[Federal Register Volume 84, Number 189 (Monday, September 30, 2019)]
[Notices]
[Pages 51698-51705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21100]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87075; File No. SR-MSRB-2019-11]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Amend MSRB Rule A-11, on Assessments for Municipal Advisor 
Professionals, To Increase the Annual Professional Fee Over a Two-Year 
Phase-In Period

September 24, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on September 11, 2019 the Municipal Securities 
Rulemaking Board (``MSRB'') filed with the Securities and Exchange 
Commission (``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 A-11, on assessments for municipal advisor professionals, to 
increase the annual professional fee over a two-year phase-in period 
from $500 to $1,000 (the ``Revised Professional Fee'') for each person 
associated with the municipal advisor who is qualified as a municipal 
advisor representative in accordance with MSRB Rule G-3 and for whom 
the municipal advisor has a Form MA-I \3\ on file with the Commission 
(each a ``covered representative'') and to make other technical changes 
(the ``proposed rule change''). The phase-in period of the Revised 
Professional Fee will operate as follows: \4\
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    \3\ ``Form MA-I: Information Regarding Natural Persons Who 
Engage in Municipal Advisory Activities,'' is an SEC form that must 
be completed and filed by a municipal advisor firm with respect to 
each natural person associated with the firm and engaged in 
municipal advisory activities on the firm's behalf, including 
employees of the firm. Independent contractors are included in the 
definition of ``employee'' for these purposes. The same form is also 
used to amend a previously submitted Form MA-I. A natural person 
doing business as a sole proprietor must complete and file Form MA-I 
in addition to Form MA. See ``Instructions for the Form MA Series,'' 
available at https://www.sec.gov/about/forms/formmadata.pdf.
    \4\ Consistent with the Board's prohibition on charging or 
otherwise passing through MSRB fees to issuers, municipal advisors 
are prohibited from charging or otherwise passing through any fees 
required under Rule A-11 to their issuer clients. See Release No. 
34-81841 (October 10, 2017), 82 FR 48135, at note 9 and 
corresponding discussion (October 16, 2017) (File No. SR-MSRB-2017-
07) (Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change to MSRB Rule A-11, on Assessments for Municipal Advisor 
Professionals, To Amend the Annual Municipal Advisor Professional 
Fee).
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     MSRB fiscal year 2020 \5\ will be year one of the phase-in 
period, with municipal advisors being assessed $750 for each covered 
representative as of January 31, 2020. The payment of $750 per such 
covered representative will be due by April 30, 2020.
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    \5\ The MSRB's fiscal year 2020 commences on October 1, 2019 and 
concludes on September 30, 2020.
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     The Revised Professional fee will be fully phased-in 
during MSRB fiscal year 2021,\6\ with municipal advisors being assessed 
$1,000 for each covered representative as of January 31 of that fiscal 
year. The payment of $1,000 per such covered representative will be due 
by April 30 of that fiscal year.
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    \6\ The MSRB's fiscal year 2021 commences on October 1, 2020 and 
concludes on September 30, 2021.
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    The MSRB has designated the proposed rule change for immediate 
effectiveness.
    The text of the proposed rule change is available on the MSRB's 
website at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2019-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
    The purpose of the proposed rule change is to adjust the annual 
municipal advisor professional fee assessed on municipal advisor firms 
to better defray the costs and expenses of operating and administering 
the MSRB. In the Dodd-Frank Wall Street Reform and Consumer Protection 
Act of 2010 (the ``Dodd-Frank Act''),\7\ Congress charged the 
Commission and the MSRB with the regulation of municipal advisors and, 
at the same time, granted the MSRB authority to charge municipal 
advisors ``reasonable fees and charges'' to defray the overall ``costs 
and expenses of operating and administering the Board.'' \8\ Since the 
passage of the Dodd-Frank Act, the MSRB has exercised this statutory 
authority to implement a comprehensive regulatory framework for 
municipal advisors.\9\ In furtherance of this framework, the MSRB 
adopted

[[Page 51699]]

