[Federal Register Volume 82, Number 163 (Thursday, August 24, 2017)]
[Notices]
[Pages 40199-40202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17905]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81432; File No. SR-MSRB-2017-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, Consisting of Proposed Amendments to MSRB Rule G-
21(e), on Municipal Fund Security Product Advertisements

August 18, 2017.

I. Introduction

    On June 22, 2017, the Municipal Securities Rulemaking Board (the 
``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ a proposed rule change consisting of proposed 
amendments to MSRB Rule G-21(e), on municipal fund security product 
advertisements, to address important regulatory developments and to 
enhance investor protection in connection with municipal fund 
securities (the ``proposed rule change''). The proposed rule change was 
published for comment in the Federal Register on July 7, 2017.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 81060 (June 30, 2017) 
(the ``Notice of Filing''), 82 FR 31644 (July 7, 2017).
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    The Commission received two comment letters on the proposed rule 
change.\4\ On August 9, 2017, the MSRB responded to those comments \5\ 
and filed Amendment No. 1 to the proposed rule change (``Amendment No. 
1'').\6\ The Commission is publishing this notice to solicit comments 
on Amendment No. 1 to the proposed rule change from interested parties 
and is approving the proposed rule change, as modified by Amendment No. 
1, on an accelerated basis.
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    \4\ See Letter to Secretary, Commission, from Michael Koffler, 
Eversheds Sutherland (US) LLP (``Eversheds Sutherland''), dated July 
28, 2017 (the ``Eversheds Sutherland Letter''); and, Letter to 
Secretary, Commission, from Robin Traxler, Esq., Vice President, 
Regulatory Affairs & Associate General Counsel, Financial Services 
Institute (``FSI''), dated July 28, 2017 (the ``FSI Letter'').
    \5\ See Letter to Secretary, Commission, from Pamela K. Ellis, 
Associate General Counsel, MSRB, dated August 9, 2017 (the ``MSRB 
Response Letter''), available at https://www.sec.gov/comments/sr-msrb-2017-04/msrb201704-2205630-160509.pdf.
    \6\ Id. In Amendment No. 1, the MSRB proposed to amend the 
proposed rule change to Rule G-21(e)(i)(A)(2)(c) to make a minor 
technical change to clarify that the proposed rule change to that 
provision would apply to an advertisement of a municipal fund 
security ``that has an investment option that invests solely in a 
money market fund.''
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II. Description of Proposed Rule Change

    In the Notice of Filing and Amendment No. 1, the MSRB stated that 
the purpose of the proposed rule change is to reflect relevant 
regulatory developments; enhance the ``out-of-state disclosure 
obligation'' about the potential other benefits an investor may be 
provided by investing in a 529 college savings plan offered by the home 
state of the investor or of the designated beneficiary; clarify that 
certain advertisements that contain performance data may include a 
hyperlink to a Web site that contains more recent performance data; and 
include several revisions that are designed to promote understanding of 
and compliance with the rule.\7\ The MSRB stated that the proposed rule 
change would amend Rule G-21(e) to reflect two regulatory 
developments--the SEC's money market reforms and the formation of the 
Financial Industry Regulatory Authority, Inc. (``FINRA'').\8\
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    \7\ See Notice of Filing and Amendment No. 1.
    \8\ See Notice of Filing.
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    As further described by the MSRB in the Notice of Filing, Rule G-
21(e)(i)(A)(2)(c) currently requires that a municipal fund security 
advertisement

[[Page 40200]]

