[Federal Register Volume 82, Number 179 (Monday, September 18, 2017)]
[Notices]
[Pages 43587-43595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19804]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81595; File No. SR-MSRB-2017-06]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-
34, on CUSIP Numbers, New Issue, and Market Information Requirements

September 13, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on August 30, 2017 the Municipal Securities 
Rulemaking Board (the ``MSRB'' or ``Board'') filed with the Securities 
and Exchange Commission (the ``SEC'' or ``Commission'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change to amend 
MSRB Rule G-34, on CUSIP numbers, new issue, and market information 
requirements, (the ``proposed rule change'') to more clearly express in 
the rule language the MSRB's longstanding interpretation that brokers, 
dealers and municipal securities dealers (collectively, ``dealers'') 
when acting as a placement agent in a private placement of municipal 
securities are subject to the CUSIP number requirements under Rule G-
34(a); to expand the application of the rule to cover not only dealer 
municipal advisors but also non-dealer municipal advisors in 
competitive sales of municipal securities; and to provide a limited 
exception from the requirements to apply for CUSIP numbers and to apply 
for depository eligibility. The MSRB requests that the proposed rule 
change be effective six months from the date of Commission approval.
    The text of the proposed rule change is available on the MSRB's Web 
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2017-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 Change

    In its filing with the Commission, the MSRB included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on 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 Change

1. Purpose
Background
CUSIP Number Requirements Applicable to Dealers in Private Placements
    In 1983, the SEC approved MSRB Rule G-34, on CUSIP numbers, new 
issue and market information requirements.\3\ The MSRB adopted Rule G-
34 to improve efficiencies in the processing and clearance activities 
of the municipal securities industry, noting that ``if all eligible 
municipal securities have CUSIP numbers assigned to and printed on 
them, dealers will be able to place greater reliance on the CUSIP 
identification of these securities in receiving, delivering, and 
safekeeping'' them.\4\ Rule G-34(a)(i) requires a dealer, whether 
acting as agent or principal, that acquires an issuer's securities 
``for the purpose of distributing such new issue,'' and a dealer acting 
as a financial advisor in a competitive sale of a new issue, to apply 
for a CUSIP number for the new issue by a particular point in time in 
the transaction process. The rule requires, among other things, that 
underwriters, and financial advisors in competitive sales, make 
application for a CUSIP number based on eight specified items of 
information about the new issue.\5\ Rule G-34(a)(i)(A)(5) addresses the 
obligations to update application information that has changed, for 
example, when the structure of an issuance changes after the CUSIP 
number has been assigned.
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    \3\ Exchange Act Release No. 19743 (May 9, 1983), 48 FR 21690-01 
(May 13, 1983) (SR-MSRB-82-11).
    \4\ Exchange Act Release No. 18959 (Aug. 13, 1982), 47 FR 36737-
03 (Aug. 23, 1982) (SR-MSRB-82-11).
    \5\ These eight items are contained in current Rule G-
34(a)(i)(A)(4)(a) through (h) and were part of CUSIP Service 
Bureau's original standards for issuing CUSIP numbers. These items 
are:
    (a) Complete name of issue and series designation, if any;
    (b) interest rate(s) and maturity date(s) (provided, however, 
that, if the interest rate is not established at the time of 
application, it may be provided at such time as it becomes 
available);
    (c) dated date;
    (d) type of issue (e.g., general obligation, limited tax or 
revenue);
    (e) type of revenue, if the issue is a revenue issue;
    (f) details of all redemption provisions;
    (g) the name of any company or other person in addition to the 
issuer obligated, directly or indirectly, with respect to the debt 
service on all or part of the issue (and, if part of the issue, an 
indication of which part); and
    (h) any distinction(s) in the security or source of payment of 
the debt service on the issue, and an indication of the part(s) of 
the issue to which such distinction(s) relate.
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    The MSRB has become aware of confusion over the application of Rule 
G-34(a)(i) among dealers in municipal securities. Some industry 
participants have questioned whether the obligation to apply for a 
CUSIP number pursuant to Rule G-34(a)(i) is conditioned on the 
underwriter's intent to conduct a distribution of the new issue, and 
therefore, applies only to public offerings and not private placements. 
The MSRB has publicly stated the view, however, that private placements 
of municipal securities ``generally are eligible for CUSIP numbering 
and thus are subject to the requirements of [R]ule G-34.'' \6\ 
Similarly, the MSRB has indicated that, unless otherwise noted, 
``references to `underwriter' in the context of Rule G-34 are meant to 
include placement agents as well as dealers that purchase securities 
from the issuer as principal,'' \7\ and that ``references to `syndicate 
and selling group members' in this context are meant to include 
managers of syndicates as well as sole underwriters or placement agents 
in non-syndicated offerings.'' \8\
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    \6\ CUSIP Number Eligibility Standards and Requirements to 
Obtain CUSIP Numbers, MSRB Reports, Vol. 12, No. 2 (Jul. 1992) 
(emphasis in original). In this notice, the MSRB defined ``private 
placement'' to mean ``any new issue of municipal securities that is 
`placed' by a dealer, on an agency basis, with one or more 
investors.''
    \7\ See Exchange Act Release No. 50773 (Dec. 1, 2004), 69 FR 
70731-02 (Dec. 7, 2004) (SR-MSRB-2004-08).
    \8\ Id. See also MSRB Notice 2008-28 (Jun. 27, 2008) (``Rule G-
34 defines `underwriter' very broadly to include a dealer acting as 
a placement agent . . .''). Note further that in MSRB Notice 2008-23 
(May 9, 2008), the MSRB filed a proposed rule change to amend Rule 
G-34 to require underwriter registration and testing with DTCC's New 
Issue Information Dissemination System (NIIDS). The proposed 
amendment required all dealers underwriting municipal securities 
with nine months or greater effective maturity to register to 
participate in NIIDS and required the dealers to successfully test 
NIIDS prior to acting as underwriter on a new issue of municipal 
securities. The MSRB noted that ``underwriter'' in this context was 
defined ``very broadly to include a dealer acting as a placement 
agent . . . .''

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[[Page 43588]]

    Despite the guidance, there have been questions in the industry 
regarding the application of Rule G-34(a)(i) to private placements of 
municipal securities, including direct purchase transactions in which a 
dealer acts as a placement agent.\9\ A contributing factor in the issue 
over the application of Rule G-34(a)(i) to private placements has been 
the definition of the term ``underwriter'' as it is used in the rule 
and the reference to ``distributing'' in that definition.\10\ Rule G-
34(a)(i) defines ``underwriter'' as
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    \9\ When a dealer or municipal advisor works with a municipal 
securities issuer on a financial transaction to raise capital for 
the issuer, the regulated entity should have reasonably designed 
policies and procedures in place to make a determination as to 
whether the transaction involves a municipal security that results 
in the application of MSRB rules. If the transaction is not an 
issuance of a municipal security (e.g., a commercial loan), there is 
no Rule G-34 requirement to apply for a CUSIP number. The draft 
amendments do not affect the necessity for this determination. The 
Supreme Court set forth the relevant guidance in Reves v. Ernst & 
Young, Inc., 494 U.S. 56 (1990), and the MSRB has reminded the 
industry of the requirement to conduct the appropriate analysis in 
an offering prior to applying for a CUSIP number. See MSRB Notice 
2011-52 (Sept. 12, 2011) and MSRB Notice 2016-12 (Apr. 4, 2016) 
(noting that the placement of what might be referred to as a ``bank 
loan'' may, as a legal matter, involve a municipal security and 
therefore trigger the application of various federal securities 
laws, including MSRB rules such as Rule G-34).
    \10\ The term ``distributing'' as used in the rule is not 
defined, and, based on general industry perception, market 
participants might interpret it to mean that the Rule G-34(a)(i) 
requirements apply only in public offerings and not to private 
placements. For example, the SEC in its explanatory comment to Rule 
144 of the Securities Act of 1933, on persons deemed not to be 
engaged in a distribution and therefore not underwriters, noted 
that:
    A person satisfying the applicable conditions of the Rule 144 
safe harbor is deemed not to be engaged in a distribution of the 
securities and therefore not an underwriter of the securities for 
purposes of [Securities Act of 1933] section 2(a)(11). Therefore, 
such a person is deemed not to be an underwriter when determining 
whether a sale is eligible for the [Securities Act of 1933] Section 
4(1) exemption for `transactions by any person other than an issuer, 
underwriter, or dealer.'
    Preliminary note to 17 CFR 230.144.