Rule A-11 to begin to defray a portion of the costs and expenses 
associated with its regulation of municipal advisors.
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    \7\ Public Law No. 111-203, 124 Stat. 1376 (2010).
    \8\ See 15 U.S.C. 78o-4(b)(2)(J).
    \9\ The MSRB developed professional qualification exams, adopted 
new rules for municipal advisors, and extended rules to municipal 
advisors that previously applied only to brokers, dealers and 
municipal securities dealers (collectively, ``dealers.'') These 
include, but are not limited to: Rule G-44 regarding the supervisory 
and compliance obligations of municipal advisors, see Release No. 
34-73415 (October 23, 2014), 79 FR 64423 (October 29, 2014) (File 
No. SR-MSRB-2014-06) (SEC order approving Rule G-44); Rule G-42 
regarding the duties of non-solicitor municipal advisors, see 
Release No. 34-76753 (December 23, 2015), 80 FR 81614 (December 30, 
2015) (File No. SR-MSRB-2015-03) (SEC order approving Rule G-42); 
amendments to Rule G-20, on gifts, gratuities and non-cash 
compensation, to extend provisions of the rule to municipal 
advisors, see Release No. 34-76381 (November 6, 2015), 80 FR 70271 
(November 13, 2015) (File No. SR-MSRB-2015-09) (SEC order approving 
amendments to Rule G-20); amendments to Rule G-37, on political 
contributions and prohibitions on municipal securities business, to 
extend its provisions to municipal advisors, see Release No. 34-
76763 (December 23, 2015), 80 FR 81710 (December 30, 2015) (File No. 
SR-MSRB-2015-14) (notice of filing of proposed amendments to Rule G-
37); and amendments to Rule G-3 to establish registration and 
professional qualification requirements for municipal advisors, see 
Release No. 34-74384 (February 26, 2015), 80 FR 11706 (March 4, 
2015) (File No. SR-MSRB-2014-08) (SEC order approving registration 
and professional qualification requirements for municipal advisor 
representatives and municipal advisor principals).
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    While the MSRB has expended significant resources in developing a 
regulatory framework for municipal advisory activities, the Board has 
previously deferred raising municipal advisor fees to more equitably 
defray the expenses associated with this activity in order to allow 
municipal advisors additional time to adapt to the regulations.\10\ As 
more fully discussed below,\11\ the MSRB's fee structure remains 
predominantly dependent on dealer fees, particularly market activity 
fees paid exclusively by dealers. Although the organization does offset 
some portion of its costs and expenses through its fees on municipal 
advisors, the Board believes that its present fee structure does not 
appropriately allocate the costs of operating the MSRB between dealers 
and municipal advisors (collectively, ``regulated entities''). The 
Board has determined that the Revised Professional Fee will result in a 
fairer and more equitable fee structure when compared to the current 
distribution of fees.
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    \10\ See MSRB Regulatory Notice 2017-20 (September 29, 2017) 
(describing how the MSRB reconsidered the amount of the municipal 
advisor professional fee, ``but determined not to increase it at 
that time in order to allow municipal advisors additional time to 
adapt to regulation'' and stating that the ``MSRB will continue to 
review and evaluate its fees over time to ensure that fees are 
allocated fairly and equitably across all regulated entities.'').
    \11\ See related discussion under The Board's Current Revenue 
Sources infra.
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    The purpose of the proposed rule change is to continue rebalancing 
this dealer-fee concentration by phasing-in an increase to the 
municipal advisor professional fee under Rule A-11 over the next two 
years. The Board believes that the Revised Professional Fee is 
necessary and appropriate to achieve (1) a more equitable allocation of 
fees among its regulated entities and (2) a fairer distribution of the 
total expenses of its regulatory activities, systems development, and 
other operational activities. Moreover, by incrementally increasing the 
fee contribution of municipal advisors, the proposed rule change will 
advance the Board's goal of developing a sustainable financial model 
that will enable the MSRB to year-over-year fulfill its statutory 
mandate and meet the unique responsibilities of being the self-
regulatory organization for the municipal securities market.
The Board's Statutory Mandate
    The MSRB's statutory mandate under the Exchange Act encompasses the 
protection of investors, state and local government issuers, other 
municipal entities and obligated persons, and the public interest by 
promoting a fair and efficient municipal market. The MSRB discharges 
its statutory mandate through (1) the establishment of rules for 
dealers and municipal advisors, (2) the collection and dissemination of 
market information, and (3) other related activities, such as 
regulatory coordination, compliance support, the development of 
professional qualifications programs, education, and outreach.\12\
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    \12\ See Section 15B(b)(2) of the Act (15 U.S.C. 78o-4(b)(2)) 
(in relevant part, requiring the Board to propose and adopt rules 
that ``at a minimum'' meet a baseline of statutory mandates, 
including the adoption of rules with respect to municipal advisors 
that ``prescribe means reasonably designed to prevent acts, 
practices, and courses of business as are not consistent with a 
municipal advisor's fiduciary duty to its clients''); Section 
15B(b)(3) of the Act (15 U.S.C. 78o-4(b)(3)) (permitting the Board 