of an investment option that the issuer holds out as having the 
characteristics of a money market fund include certain disclosures.\9\ 
The MSRB stated that Board designed those disclosures to protect 
investors by alerting them to the potential risks of investing in that 
investment option, and modeled the disclosures on the disclosures 
required for money market fund advertisements by SEC Rule 482(b)(4) 
\10\ under the Securities Act of 1933, as amended (the ``1933 
Act'').\11\
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    \9\ See Notice of Filing.
    \10\ 17 CFR 230.482(b)(4).
    \11\ See Notice of Filing.
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    The MSRB stated that the proposed rule change, as amended by 
Amendment No.1, would require that a municipal fund security 
advertisement of an investment option that invests solely in a money 
market fund include enhanced disclosure about the risks associated with 
investing in that investment option.\12\ The MSRB stated that the 
disclosures that would be required by the proposed rule change reflect 
the SEC's money market reforms.\13\ The MSRB noted that the Board 
tailored the proposed disclosure for each of the three categories of 
money market funds in which a municipal fund security investment option 
could invest.\14\ According to the MSRB, those categories are: (i) 
Money market funds that are not government money market funds or retail 
money market funds with floating net asset values that may impose 
liquidity fees and that may temporarily suspend redemptions; (ii) money 
market funds that are government money market funds or retail money 
market funds that maintain stable net asset values that may impose 
liquidity fees or that may temporarily suspend redemptions; and (iii) 
money market funds that are government money market funds that maintain 
stable net asset values and that have elected not to impose liquidity 
fees or to temporarily suspend redemptions.\15\ The MSRB stated that 
the proposed rule change to Rule G-21(e)(i)(A)(2)(c) is substantially 
similar to the SEC's amendments to SEC Rule 482(b)(4) under the 1933 
Act, as modified to reflect the differences in the characteristics 
between municipal fund securities and money market funds. Specifically, 
the MSRB noted that an interest in a 529 college savings plan is an 
interest in an account (a ``unit'') and that the account, in turn, may 
invest in mutual funds such as a money market fund.\16\ The MSRB stated 
that, as a result, the proposed rule change, unlike SEC Rule 
482(b)(4)'s disclosure for mutual funds, refers to an investment in an 
investment option and an investor only indirectly investing in a money 
market fund through an underlying mutual fund offered by an investment 
option.\17\ As discussed by the MSRB in the Notice of Filing, the 
proposed rule change does not refer to direct investments in a mutual 
fund.\18\
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    \12\ See Notice of Filing and Amendment No. 1.
    \13\ See Notice of Filing.
    \14\ Id.
    \15\ Id.
    \16\ Id.
    \17\ Id.
    \18\ Id.
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    The MSRB stated that the current disclosure required by Rule G-
21(e)(i)(A)(2)(c) alerts a 529 college savings plan investor that an 
investment option that that invests solely in a money market fund (i) 
is not insured or guaranteed by the Federal Deposit Insurance 
Corporation or any other government agency (unless such guarantee is 
provided by or on behalf of such issuer) and (ii) if the money market 
fund is held out as maintaining a stable net asset value, that although 
the issuer seeks to preserve the value of the investment at $1.00 per 
share or such other applicable fixed share price, it is possible to 
lose money by investing in the investment option.\19\ In addition to 
the current disclosure, the MSRB stated that the proposed rule change 
would require enhanced disclosure to alert the investor that, as 
applicable, the underlying mutual fund may impose a liquidity fee or 
suspend redemptions and that the investor should not expect the 
underlying fund sponsor to provide financial support to the underlying 
mutual fund.\20\
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    \19\ See Notice of Filing and Amendment No. 1.
    \20\ See Notice of Filing.
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    The proposed rule change also would update Rule G-21(e)(ii)(F) and 
Rule G-21(e)(vi) to substitute FINRA for references to the National 
Association of Securities Dealers, Inc. (``NASD'').\21\
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    \21\ Id.
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    The proposed rule change would, according to the MSRB, enhance the 
out-of-state disclosure required by Rule G-21(e)(i)(A)(2)(b).\22\ Under 
Rule G-21(e)(i)(A)(2)(b), certain advertisements for a 529 college 
savings plan must provide disclosure that an investor should consider, 
before investing, whether the investor's or the designated 
beneficiary's home state offers any state tax or other benefits that 
are only available for investment in such state's 529 college savings 
plan. The MSRB stated that proposed rule change would--to assist an 
investor's understanding of what those other state benefits may 
include--require disclosure that those other state benefits may include 
financial aid, scholarship funds, and protection from creditors.\23\
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    \22\ Id.
    \23\ Id.
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    The MSRB stated that the proposed rule change would provide two 
clarifications to the legend that must be provided in an advertisement 
of performance data by a municipal fund security.\24\ Current Rule G-
21(e)(i)(A)(3)(a) requires that a municipal fund security's 
advertisement of performance data include a legend that discloses that 
the performance data set forth in the advertisement represents past 
performance; that past performance does not guarantee future results; 
that the investment return and the value of the investment will 
fluctuate so that an investor's shares, when redeemed, may be worth 
more or less than their original cost; and that current performance may 
be lower or higher than the performance data included in the 
advertisement. The proposed rule change would, according to the MSRB, 
clarify that an investment option that invests in a government money 
market fund or a retail money market fund may omit the disclosure 
required by the legend about principal value fluctuation.\25\ The MSRB 
stated that its believes that clarification is consistent with SEC Rule 
482(b)(3) under the 1933 Act that permits government money market funds 
and retail money market funds to omit that disclosure.\26\ In addition, 
the MSRB stated that the proposed rule change would clarify that the 
advertisement may provide a hyperlink to the Web site where the 
investor may obtain total return quotations current to most recent 
month end for which such total return information is available.\27\ The 
MSRB noted that the Board believes that the use of the hyperlink to a 
Web site will assist investors in obtaining more current performance 
data.\28\ The MSRB further stated that the use of a hyperlink to 
provide certain data is consistent with the rules of other financial 
regulators.\29\ Current Rule G-21(e)(i)(A)(3)(a) requires that the 
legend in a municipal fund security's advertisement of performance data 
that is not current to the most recent month ended seven business days 
before the date of any use of the advertisement, also must disclose 
where the investor may obtain more current performance data. Current 
Rule G-21(e)(i)(A)(3)(a)

[[Page 40201]]

also requires that the legend must include a toll-free number or a Web 
site where the investor may obtain that information.
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    \24\ Id.
    \25\ Id.
    \26\ Id.
    \27\ Id.
    \28\ Id.
    \29\ Id.
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    The MSRB stated the proposed rule change would make certain 
revisions to the provisions of Rule G-21(e) to assist the reader's 
understanding of the disclosure and to assist with a dealer's 
compliance with the rule.\30\ The proposed rule change would amend Rule 
G-21(e) to use terms more commonly used with municipal fund securities 
and that are used with the MSRB's other rules applicable to municipal 
fund securities (e.g., the term ``investment option''), such as MSRB 
Rule G-45, on reporting of information on municipal fund 
securities.\31\ The proposed rule change also would amend Rule G-
21(e)(i)(A)(2)(c) and Rule G-21(e)(i)(A)(3)(c) to clarify that a 
municipal fund security offers investment options and that those 
investment options, in turn, may invest in mutual funds.\32\ Proposed 
paragraph .01 of the Supplementary Material would clarify that the term 
``investment option'' shall have the same meaning as defined in Rule G-
45(d)(vi).\33\ Proposed paragraph .02 of the Supplementary Material 
would clarify that under Rule G-21(e)(i)(A)(2)(c), a dealer may omit 
the last sentence of the required disclosure if that disclosure is not 
applicable to the underlying fund according to SEC Rule 482(b)(4) under 
the 1933 Act.\34\ The proposed rule change also would amend Rule G-
21(e)(i)(A)(3)(a) to clarify that an investor receives units in the 
municipal fund security.\35\
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    \30\ Id.
    \31\ Id.
    \32\ Id.
    \33\ Id.
    \34\ 17 CFR 230.482(b)(4).
    \35\ See Notice of Filing.
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III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received two comment letters on 
the proposed rule change, as well as the MSRB Response Letter and 
Amendment No. 1. FSI supported the proposed rule change,\36\ and 
Eversheds Sutherland suggested a minor technical revision.\37\ The MSRB 
stated that it believes the proposed rule change is consistent with its 
statutory mandate and has responded to the comments, as discussed 
below.\38\
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    \36\ See FSI Letter.
    \37\ See Eversheds Sutherland Letter.
    \38\ See MSRB Response Letter and Amendment No. 1.
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    Eversheds Sutherland suggested that the MSRB make a minor technical 
change to clarify that the proposed rule change to Rule G-
21(e)(i)(A)(2)(c) would apply to an advertisement of a municipal fund 
security ``that has an investment option that invests solely in a money 
market fund.'' \39\ Eversheds Sutherland stated that the suggested 
revision was necessary for purposes of accuracy and internal 
consistency.\40\
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    \39\ See Eversheds Sutherland Letter.
    \40\ Id.
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    The MSRB stated that it agreed with Eversheds Sutherland.\41\ In 
response to the comment from Eversheds Sutherland, the MSRB proposed, 
in Amendment No. 1, to amend the proposed rule change to clarify that 
the amendments to Rule G-21(e)(i)(A)(2)(c) would apply to an 
advertisement of a municipal fund security ``that has an investment 
option that invests solely in a money market fund.'' \42\
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    \41\ See MSRB Response Letter and Amendment No. 1.
    \42\ Id.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received, the MSRB Response Letter, and Amendment 
No. 1. The Commission finds that the proposed rule change, as modified 
by Amendment No. 1, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to the MSRB.
    In particular, the proposed rule change, as modified by Amendment 
No. 1, is consistent with Sections 15B(b)(2) and 15B(b)(2)(C) of the 
Act.\43\ Section 15B(b)(2) of the Act requires the MSRB to adopt rules 
to effect the purposes of that title with respect to transactions in 
municipal securities effected by brokers, dealers, and municipal 
securities dealers and advice provided to or on behalf of municipal 
entities or obligated persons by brokers, dealers, municipal securities 
dealers, and municipal advisors with respect to municipal financial 
products, the issuance of municipal securities, and solicitations of 
municipal entities or obligated persons undertaken by brokers, dealers, 
municipal securities dealers, and municipal advisors.\44\ Section 
15B(b)(2)(C) of the Act requires that the MSRB's rules 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, in general, to 
protect investors, municipal entities, obligated persons, and the 
public interest.\45\
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    \43\ 15 U.S.C. 78o-4(b)(2); 78o-4(b)(2)(C) and 78o-4(b)(2)(G).
    \44\ See 15U.S.C. 78o-4(b)(2).
    \45\ See 15U.S.C. 78o-4(b)(2)(C).
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    The Commission believes that the proposed rule change, as modified 
by Amendment No. 1, is consistent with the provisions of Sections 
15B(b)(2) \46\ and 15B(b)(2)(C) \47\ of the Act because it would update 
and modernize the MSRB's municipal fund security product advertising 
rule applicable to dealers and would enhance certain disclosures 
required by the rule to reflect relevant regulatory developments. The 
Commission believes that those enhanced disclosures would protect 
investors by alerting investors about certain risks of investing in 
investment options that in turn invest in money market funds. Further, 
the Commission believes that the proposed rule change would protect 
investors by providing the investor with (i) enhanced out-of-state 
disclosure concerning the potential other benefits that may be offered 
by investing in the 529 college saving plan offered by the investor's 
or the designated beneficiary's home state and (ii) the ability to 
obtain more current performance information through the use of a 
hyperlink to a Web site. In addition, the Commission believes that by 
providing investors with enhanced disclosure, each investor will have 
more information to evaluate the municipal fund security advertisement, 
which in turn, would help prevent fraudulent acts and practices as well 
as promote just and equitable principles of trade. The Commission also 
believes that the enhanced disclosures would facilitate transactions in 
municipal fund securities by eliminating certain discordance between 
the disclosure required by Rule G-21(e) relating to investment options 
that invest in money market funds and the disclosure required by the 
advertising rules applicable to money market funds registered with the 
Commission. By so doing, the Commission believes that it would 
facilitate efficient and uniform examination and enforcement by the 
regulators that enforce the MSRB's rules.
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    \46\ See 15 U.S.C. 78o-4(b)(2).
    \47\ See 15 U.S.C. 78o-4(b)(2)(C).
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    In approving the proposed rule change, the Commission also has 
considered the impact of the proposed rule change, as modified by 
Amendment

[[Page 40202]]

No. 1, on efficiency, competition, and capital formation.\48\ The 
Commission 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 Act. The Commission believes the proposed rule 
change would apply equally to all municipal fund securities dealers and 
may reduce inefficiencies and confusion for dealers by harmonizing MSRB 
rule requirements with comparable SEC requirements on advertising. The 
Commission believes that investors should benefit from better 
information in the form of more consistent and accurate advertising 
through updated requirements for certain municipal fund security 
advertisements, as investors generally value ease of comparison of 
different financial products.
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    \48\ 15 U.S.C. 78c(f).
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    As noted above, the Commission received two comment letters on the 
filing. The Commission believes that the MSRB, through its responses 
and through Amendment No. 1, has addressed commenters' concerns.
    For the reasons noted above, the Commission believes that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the Act.

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to the proposed rule change is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use of the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MSRB-2017-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-MSRB-2017-04. This file 
number should be included on the subject line if email 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 Internet 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the MSRB. 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-2017-04 and should be 
submitted on or before September 14, 2017.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause for approving the proposed rule 
change, as amended by Amendment No. 1, prior to the 30th day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register. As noted by the MSRB, Amendment No. 1 does not raise any 
significant issues with respect to the proposed rule change and only 
provides a minor technical change that clarifies that the proposed rule 
change to Rule G-21(e)(i)(A)(2)(c) would apply to an advertisement of a 
municipal fund security ``that has an investment option that invests 
solely in a money market fund.''
    For the foregoing reasons, the Commission finds good cause for 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis, pursuant to Section 19(b)(2) of the Act.

VIII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\49\ that the proposed rule change, as modified by Amendment No. 1 
(SR-MSRB-2017-04) be, and hereby is, approved on an accelerated basis.
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    \49\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-17905 Filed 8-23-17; 8:45 am]
 BILLING CODE 8011-01-P