each broker, dealer or municipal securities dealer who acquires, 
whether as principal or agent, a new issue of municipal securities 
from the issuer of such securities for the purpose of distributing 
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such new issue.

    However, other MSRB rules define underwriter by reference to Rule 
15c2-12(f)(8) of the Securities Exchange Act of 1934 (``Exchange 
Act''),\11\ which defines an underwriter as
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    \11\ 17 CFR 240.15c2-12(f)(8).

any person who has purchased from an issuer of municipal securities 
with a view to, or offers or sells for an issuer of municipal 
securities in connection with, the offering of any municipal 
security, or participates or has a direct or indirect participation 
in any such undertaking, or participates or has a participation in 
the direct or indirect underwriting of any such undertaking; except, 
that such term shall not include a person whose interest is limited 
to a commission, concession, or allowance from an underwriter, 
broker, dealer, or municipal securities dealer not in excess of the 
usual and customary distributors' or sellers' commission, 
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concession, or allowance.

    It is well-understood that this definition of ``underwriter'' 
includes a dealer in both a public offering and a private placement of 
a municipal security and is therefore not limited to public 
distributions. Indeed, when adopting Rule 15c2-12, to ensure private 
placements of municipal securities were included, the SEC changed its 
originally proposed definition of ``underwriter'' to refer to 
``offerings'' of municipal securities, as opposed to ``distributions'' 
of municipal securities. The SEC explained the reason for this change 
as follows:

    Some commentators suggested that since the term `underwriter' in 
the Proposed Rule was defined as a broker, dealer, or municipal 
securities dealer who participated in a `distribution' the 
Commission had created an implicit private placement exception. 
Specifically, they noted that persons selling securities in an 
offering that did not involve a distribution would not be subject to 
the Rule. The word `distribution,' which was used in the definition 
of ``underwriter'' in the Proposed Rule, has been replaced with the 
term `offering'. This change is intended to clarify that a broker, 
dealer or municipal securities dealer may be acting as underwriter, 
for purposes of the Rule, in connection with a private offering.\12\
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    \12\ Exchange Act Release No. 26985 (Jun. 28, 1989), 54 FR 
28799-01 (Jul. 10, 1989) (Final rule adopting Exchange Act Rule 
15c2-12). The MSRB believes its prior interpretations of Rule G-34 
regarding the need for CUSIP numbers in private placements of 
municipal securities are consistent with the SEC's position. See 
e.g., CUSIP Number Eligibility Standards and Requirements to Obtain 
CUSIP Numbers, MSRB Reports, Vol. 12, No. 2 (Jul. 1992), Exchange 
Act Release No. 50773 (Dec. 1, 2004), 69 FR 70731-02 (Dec. 7, 2004) 
(SR-MSRB-2004-08) and MSRB Notice 2008-28 (Jun. 27, 2008).

CUSIP Number Requirements Applicable to Dealer Municipal Advisors in 
Competitive Sales
    In 1986, the MSRB amended Rule G-34(a) to require a dealer acting 
as a financial advisor (``dealer municipal advisor'') in a competitive 
sale of a new issue of municipal securities to apply for CUSIP numbers 
``in sufficient time to allow for assignment of a number prior to the 
date of award.'' \13\ This application of the CUSIP number requirement 
only to dealer municipal advisors is largely the result of Rule G-34 
pre-dating the municipal advisor regulatory regime mandated by the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.\14\ 
Financial advisory activities are now generally defined also as 
municipal advisory activities, though a significant number of the now 
broadly defined municipal advisors are not dealers (``non-dealer 
municipal advisor''). As a result, non-dealer municipal advisors are 
not subject to the CUSIP number application requirements under the 
current rule, which creates the potential for regulatory inefficiencies 
where a non-dealer municipal advisor is retained in a competitive sale.
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    \13\ Exchange Act Release No. 22730 (Dec. 19, 1985), 50 FR 
53046-01 (Dec. 27, 1985) (SR-MSRB-85-20).
    \14\ Public Law 111-203, H.R. 4173 (2010). The MSRB amended Rule 
G-34(a) in 1986 to apply the CUSIP requirements to dealers acting as 
financial advisors in competitive sales of a new issue. Exchange Act 
Release No. 22730 (Dec. 19, 1985), 50 FR 53046-01 (Dec. 27, 1985) 
(SR-MSRB-85-20).
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Proposed Amendments to Rule G-34
    As set forth in more detail below, the proposed rule change would:
     Clarify the application of the CUSIP number requirements 
to dealers in private placements.
    As noted above, the MSRB is aware that, despite guidance issued in 
this area, there continues to be confusion and inconsistency in the 
application of the CUSIP number requirements under Rule G-34(a)(i). To 
alleviate these issues, the proposed rule change would amend paragraph 
(a)(i)(A) to delete the definition of ``underwriter'' from the rule 
text and would add a new definition of ``underwriter'' in new section 
(e) on definitions. Subsection (e)(vii) would cross reference the term 
``underwriter'' to the same term as it is defined in Exchange Act Rule 
15c2-12(f)(8). This proposed rule change would codify existing 
interpretations and clarify in the text of the rule that dealers acting 
as placement agents in private placement transactions, including direct 
purchases of municipal securities, are subject to the CUSIP-related 
requirements set forth in Rule G-34(a).
     Apply the CUSIP number requirements to all municipal 
advisors advising on a competitive sale of municipal securities.
    Many non-dealer municipal advisors advise issuers with respect to