to establish information systems); Section 15B(b)(4) of the Act (15 
U.S.C. 78o-4(b)(4)) (permitting the Board to provide guidance and 
assistance in the enforcement of, examination for, compliance with 
the rules of the Board); and MSRB Rule A-2 (``Subject to the 
provisions of the Act and the rules and regulations of the 
Commission thereunder, and other applicable law, the Board shall 
have the power to determine all matters relating to the operation 
and administration of the Board and to exercise all other rights and 
powers granted by the Act and other applicable law to the Board.'').
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The Board's Comprehensive Regulatory Framework for Municipal Advisors
    In accordance with its statutory mandate under the Exchange Act, 
the MSRB has established a comprehensive regulatory framework for the 
regulation of municipal advisors. This framework includes the 
development, implementation, and maintenance of (1) a set of rules 
governing the activities of municipal advisors,\13\ (2) municipal 
advisor recordkeeping requirements,\14\ (3) municipal advisory client 
education and protection provisions,\15\ and (4) professional standards 
meant to ensure that all municipal advisor professionals have a 
baseline knowledge of federal securities laws, rules, and 
regulations.\16\ As part of this latter category of activities, the 
MSRB has established the Municipal Advisor Representative Qualification 
Examination (the ``Series 50 Exam'') \17\ and is finalizing the 
Municipal Advisor Principal Qualification Examination (the ``Series 54 
Exam'').\18\
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    \13\ See Rule G-17, on conduct of municipal securities and 
municipal advisory activities; Rule G-20, on gifts gratuities, non-
cash compensation and expenses of issuance; Rule G-37, on political 
contributions and prohibitions on municipal securities business and 
municipal advisory business; Rule G-40, on advertising by municipal 
advisors; Rule G-42, on duties of non-solicitor municipal advisors; 
Rule G-44, on supervisory and compliance obligations of municipal 
advisors, each respectively, available at http://msrb.org/Rules-and-Interpretations/MSRB-Rules.aspx.
    \14\ See Rule G-8, on books and records to be made by brokers, 
dealers, and municipal securities dealers and municipal advisors, 
available at http://msrb.org/Rules-and-Interpretations/MSRB-Rules.aspx.
    \15\ See Rule G-10, on investor and municipal advisory client 
education and protection, available at http://msrb.org/Rules-and-Interpretations/MSRB-Rules.aspx.
    \16\ See Rule G-2, on standards of professional qualification; 
and Rule G-3, on professional qualification requirements, 
respectively, available at http://msrb.org/Rules-and-Interpretations/MSRB-Rules.aspx.
    \17\ See Release No. 34-74384 (February 26, 2015), 80 FR 11706 
(March 4, 2015) (File No. SR-MSRB-2014-08).
    \18\ See Release No. 34-84630 (November 20, 2018), 83 FR 60927 
(November 27, 2018) (File No. SR-MSRB-2018-07).
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    The MSRB has also undertaken considerable efforts to assist 
municipal advisors in understanding and complying with this regulatory 
framework. These efforts include the creation of compliance resources, 
compliance-oriented notices, and similar publications \19\ and the 
development of, and participation in, outreach events and educational 
webinars.\20\
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    \19\ For example, the MSRB supports regulatory compliance by 
municipal advisors by providing resources about MSRB requirements, 
as well as more general educational material. Municipal advisors may 
access these resources and others, including the Municipal Advisor 
Review, the MSRB's quarterly newsletter for municipal advisors at 
http://www.msrb.org/Regulated-Entities/Resources.aspx. In addition, 
the MSRB has published several regulatory notices for municipal 
advisors to help keep market participants informed of regulatory 
changes and to provide guidance on the application of existing 
rules. See, e.g., MSRB Notice 2017-08, Application of MSRB Rules to 
Solicitor Municipal Advisors (May 4, 2017); MSRB Notice 2017-13, 
MSRB Provides Guidance on Duties of Non-Solicitor Municipal Advisors 
in Conduit Financing Scenarios (July 13, 2017).
    \20\ For example, the MSRB provides free education and training 
webinars on municipal market topics, regulatory and compliance 
issues, and the use of MSRB market transparency systems. Municipal 
advisors may register for new webinars and access on-demand 
webinars, including some webinars that provide CPE credit at http://www.msrb.org/Regulated-Entities/Webinars.aspx.
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The Board's Ongoing Fee Review
    The Board has set a long-term strategic goal of developing a 
sustainable financial model that ensures the MSRB will continue to 
achieve its unique regulatory mission. The Board believes that its 
financial model must reasonably balance the costs of achieving its 
mission with appropriate expense management and the fair and equitable 
allocation of fees from a diversity of funding sources. The Board

[[Page 51700]]

routinely examines revenues and expenses in the normal course of its 
prudent fiscal management in continuous pursuit of fairness and equity 
in the revenue framework and to ensure expenses are appropriately 
calibrated. Recognizing that in any given year there could be more or 
less activity by a particular class of regulated entities, the Board, 
as it has historically, seeks to maintain a fee structure that results 
in a balanced and reasonable contribution, over time, from all 
regulated entities. