September 13, 2011.
This compliance date was intended to provide advisers and third-party
solicitors with sufficient time to conform their business practices to
the rule, and to revise their compliance policies and procedures to
prevent a violation. In addition, the transition period was intended to
provide an opportunity for a registered national securities association
to adopt a pay to play rule and for the Commission to assess whether
that rule met the requirements of rule 206(4)-5(f)(9)(ii)(B).\3\ It was
our understanding at the time, and it still is, that FINRA is planning
to propose a rule that would meet those requirements, but we also
suggested that we may need to take further action to ensure an orderly
transition.\4\
---------------------------------------------------------------------------
\1\ Political Contributions by Certain Investment Advisers,
Investment Advisers Act Rel. No. 3043 (July 1, 2010) [75 FR 41018
(July 14, 2010)] (``Pay to Play Release'').
\2\ See id. at Section II.B.2.(b). The Commission must find, by
order, that those restrictions: (i) Impose substantially equivalent
or more stringent restrictions on broker-dealers than the Pay to
Play Rule imposes on investment advisers; and (ii) are consistent
with the objectives of the Pay to Play Rule.
\3\ See note 2. While rule 206(4)-5 applies to any registered
national securities association, the Financial Industry Regulatory
Authority, or FINRA, is currently the only registered national
securities association under section 19(a) of the Securities
Exchange Act of 1934 [15 U.S.C. 78s(b)]. As such, for convenience,
we will refer directly to FINRA in this Release when describing the
exception for certain broker-dealers from the third-party solicitor
ban.
\4\ See id. at Section III.B.
---------------------------------------------------------------------------
Not long after the Pay to Play Rule was adopted, Congress created a
new category of Commission registrants called ``municipal advisors'' in
the Dodd-Frank Act. The statutory definition of municipal advisor
includes persons that undertake ``a solicitation of a municipal
entity.'' \5\ These solicitors would be registered with us and also
subject to regulation by the Municipal Securities Rulemaking Board
(``MSRB''). In September 2010, we adopted an interim final rule
establishing a temporary means for municipal advisors to satisfy the
registration requirement.\6\ In December 2010, we proposed permanent
rules and forms that would interpret the term ``municipal advisor'' and
create a new process by which municipal advisors must register with the
SEC.\7\ On January 14, 2011, the MSRB requested comment on a draft
proposal to establish a number of rules applicable to municipal
advisors, including a pay to play rule.\8\ In December 2011, we
extended the expiration date of the interim final rule to September 30,
2012.\9\
---------------------------------------------------------------------------
\5\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010) at section 975.
\6\ The Dodd-Frank Act required municipal advisors to be
registered with the Commission by October 2010. See section 975 of
the Dodd-Frank Act.
\7\ See Registration of Municipal Advisors, Exchange Act Release
No. 63576 (Dec. 20, 2010) [76 FR 824, (Jan. 6, 2011)].
\8\ See MSRB, Request for Comment on Pay to Play Rule for
Municipal Advisors, MSRB Notice 2011-04 (Jan. 14, 2011) available at
http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2011/2011-04.aspx?n=1.
\9\ Extension of Temporary Registration of Municipal Advisors,
Exchange Act Release No. 66020 (Dec. 21, 2011) [76 FR 80733 (Dec.
27, 2011)].
---------------------------------------------------------------------------
With the understanding that municipal advisors would be subject to
permanent registration requirements with the Commission and could be
subject to an MSRB pay to play rule, on June 22, 2011, we amended the
Pay to Play Rule to add municipal advisors to the categories of
registered entities--referred to as ``regulated persons''--excepted
from the rule's third-party solicitor ban.\10\ For a municipal advisor
to qualify as a ``regulated person,'' it must be registered with us as
such and subject to a pay to play rule adopted by the MSRB. In
addition, the Commission
[[Page 35264]]
must find, by order, that the MSRB rule: (i) Imposes substantially
equivalent or more stringent restrictions on municipal advisors than
the Pay to Play Rule imposes on investment advisers; and (ii) is
consistent with the objectives of the Advisers Act Pay to Play Rule.
The Commission also extended the date by which advisers must comply
with the ban on third-party solicitation from September 13, 2011 to
June 13, 2012 due to the expansion of the definition of ``regulated
persons.'' The extension was intended, again, to provide sufficient
time for an orderly transition.\11\
---------------------------------------------------------------------------
\10\ Rules Implementing Amendments to the Investment Advisers
Act of 1940, Investment Advisers Act Rel. No. 3221 (June 22, 2011)
[76 FR 42950 (July 19, 2011)] (``Implementing Release'').