[[Page 43589]]

competitive sales of new issues of municipal securities. As a result, 
Rule G-34(a)(i)(A), in its current form, may create inefficiencies in 
the market where a non-dealer municipal advisor is retained and yet not 
required to apply for a CUSIP number when advising on a competitive 
sale of a new issue of municipal securities. This leaves a dealer to 
make application only after the notification of award is given, 
potentially delaying related market activity.
    Paragraph (a)(i)(A) would be amended to apply the CUSIP number 
requirements to all municipal advisors (whether dealers or non-dealers) 
advising on a competitive sale of a new issue of municipal securities. 
As noted above, in 1986, the MSRB amended Rule G-34(a)(i)(A) to require 
a dealer ``acting as a financial advisor'' in a competitive sale of a 
new issue to apply for CUSIP numbers so as to allow assignment of the 
number prior to the date of award.\15\ From a policy standpoint, the 
market efficiencies served by the 1986 amendments would also be served 
by these amendments because a dealer no longer would be the first party 
to begin the process to obtain the CUSIP number after the award in a 
competitive sale where a non-dealer municipal advisor has been engaged.
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    \15\ Exchange Act Release No. 22730 (Dec. 19, 1985), 50 FR 
53046-01 (Dec. 27, 1985) (SR-MSRB-85-20).
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    Subparagraph (a)(i)(A)(3) clarifies the timeframe within which 
municipal advisors advising on a competitive sale must make application 
for a CUSIP number. The current provision indicates that the financial 
advisor must make application by no later than one business day after 
dissemination of a notice of sale. The proposed rule change would amend 
that paragraph to include ``or other such request for bids.'' This 
additional language would ensure the timing of the application for a 
CUSIP number in those instances where a municipal advisor seeks bids in 
a competitive sale of municipal securities using documentation other 
than a traditional notice of sale.
     Provide an exception from the CUSIP number and depository 
eligibility requirements in certain circumstances.
    The MSRB understands that banks in direct purchase transactions are 
reluctant to engage in certain financing transactions if a CUSIP number 
is required. While a dealer may determine from its perspective that a 
transaction involves a municipal security for securities law purposes, 
the bank purchaser may consider the transaction to be a loan for 
certain banking or accounting purposes, thus making the bank less 
likely to engage in the financing where the new issue has a CUSIP 
number. As a result, dealers, on behalf of their municipal issuer 
clients, may be hindered in their ability to directly place municipal 
securities with banks and issuers may have fewer financing options or 
providers from which to choose.
    In July 1992, the MSRB sought comment on possible exemptions from 
Rule G-34, including in sales of smaller issues, short-term issues and 
issues sold to a limited number of customers (i.e., private 
placements).\16\ The MSRB noted that in many of these instances, CUSIP 
numbers are not obtained because the dealer or financial advisor 
believes the securities will not trade in the secondary market. While 
the MSRB sought comment on a possible exemption, it noted that, at the 
time, it ``strongly believe[d] that whenever municipal securities are 
offered for sale in the market or must be processed through financial 
intermediaries, CUSIP numbers should be available to identify the 
securities accurately.'' \17\
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    \16\ CUSIP Number Eligibility Standards and Requirements to 
Obtain CUSIP Numbers, MSRB Reports, Vol. 12, No. 2 (Jul. 1992).
    \17\ Id.
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    The MSRB continues to believe that obtaining CUSIP numbers is 
generally a necessary aspect of, for example, tracking the trading, 
recordkeeping, clearance and settlement, customer account transfers and 
safekeeping of municipal securities, including those issued in private 
placements. The MSRB also is of the view that the increase in the 
number of direct purchase transactions between municipal issuers and 
banks as an alternative to letters of credit and other similar types of 
financings supports a limited exception from the blanket requirement to 
apply for CUSIP numbers in all private placements.
    The proposed rule change would amend Rule G-34(a)(i) to add 
paragraph (F). This paragraph would add an exception from the CUSIP 
number requirement for situations where municipal securities are 
purchased directly by a bank,\18\ any entity directly or indirectly 
controlled by the bank or under common control with the bank, other 
than a dealer registered under the Exchange Act (``non-dealer control 
affiliate''), or a consortium of the entities described above, and the 
dealer reasonably believes (based on, for example, a written 
representation from the purchaser) that the purchaser is purchasing the 
new issue of municipal securities with the present intent to hold the 
securities to maturity. The term ``bank'' in proposed new paragraph (F) 
would have the same meaning as set forth in Exchange Act Section 
3(a)(6).\19\
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    \18\ The MSRB notes that a ``bank'' for purposes of the proposed 
exception would not include a ``separately identifiable department 
or division'' of a bank, within the meaning of Rule G-1(a).
    \19\ MSRB Rule D-1 states:
     Unless the context otherwise specifically requires, the terms 
used in the rules of the Municipal Securities Rulemaking Board shall 
have the respective meanings set forth in the Securities Exchange 
Act of 1934 (15 U.S.C. 78a et seq.) and the rules and regulations of 
the Securities and Exchange Commission thereunder.
    Exchange Act Section 3(a)(6) defines ``bank'' to mean:
     (A) a banking institution organized under the laws of the 
United States or a Federal savings association, as defined in 
section 2(5) of the Home Owners' Loan Act, (B) a member bank of the 
Federal Reserve System, (C) any other banking institution or savings 
association, as defined in section 2(4) of the Home Owners' Loan 
Act, whether incorporated or not, doing business under the laws of 
any State or of the United States, a substantial portion of the 
business of which consists of receiving deposits or exercising 
fiduciary powers similar to those permitted to national banks under 
the authority of the Comptroller of the Currency pursuant to the 
first section of Public Law 87-722 (12 U.S.C. 92a), and which is 
supervised and examined by State or Federal authority having 
supervision over banks or savings associations, and which is not 
operated for the purpose of evading the provisions of this title, 
and (D) a receiver, conservator, or other liquidating agent of any 
institution or firm included in clauses (A), (B), or (C) of this 
paragraph.
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    The proposed rule change would clarify that the depository 
eligibility requirements of Rule G-34(a)(ii)(A) do not apply in the 
case of an exemption under Rule G-34(d), which exempts securities that 
are ineligible for CUSIP number assignment and municipal fund 
securities. Further, the proposed rule change would add subparagraph 
(a)(ii)(A)(3), providing an exception from the depository eligibility 
requirements in instances where the new issue is purchased directly by 
a bank,\20\ a non-dealer control affiliate of a bank or a consortium 
thereof, and the underwriter reasonably believes, based on a written 
representation or otherwise, that the purchaser's present intent is to 
hold the municipal securities to maturity. For consistency, the 
proposed rule change would amend paragraph (a)(ii)(C), to clarify that 
the requirement to input information about a new issue into NIIDS only 
applies to an issue that has been made depository eligible.
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    \20\ See footnote 18, supra.
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     Make Technical and Non-Substantive Changes.
    The proposed rule change also would make technical and non-
substantive amendments as follows:
     The proposed rule change would move definitions that apply 
generally throughout the rule into a new section

[[Page 43590]]

(e) on definitions, and, as noted above, would add a new definition of 
``underwriter'' in subsection (e)(vii). The terms moved into the new 
section (e) would be (i) auction agent; (ii) auction rate security; 
(iii) notification period; (iv) program dealer; (v) remarketing agent; 
(vi) SHORT system; (vii) underwriter; and (viii) variable rate demand 
obligation.
     The proposed rule change would amend the rule to make more 
specific references to the provision that describes information 
necessary for CUSIP number assignments. Currently, the rule refers 
throughout to paragraph (a)(i)(A). The proposed rule change would amend 
these references to refer to subparagraph (a)(i)(A)(4). Similarly, 
references in the rule to the enumerated items to be included in a 
CUSIP number application would be changed from ``(1) through (8)'' to 
``(a) through (h).''
     Finally, the proposed rule change would change capitalized 
defined terms to lower case, as appropriate throughout the rule, and 
would amend references to sections, subsections, paragraphs and 
subparagraphs, as necessary, to be consistent with other MSRB rule 
formatting.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
the provisions of Section 15B(b)(2)(C) of the Act,\21\ which provides 
that the MSRB's rules shall:
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    \21\ 15 U.S.C. 78o-4(b)(2)(C).

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, 
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municipal entities, obligated persons, and the public interest.

    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Act \22\ because the proposed rule change 
would remove impediments to and perfect the mechanism for a free and 
open municipal securities market by codifying existing interpretations 
and clarifying in the text of the rule that dealers acting as placement 
agents in private placement transactions, including direct purchases of 
municipal securities, are subject to the CUSIP-related requirements set 
forth in Rule G-34(a). In addition, the proposed rule change would help 
prevent fraudulent and manipulative practices, promote just and 
equitable principles of trade and protect investors, municipal 
entities, obligated persons and the public interest by ensuring that 
eligible municipal securities, including those issued in a private 
placement, have an appropriate identifier assigned in order to provide 
market participants with greater ability to receive, deliver, and 
safekeep such securities. Through the MSRB's Electronic Municipal 
Market Access (EMMA[supreg]) System,\23\ investors and other market 
participants would have access to initial information on their 
investments organized by the particular CUSIP number, as well as 
transparency as to transaction details if the securities do later trade 
in the secondary market. The availability of an exception to this 
requirement would eliminate impediments to and perfect the mechanism of 
a free and open market in municipal securities by allowing dealers and 
municipal advisors to provide services in certain direct purchase 
transactions without inhibiting their issuer clients' access to 
financings that otherwise might not be available if CUSIP numbers were 
required. In addition, the proposed rule change would remove 
impediments to a free and open market by requiring all municipal 
advisors to comply with the requirements of Rule G-34(a)(i)(A), thus 
encouraging consistency and efficiency in competitive sales of 
municipal securities and ensuring that CUSIP numbers are obtained by 
municipal advisors earlier in a competitive deal to allow for immediate 
trading upon award.
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    \22\ Id.
    \23\ EMMA is a registered trademark of the MSRB.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 15B(b)(2)(C) of the Exchange Act requires that MSRB rules 
not be designed to impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.\24\ In 
accordance with the MSRB's policy on the use of economic analysis,\25\ 
the MSRB has considered the economic impact associated with the 
proposed rule change to MSRB Rule G-34, including a comparison to 
reasonable alternative regulatory approaches, relative to the 
baseline.\26\ For purposes of its analysis, the MSRB considers the 
baseline to be full compliance by dealers with the existing CUSIP 
requirement.\27\ The MSRB does not believe that the proposed rule 
change would impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.
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    \24\ 15 U.S.C. 78o-4(b)(2)(C).
    \25\ Policy on the Use of Economic Analysis in MSRB Rulemaking, 
available at http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx.
    \26\ As an alternative to the proposed rule change, the MSRB 
considered making no amendments, while its request for comment 
nevertheless served as a reminder of the MSRB's longstanding 
interpretation that dealers, when acting as a placement agent in a 
private placement, are required to apply for CUSIP numbers. See MSRB 
Regulatory Notice 2017-05.
    \27\ The MSRB is aware, however, that there is uncertainty among 
at least some market participants with regard to the application of 
the existing rule.
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    The intent of the proposed rule change is to (1) clarify in rule 
text the MSRB's longstanding view that dealers acting as placement 
agents in private placements of municipal securities, including direct 
purchases, are underwriters and thus must apply for CUSIP numbers for 
new issues; and (2) apply the CUSIP number requirements to all 
municipal advisors advising on a competitive sale of municipal 
securities. In addition, the proposed rule change provides a 
principles-based exception for dealers and municipal advisors from the 
CUSIP number requirements and for dealers from the depository 
eligibility requirements in certain direct purchase transactions.
    The MSRB believes the proposed rule change would reduce regulatory 
uncertainty for underwriters and municipal advisors with regard to the 
requirement to apply for CUSIP numbers. Pursuant to the proposed rule 
change, dealers would know with greater certainty when application for 
a CUSIP number is required in private placement transactions. 
Similarly, while in practice some non-dealer municipal advisors may be 
applying for CUSIP numbers in a competitive offering before the final 
award is made,\28\ the proposed rule change would ensure that this is 
the case, thus reducing the risk of delays in secondary market trading 
where a competitive offering is awarded but no CUSIP number has been 
assigned.
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    \28\ By comparison, in a negotiated offering, underwriters are 
already established and CUSIP numbers can be assigned on a pre-trade 
basis before pricing.
---------------------------------------------------------------------------

    The MSRB believes that the principles-based exception from the 
CUSIP number requirements for dealers and municipal advisors may limit 
or reduce those instances where a dealer or municipal advisor may be 
required to apply for a CUSIP number in a direct purchase transaction. 
The MSRB believes that for dealers currently complying with the CUSIP 
number requirements in private placement transactions, the proposed 
rule change

[[Page 43591]]

may lower their costs in those instances where they could rely on the 
proposed exception. Similarly, dealers may see a reduction in costs for 
municipal securities that currently are subject to the depository 
eligibility requirements but could now be excepted from the 
requirements under the proposed rule change.\29\ As a result of the 
exception, there would no longer be a need to make such securities 
depository eligible and input information about the new issue into 
NIIDS.
---------------------------------------------------------------------------

    \29\ These municipal securities may no longer need a CUSIP 
number under the proposed CUSIP exception, and thus they may no 
longer fall under the depository eligibility requirement.
---------------------------------------------------------------------------

    The MSRB believes that in instances where dealers or municipal 
advisors can rely on the principles-based exception based on their 
reasonable belief that, at the time of a purchase, a purchaser intends 
to hold the new issue of municipal securities to maturity, there is a 
risk of reduced transparency if, in the future, the purchaser decides 
to resell the securities without a CUSIP number. This could result in 
information asymmetry and price dislocation with respect to the 
subsequent purchaser.
    While non-dealer municipal advisors would now be required to apply 
for CUSIP numbers when advising in competitive sales of new issue 
municipal securities, the rule change per se does not necessarily 
impose on them the cost of applying for the CUSIP number. According to 
staff at CUSIP Global Services (``CUSIP Services''), typically only the 
winning bidder for a competitive deal is billed after the CUSIP numbers 
are assigned. Even though the request for a CUSIP number may have come 
from a municipal advisor, it is not mandatory for the party applying 
for the CUSIP number to be billed for the fees (unless the applicant 
for the CUSIP number asks to be billed).\30\
---------------------------------------------------------------------------

    \30\ According to its 2017 fee schedule, CUSIP Services charges 
$173 for the first maturity, plus $22 for each additional maturity 
or class per series in the same application/offering document. For 
example, an offering with the first maturity and ten additional 
maturities or classes would cost a total of $393 ($173 + ($22 x 
10)). See https://www.cusip.com/pdf/2017FeesforCUSIPAssignment.pdf.
---------------------------------------------------------------------------

    The MSRB believes non-dealer municipal advisors, and to a much 
lesser extent, dealers, are likely to incur new up-front costs 
associated with the development of regulatory compliance policies and 
procedures. Some industry stakeholders \31\ provided an estimate on 
compliance costs in terms of the number of labor hours needed to create 
and apply policies and procedures to comply with the proposed rule 
change, including determining the applicability of proposed exceptions. 
The cost estimates ranged from eight to 15 hours initially to set up 
the policies and procedures, and up to three hours per transaction 
thereafter to evaluate, for example, whether the investor intended to 
hold the securities to maturity. The MSRB believes these estimates are 
high, as, for example, the determination of whether a transaction 
involves a municipal security should have already been made for various 
other purposes and is therefore part of the baseline. Even at the upper 
bound of these estimates, these costs would be justified by the likely 
aggregate benefits of the proposed rule change over time, including 
reduced costs for some dealers who could elect not to apply for CUSIP 
numbers under the proposed exception.
---------------------------------------------------------------------------

    \31\ See, infra, National Association of Municipal Advisors: 
Letter from Susan Gaffney, Executive Director, dated June 30, 2017 
(``NAMA Letter II''); and Securities Industry and Financial Markets 
Association: Letter from Leslie M. Norwood, Managing Director and 
Associate General Counsel, dated June 30, 2017 (``SIFMA Letter 
II'').
---------------------------------------------------------------------------

    Some industry stakeholders suggested that the MSRB should allow the 
use of other standard identifiers in addition to CUSIP numbers, as 
these commenters believed other identifiers may be easier and less 
costly to obtain.\32\ The MSRB understands commenters' concerns, but 
believes this issue should be considered separately from this proposed 
rule change. Allowing the use of other identifiers would have 
implications for many other MSRB rules that are beyond the scope of 
this particular proposal.
---------------------------------------------------------------------------

    \32\ See, infra, Bloomberg, L.P.: Letter from Peter Warms, 
Senior Manager of Fixed Income, Entity, Regulatory Content and 
Symbology, undated (``Bloomberg Letter II'').
---------------------------------------------------------------------------

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

Summary of Comments Received in Response to the First Request for 
Comment
    On March 1, 2017, the MSRB published a request for comment (``First 
RFC''), proposing draft amendments to Rule G-34.\33\ The First RFC 
sought to (1) amend the definition of ``underwriter'' as it is used in 
Rule G-34 to clarify that dealers acting as placement agents in private 
placements of municipal securities, including direct purchase 
transactions, are ``underwriters'' for purposes of the rule and are 
required to apply for CUSIP numbers for such transactions; (2) expand 
the rule to require non-dealer municipal advisors also to be subject to 
the CUSIP number requirements when acting as an advisor in a 
competitive sale of a new issue; and (3) to make technical amendments 
as necessary. The MSRB received 20 comment letters,\34\ most of which 
opposed the blanket requirement to apply for CUSIP numbers in private 
placements with many suggesting alternative approaches. Commenters were 
split on the desirability of expanding the rule to include non-dealer 
municipal advisors.
---------------------------------------------------------------------------

    \33\ MSRB Notice 2017-05.
    \34\ Acacia Financial Group, Inc.: Letter from Noreen P. White, 
Co-President; Kim M. Whelan, Co-President, dated March 31, 2017 
(``Acacia Letter I''); American Bankers Association: Letter from 
Cristeena G. Naser, Vice President and Senior Counsel, Center for 
Securities, Trust & Investment, dated March 24, 2017 (``ABA Letter 
I''); Bloomberg, L.P.: Letter from Peter Warms, Senior Manager of 
Fixed Income, Entity, Regulatory Content and Symbology, undated 
(``Bloomberg Letter I''); Bond Dealers of America: Letter from Mike 
Nicholas, Chief Executive Officer, dated March 31, 2017 (``BDA 
Letter I''); CUSIP Services: Letter from Scott J. Preiss, Managing 
Director, Global Head, dated March 30, 2017 (``CUSIP Services''); 
Dixworks LLC: Email from Dennis Dix, Jr., Principal, dated March 29, 
2017 (``Dixworks''); First River Advisory L.L.C.: Email from Shelley 
Aronson, dated March 22, 2017 (``First River Advisory''); George K. 
Baum & Company: Letter from Guy E. Yandel, EVP & Co-Manager Public 
Finance; Dana L. Bjornson, EVP, CFO & Chief Compliance Officer; 
Andrew F. Sears, EVP & General Counsel, dated March 31, 2017 
(``George K. Baum''); Government Finance Officers Association: 
Letter from Emily Brock, Director, Federal Liaison Center, dated 
March 31, 2017 (``GFOA Letter I''); National Association of Health 
and Educational Facilities Finance Authorities: Letter from Donna 
Murr, President; Martin Walke, Advocacy Committee Chair, dated March 
31, 2017 (``NAHEFFA''); National Association of Municipal Advisors: 
Letter from Susan Gaffney, Executive Director, dated March 31, 2017 
(``NAMA Letter I''); National Federation of Municipal Analysts: 
Letter from Julie Egan, NFMA Chair 2017; Lisa Washburn, NFMA 
Industry Practices and Procedures Chair, dated March 31, 2017 
(``NFMA''); Opus Bank: Email from Dmitry Semenov, Senior Managing 
Director, Public Finance, dated March 15, 2017 (``Opus''); Phoenix 
Advisors, LLC: Letter from David B. Thompson, CEO, dated March 21, 
2017 (``Phoenix Advisors''); Piper Jaffray & Co.: Letter from Frank 
Fairman, Managing Director, Head of Public Finance Services; Rebecca 
Lawrence, Managing Director, Associate General Counsel, Public 
Finance & Fixed Income, dated March 31, 2017 (``Piper Jaffray Letter 
I''); Public Financial Management, Inc. and PFM Financial Advisors: 
Letter from Cheryl Maddox, General Counsel; Leo Karwejna, Chief 
Compliance Officer, dated March 31, 2017 (``PFM Letter I''); Email 
from Rudy Salo, dated March 31, 2017; Securities Industry and 
Financial Markets Association: Letter from Leslie M. Norwood, 
Managing Director and Associate General Counsel, dated March 31, 
2017 (``SIFMA Letter I''); SMA: Email from Michael Cawley, dated 
March 21, 2017 (``SMA Letter I''); State of Florida, Division of 
Bond Finance: Letter from J. Ben Watkins III, Director, Division of 
Bond Finance, dated April 7, 2017 (``State of Florida'').
---------------------------------------------------------------------------

Clarification of the ``Underwriter'' Definition To Include Placement 
Agents
    The majority of commenters to the First RFC opposed the MSRB's 
draft amendment to Rule G-34(a)(i) that would clarify the requirement 
for

[[Page 43592]]

dealers to apply for CUSIP numbers in private placements,\35\ while one 
commenter explicitly supported the draft amendment.\36\ Three 
commenters noted that, if the amendment to the definition of 
``underwriter'' were adopted as proposed in the First RFC, other 
aspects of Rule G-34 would be implicated.\37\ In particular, Rule G-
34(a)(ii) regarding application for depository eligibility and 
dissemination of new issue information requires the underwriter to 
apply to a securities depository to make a new issue depository 
eligible and to communicate information about the new issue pursuant to 
the rule. These commenters noted that application of this part of the 
rule to private placements may not be appropriate. Specifically, the 
requirement that the underwriter apply to the Depository Trust and 
Clearing Corporation (``DTCC'') to make a new issue depository eligible 
and then input certain information into the NIIDS may not be 
appropriate or possible with respect to private placements. One 
commenter suggested that, if the MSRB adopts the revised definition of 
``underwriter,'' it should clarify that any issuance that does not meet 
DTCC eligibility criteria or for which CUSIP numbers cannot or are not 
required to be obtained should be exempt from Rule G-34(a)(ii) 
requirements.\38\
---------------------------------------------------------------------------