\11\ See id. at section II.D.1.
---------------------------------------------------------------------------
Soon thereafter, on August 19, 2011, the MSRB filed a proposal with
the Commission that included a new pay to play rule regarding the
solicitation activities of municipal advisors and amendments to several
existing MSRB rules related to pay to play practices.\12\ On September
9, 2011, the MSRB withdrew the proposals, stating that it intends to
resubmit them upon our adoption of a permanent definition of the term
``municipal advisor.'' \13\
---------------------------------------------------------------------------
\12\ See Self-Regulatory Organizations; Municipal Securities
Rulemaking Board; Notice of Filing of Proposed New Rule G-42, on
Political Contributions and Prohibitions on Municipal Advisory
Activities; Proposed Amendments to Rules G-8, on Books and Records,
G-9, on Preservation of Records, and G-37, on Political
Contributions and Prohibitions on Municipal Securities Business;
Proposed Form G-37/G-42 and Form G-37x/G-42x; and a Proposed
Restatement of a Rule G-37 Interpretive Notice, Exchange Act Release
No. 65255 (Sept. 2, 2011) [76 FR 55976 (Sept. 9, 2011)]; MSRB, MSRB
Files Pay to Play Rule for Municipal Advisors and Changes to Dealer
Pay to Play Rule, MSRB Notice 2011-46 (Aug. 19, 2011) available at
http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2011/2011-46.aspx. The proposal consisted of (i) proposed MSRB Rule
G-42 (on political contributions and prohibitions on municipal
advisory activities); (ii) proposed amendments that would make
conforming changes to MSRB Rules G-8 (on books and records), G-9 (on
preservation of records), and G-37 (on political contributions and
prohibitions on municipal securities business); (iii) proposed Form
G-37/G-42 and Form G-37x/G-42x; and (iv) a proposed restatement of a
Rule G-37 interpretive notice issued by the MSRB in 1997.
\13\ See MSRB, MSRB Withdraws Pending Municipal Advisor Rule
Proposals, MSRB Notice 2011-51 (Sept. 12, 2011) available at http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2011/2011-51.aspx.
---------------------------------------------------------------------------
In order to ensure an orderly transition for advisers and third-
party solicitors as well as to provide additional time for them to
adjust compliance policies and procedures after the transition, we
believe that an extension of the compliance date for the Pay to Play
Rule's third-party solicitor ban is appropriate until nine months after
the compliance date of a final rule adopted by the Commission by which
municipal advisor firms must register under the Securities Exchange Act
of 1934. Final rules as to who must register as a municipal advisor,
and the process for doing so, will provide clarity to persons who may
qualify as municipal advisors, and the investment advisers who may hire
them, as to status and registration obligations under these future
Commission rules. The new compliance date will also allow all
solicitors to assess compliance obligations with pay to play rules that
may be adopted by FINRA or the MSRB.
The Commission finds that, for good cause and the reasons cited
above, notice and solicitation of comment regarding the extension of
the compliance date for the ban on third-party solicitation under rule
206(4)-5 are impracticable, unnecessary, or contrary to the public
interest.\14\ In this regard, the Commission also notes that investment
advisers need to be informed as soon as possible of the extension in
order to plan and adjust their implementation process accordingly.
---------------------------------------------------------------------------
\14\ See Section 553(b)(3)(B) of the Administrative Procedure
Act (5 U.S.C. 553(b)(3)(B)) (``APA'') (an agency may dispense with
prior notice and comment when it finds, for good cause, that notice
and comment are ``impracticable, unnecessary, or contrary to the
public interest''). This finding also satisfies the requirements of
5 U.S.C. 808(2), allowing the rules to become effective
notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency
finds that notice and public comment are ``impractical, unnecessary
or contrary to the public interest,'' a rule ``shall take effect at
such time as the federal agency promulgating the rule determines'').
Also, because the Regulatory Flexibility Act (5 U.S.C. 601--612)
only requires agencies to prepare analyses when the APA requires
general notice of rulemaking, that Act does not apply to the actions
that we are taking in this release. The change to the compliance
date is effective upon publication in the Federal Register. This
date is less than 30 days after publication in the Federal Register,
in accordance with the APA, which allows effectiveness in less than
30 days after publication for ``a substantive rule which grants or
recognizes an exemption or relieves a restriction.'' See 5 U.S.C.
553(d)(1).
---------------------------------------------------------------------------
By the Commission.
Dated: June 8, 2012.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14440 Filed 6-11-12; 8:45 am]
BILLING CODE 8011-01-P