    \35\ Acacia Letter I, ABA Letter I, BDA Letter I, First River 
Advisory, George K. Baum, GFOA Letter I, NAHEFFA, NAMA Letter I, 
Piper Jaffray Letter I, PFM Letter I, SIFMA Letter I, SMA Letter I, 
State of Florida.
    \36\ CUSIP Services.
    \37\ BDA Letter I, GFOA Letter I and SIFMA Letter I.
    \38\ SIFMA Letter I.
---------------------------------------------------------------------------

    Nine commenters supported an exception from the CUSIP number 
requirement for private placements sold to a single purchaser or a 
limited number of purchasers.\39\ One commenter noted that typical 
purchasers in a private placement are sophisticated financial 
institutions with knowledge and experience in financial matters,\40\ 
while others noted that the draft amendment could put a damper on the 
bank loan and direct purchase markets and, as a result, increase costs 
to issuers.\41\
---------------------------------------------------------------------------

    \39\ ABA Letter I, First River Advisory, George K. Baum, GFOA 
Letter I, NAHEFFA, NAMA Letter I, Piper Jaffray Letter I, Rudy Salo 
and SIFMA Letter I.
    \40\ George K. Baum.
    \41\ ABA Letter I, George K. Baum, GFOA Letter I, NAHEFFA, NAMA 
Letter I, Piper Jaffray Letter I, Rudy Salo, SIFMA Letter I and 
State of Florida.
---------------------------------------------------------------------------

    Two commenters objected to the proposed parenthetical in the draft 
amendment to Rule G-34(a), ``. . . each broker, dealer or municipal 
securities dealer acting as an underwriter (which includes a placement 
agent) . . .'' (emphasis added) and suggested it should be deleted,\42\ 
and four other commenters objected to the application of the CUSIP 
number requirement to placement agents, generally.\43\
---------------------------------------------------------------------------

    \42\ BDA Letter I and George K. Baum.
    \43\ BDA Letter I, GFOA Letter I, NAMA Letter I and NAHEFFA.
---------------------------------------------------------------------------

    Some commenters stated that private placements, by their nature, 
should not have CUSIP numbers because they are private transactions, 
and others stated that not obtaining a CUSIP number ensures the 
municipal securities will not be resold.\44\ Several commenters stated 
that requiring placement agents to obtain CUSIP numbers in private 
placements may discourage issuers from using placement agents at 
all.\45\
---------------------------------------------------------------------------

    \44\ BDA Letter I, First River Advisory and SIFMA Letter I.
    \45\ BDA Letter I, GFOA Letter I, NAMA Letter I and Piper 
Jaffray Letter I.
---------------------------------------------------------------------------

    One commenter indicated that while it does not take a position on 
when CUSIP numbers should or should not be obtained, it would be 
concerned about the potential disclosure consequences in the EMMA 
system if the proposed amendments and clarifications would result in 
more bank loans, direct purchases and private placements requiring 
CUSIP numbers.\46\ This commenter indicated that, if new CUSIP numbers 
are obtained for each private debt transaction of an issuer, it could 
result in fewer disclosure notices being posted or linked to the CUSIP 
numbers for affected publicly outstanding debt, thus reducing the 
information flow to investors. Similarly, another commenter believed 
private placement information should be posted on EMMA under the CUSIP 
numbers for an issuer's outstanding publicly-offered bonds, and not 
under a separate, distinct CUSIP number.\47\ Other commenters noted 
that they would rather see enhancements to EMMA than additional 
requirements placed on market participants.\48\
---------------------------------------------------------------------------

    \46\ NFMA.
    \47\ First River Advisory.
    \48\ GFOA Letter I, NAHEFFA and State of Florida.
---------------------------------------------------------------------------

    One commenter suggested that the MSRB use this opportunity to 
consider allowing the use of open standard identifiers for financial 
transactions and products in place of CUSIP numbers as a regulatory 
alternative to mandating that only CUSIP numbers be used.\49\
---------------------------------------------------------------------------

    \49\ Bloomberg Letter I.
---------------------------------------------------------------------------

    Finally, two commenters urged the MSRB to make any amendment 
prospective, regardless of whether it is deemed a clarification to an 
existing rule.\50\
---------------------------------------------------------------------------

    \50\ BDA Letter I and SIFMA Letter I.
---------------------------------------------------------------------------

Requirement That Non-Dealer Municipal Advisors Apply for CUSIP Numbers
    Five commenters believed non-dealer municipal advisors should not 
be required to apply for CUSIP numbers in competitive new issues of 
municipal securities.\51\ Two commenters believed doing so would serve 
no useful purpose and would pose an undue burden on small municipal 
advisors.\52\ One commenter suggested that the better approach would be 
to eliminate the requirement that dealers acting as financial advisors 
obtain CUSIP numbers in competitive new issues and to instead require 
the underwriter who wins the bid to obtain the CUSIP numbers.\53\
---------------------------------------------------------------------------

    \51\ Acacia Letter I, Dixworks, NAMA Letter I, PFM Letter I and 
SMA Letter I.
    \52\ Dixworks and NAMA Letter I.
    \53\ Acacia Letter I.
---------------------------------------------------------------------------

    Four commenters supported the draft amendment to require non-dealer 
municipal advisors to be subject to the requirements of Rule G-34(a) 
with respect to competitive transactions.\54\
---------------------------------------------------------------------------

    \54\ George K. Baum, GFOA Letter I, Piper Jaffray Letter I and 
SIFMA Letter I.
---------------------------------------------------------------------------

Summary of Comments Received in Response to the Second Request for 
Comment
    After carefully considering commenters' suggestions and concerns, 
on June 1, 2017, the MSRB published a second request for comment 
(``Second RFC'').\55\ The Second RFC sought further comment on the same 
three issues from the First RFC. However, the Second RFC also sought 
comment on draft amendments that would except from the CUSIP number 
requirements dealers and municipal advisors engaged in direct purchase 
transactions with a bank, its bank affiliates or a consortium of banks 
formed for the purpose of participating in the new issue, where the 
dealer or municipal advisor had a reasonable belief that the 
purchaser(s) of the new issue intended to hold the securities to 
maturity and would limit resales of the municipal securities to other 
banks, bank affiliates or a consortium thereof. The draft amendments in 
the Second RFC also sought comment on the application of this exception 
to the requirement for underwriters to make an application for 
depository eligibility under Rule G-34(a)(ii). The MSRB proposed to 
define ``bank'' as it is defined in the Exchange Act.\56\ The MSRB 
received 16 comment letters in response to the Second RFC.\57\
---------------------------------------------------------------------------

    \55\ MSRB Notice 2017-11 (June 1, 2017).
    \56\ See footnote 19, supra.
    \57\ Acacia Financial Group, Inc.: Letter from Noreen P. White, 
Co-President; Kim M. Whelan, Co-President, dated June 29, 2017 
(``Acacia Letter II''); American Bankers Association: Letter from 
Cristeena G. Naser, Vice President and Senior Counsel, Center for 
Securities, Trust & Investment, dated June 30, 2017 (``ABA Letter 
II''); Bloomberg Letter II; Bond Dealers of America: Letter from 
Mike Nicholas, Chief Executive Officer, dated June 29, 2017 (``BDA 
Letter II''); Center for Municipal Finance: Letter from Marc D. 
Joffe, President, dated June 28, 2017 (``CMF''); Eastern Bank: 
Letter, undated (``Eastern Bank''); Fieldman Rolapp & Associates: 
Letter from Adam S. Bauer, Chief Executive Officer and President, 
dated June 30, 2017 (``Fieldman''); Government Capital Securities 
Corp: Email from Ted Christensen, dated June 1, 2017 (``GCSC''); 
Government Finance Officers Association: Letter from Emily Brock, 
Director, Federal Liaison Center, dated June 30, 2017 (``GFOA Letter 
II''); NAMA Letter II; New Jersey State League of Municipalities: 
Letter from Michael F. Cerra, Assistant Executive Director, dated 
June 27, 2017 (``NJLM''); Piper Jaffray & Co.: Letter from Frank 
Fairman, Managing Director, Head of Public Finance Services; Rebecca 
Lawrence, Managing Director, Associate General Counsel, Public 
Finance & Fixed Income, dated June 29, 2017 (``Piper Jaffray Letter 
II''); Public Financial Management, Inc. and PFM Financial Advisors 
LLC: Letter from Leo Karwejna, Chief Compliance Officer; Cheryl 
Maddox, General Counsel; Catherine Humphrey-Bennett, Municipal 
Advisory Compliance Officer, dated July 3, 2017 (``PFM Letter II''); 
SIFMA Letter II; Southern Municipal Advisors, Inc.: Letter from 
Michael C. Cawley, Senior Consultant, dated June 29, 2017 (``SMA 
Letter II''); Township of East Brunswick: Email from L. Mason Neely, 
dated June 2, 2017 (``East Brunswick'').

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

[[Page 43593]]

Limited Exception From the CUSIP Number Requirements
    In response to commenters who opposed the clarification of the term 
``underwriter'' that would result in a blanket requirement for dealers 
to apply for CUSIP numbers in all private placements, the MSRB proposed 
a limited exception from this requirement as noted above. Six of the 16 
commenters generally supported the MSRB's proposed exception.\58\ GCSC 
specifically noted its belief that the exception would help keep 
issuance costs low for small issuers. GFOA noted that the exception is 
``a helpful step forward'' but stated that without clear guidance, the 
draft rule will dampen the demand for bank loans and direct purchase 
financings and raise borrowing costs. Acacia, while supportive of the 
proposed exception, indicated its continued concern over the need for 
dealers and municipal advisors to establish policies and procedures to 
arrive at the ``reasonable belief'' conclusion.
---------------------------------------------------------------------------

    \58\ Acacia Letter II, ABA Letter II, BDA Letter II, GCSC; Piper 
Jaffray Letter II and SIFMA Letter II.
---------------------------------------------------------------------------

    Some commenters supported the exception but suggested an expansion 
of the types of purchasers that could fit within its parameters. In 
particular, four commenters suggested that in addition to banks, as 
defined in the Second RFC, the MSRB should expand the exception also to 
apply to local governments privately purchasing municipal 
securities.\59\ Other commenters suggested that the exception be 
expanded to include non-dealer subsidiaries of banks or bank holding 
companies \60\ or any entity directly or indirectly controlled by the 
purchasing bank or under common control with the bank, or a consortium 
of such entities, other than a broker-dealer registered with the SEC 
pursuant to the Exchange Act.\61\ In addition, the ABA suggested that 
the draft rule should require the purchasers of the municipal 
securities to represent that the securities are being purchased for 
their own account without an intention to resell them, while SIFMA 
proposed that the dealer or municipal advisor have a reasonable belief 
that this is the case. Both the ABA and SIFMA proposed that any resales 
would be limited to qualified institutional buyers as defined in Rule 
144A of the Securities Act of 1933 (``Securities Act'') or an 
``accredited investor'' as defined in Rule 501 of Regulation D under 
the Securities Act.
---------------------------------------------------------------------------

    \59\ GFOA Letter II, NAMA Letter II, NJLM and East Brunswick.
    \60\ Piper Jaffray Letter II.
    \61\ ABA Letter II and SIFMA Letter II.
---------------------------------------------------------------------------

    The ABA emphasized that many banks use bank holding company 
affiliates to provide municipal funding and the majority of these 
funding subsidiaries are non-bank entities. BDA similarly asked that 
further clarification be given to confirm that the exception would 
apply where a bank negotiates the purchase but the actual purchaser is 
a non-bank affiliate, and where there is more than one bank purchasing 
in a transaction.
    Several commenters suggested that the principles-based exception 
needs further clarification. Specifically, three commenters believed 
additional language should be added to require the investor to 
represent its intention to hold the securities to maturity and limit 
resales.\62\ Similarly, SIFMA requested clarification of the type of 
documentation underwriters or municipal advisors would need to produce 
in an exam with FINRA or the SEC in order to show compliance with the 
rule.
---------------------------------------------------------------------------

    \62\ ABA Letter II, GFOA Letter II and NAMA Letter II.
---------------------------------------------------------------------------

    Two commenters opposed the exception.\63\ CMF noted that by 
requiring alternative debt instruments to have security identifiers, 
the MSRB is promoting public awareness that issuers are taking on 
additional obligations. However, according to CMF, allowing such an 
exception for instruments not expected to trade in the secondary market 
is inconsistent with this transparency objective. PFM opposed the draft 
rule change entirely, and noted that the proposed exception cannot be 
supported without much needed regulatory guidance. In particular, PFM 
believed regulatory guidance must be provided with respect to the 
``indicia of the required `reasonable belief''' to include much more 
prescriptive detail. In addition, PFM believed the MSRB should withdraw 
any efforts to amend Rule G-34 until the SEC's proposed amendments to 
Exchange Act Rule 15c2-12 are completed. PFM noted that changes to the 
disclosure requirements under Rule 15c2-12 would provide a foundation 
for any action the MSRB might take with respect to Rule G-34. Finally, 
GFOA indicated that, if certain clarifications cannot be made regarding 
compliance with the draft rule changes, the MSRB should continue 
investing in enhancing the EMMA system.
---------------------------------------------------------------------------

    \63\ CMF and PFM Letter II.
---------------------------------------------------------------------------

    Upon consideration of the comments received in response to the 
Second RFC, the MSRB is proposing an expanded exception to include 
purchasers that are non-dealer control affiliates of a bank. Based on 
comments received, the MSRB understands that in many direct purchase 
transactions there may be business reasons to hold a new issue 
municipal security in an affiliated entity that is not a bank. The MSRB 
further agrees that the exception should not be available if the entity 
purchasing or holding the municipal security is a dealer affiliate. 
With respect to expanding the exception to include local governments 
purchasing municipal securities, the MSRB understands that in these 
scenarios the transactions are negotiated directly between the two 
parties, without the involvement of an underwriter. As a result, the 
CUSIP number requirements of Rule G-34(a)(i) would not apply and the 
need to expand the exception to include these scenarios is unnecessary.
    In addition, the proposed exception would require the dealer to 
have a reasonable belief that the purchaser is purchasing with a 
present intent to hold the securities to maturity. Commenters asked for 
a more prescriptive requirement as to how one would show a reasonable 
belief. However, the MSRB believes dealers should determine the best 
way to make such a determination based on their particular business and 
practices. The determination could be made based upon, for example, a 
representation from the purchaser, though obtaining a representation is 
not required. Indeed, as a general matter, the proposed rule would not 
dictate the way in which a dealer must arrive at the ``reasonable 
belief.'' In addition, the proposed rule would not include

[[Page 43594]]

language in the exception that would require a dealer or municipal 
advisor to draw conclusions regarding the circumstances of the 
purchaser's possible resales in the future, if the purchaser's present 
intent were to change. The MSRB believes that the dealer's reasonable 
belief as to the present intent of the purchaser is adequate and that 
the circumstances of any subsequent resales would be outside the scope 
of the dealer's analysis surrounding the initial sale of the new issue 
securities.
Requirement That Non-Dealer Municipal Advisors Apply for CUSIP Numbers
    In the Second RFC, the MSRB proposed draft amendments that 
generally would require all municipal advisors in competitive new 
issues to apply for CUSIP numbers. Reference to ``competitive 
offering'' was meant to refer to competitive offerings in a typical 
public distribution of municipal securities. However, the MSRB noted 
its understanding that there are direct purchase scenarios in which the 
municipal advisor arranges competitive bids from, for example, three 
banks competing for a direct purchase. In circumstances like those, the 
MSRB indicated that the security purchased by the winning direct 
purchaser may not require a CUSIP number if the municipal advisor, like 
the dealer placement agent described above in a direct purchase by a 
bank, could make a principled determination that trading is unlikely 
and, thus, CUSIP numbers are not necessary. The Second RFC proposed 
draft amendments that would allow a municipal advisor to rely on the 
exception from the CUSIP number requirement if the conditions were met.
    Five commenters believed Rule G-34 should not apply to any 
municipal advisors and that the obligation to obtain a CUSIP number 
should rest solely with the underwriter.\64\ Acacia and NAMA stated 
that while not every competitive sale has a municipal advisor, they 
each do have an underwriter and thus, for consistency, it makes sense 
that the underwriter would obtain the CUSIP number. In addition, NAMA 
stated that a municipal advisor does not have an interface with the 
investor prior to the completion of the competitive sale process and by 
making a determination regarding the investor's intentions to hold or 
sell a security, in addition to considering whether an instrument is in 
fact a security, the municipal advisor might be engaging in broker-
dealer activity. According to NAMA, there is no benefit to municipal 
advisory clients or municipal advisors by requiring municipal advisors 
to obtain CUSIP numbers. Similarly, SMA stated that obtaining a CUSIP 
number is an underwriter's responsibility and the imbalance between 
dealer municipal advisors and non-dealer municipal advisors is 
justified by the differing roles they play in the market. PFM stated 
that applying for a CUSIP number is activity outside of the municipal 
advisor's responsibility and ``epitomizes traditional broker-dealer 
type activity.''
---------------------------------------------------------------------------

    \64\ Acacia Letter II, Fieldman, NAMA Letter II, PFM Letter II 
and SMA Letter II.
---------------------------------------------------------------------------

    Two commenters indicated that the costs on non-dealer municipal 
advisors of complying with the proposed obligations, including creating 
and implementing policies and procedures, would be problematic and 
create a new regulatory burden.\65\ Finally, one commenter noted 
concern that for a municipal advisor to obtain a CUSIP number in a 
competitive sale, it must make certain assumptions about the final bond 
structure or know the preferred structure of the eventual 
purchaser.\66\
---------------------------------------------------------------------------

    \65\ Acacia Letter II and NAMA Letter II.
    \66\ Fieldman.
---------------------------------------------------------------------------

    Three commenters supported the MSRB's efforts to address any 
potential regulatory inefficiencies between dealer and non-dealer 
municipal advisors.\67\ SIFMA noted that, if there is a non-dealer 
municipal advisor assisting an issuer who is currently not required to 
obtain a CUSIP number, then each bidding dealer in a competitive sale 
must obtain a set of CUSIP numbers for the transaction, in case they 
are the winning bidder. Obtaining the CUSIP number before a dealer is 
selected is necessary, according to SIFMA, because of the subsequent 
timing requirements related to inputting information into NIIDS. SIFMA 
believed it is more efficient for a single municipal advisor to an 
issuer to obtain CUSIP numbers than for several dealers competing for a 
sale to obtain CUSIP numbers knowing that all but one dealer will need 
to cancel the request.
---------------------------------------------------------------------------

    \67\ BDA Letter II; Piper Jaffray Letter II and SIFMA Letter II.
---------------------------------------------------------------------------

    The MSRB believes the policy reasons to require dealer municipal 
advisors to apply for CUSIP numbers in competitive sales of new issue 
securities are just as applicable to non-dealer municipal advisors. 
Further, removing the municipal advisor (whether dealer or non-dealer) 
altogether from the requirement could result in trading delays where 
the winning dealer in a competitive transaction applies for the CUSIP 
number after the award is made. In the alternative, removal of dealer 
municipal advisors from the requirement could result in inefficiencies 
where multiple dealers apply for CUSIP numbers for the same transaction 
before the award is made and subsequently cancel them if they are not 
selected as the winning dealer. The proposed rule change therefore 
would require municipal advisors, both dealer and non-dealer alike, to 
apply for CUSIP numbers for new issue securities when advising on a 
competitive sale of such new issue securities. This ensures 
efficiencies in the market by requiring CUSIP numbers to be assigned 
prior to the award of the issue in a competitive sale where a municipal 
advisor is retained. Where the competitive sale might result in a 
direct purchase by a bank, its non-dealer control affiliates or a 
consortium thereof, the municipal advisor may determine not to obtain a 
CUSIP number if it reasonably believes the purchaser's present intent 
is to hold the municipal securities to maturity. If the structure of 
the transaction changes after a municipal advisor has applied for the 
CUSIP number, Rule G-34(a)(i)(A)(5) requires that the information 
provided in the CUSIP number application be updated as soon as it is 
known, but in any event, no later than a time sufficient to ensure 
CUSIP number assignment occurs prior to dissemination of the time of 
first execution. The MSRB would expect the regulated entity that 
originally applied for the CUSIP number to comply with Rule G-
34(a)(i)(A)(5) to correct any CUSIP number information 
inconsistencies.\68\
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    \68\ See Exchange Act Release No. 57131 (January 11, 2008), 73 
FR 3295 (January 17, 2008) (SR-MSRB-2007-08) and MSRB Notice 2007-
10.
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Other Comments
    Three commenters expressed their view that the MSRB should not 
require the use of a proprietary, for-profit identifier such as 
CUSIP.\69\ These commenters believed that the rule should include the 
ability of an underwriter or municipal advisor to use any 
identification number widely accepted in the municipal securities 
market. BDA stated that by specifically referring to CUSIP numbers, the 
MSRB is stifling competition in the area. Bloomberg suggested that the 
MSRB add ``or other standard identifier'' to the CUSIP number 
references in the rule.
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    \69\ Bloomberg Letter II; BDA Letter II and CMF.
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    The MSRB understands commenters' concerns with respect to this 
issue, but, because this issue arises in numerous other contexts, 
believes it should be considered separately from this

[[Page 43595]]

initiative, which is focused on only one MSRB rule. The MSRB notes that 
it is currently monitoring or involved in various industry initiatives 
to modernize identifiers.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period of up to 90 days (i) as 
the Commission may designate 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.

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 Act. 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 email to [email protected]. Please include 
File Number SR-MSRB-2017-06 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-2017-06. 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-2017-06 and should be 
submitted on or before October 10, 2017.
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    \70\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.\70\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-19804 Filed 9-15-17; 8:45 am]
 BILLING CODE 8011-01-P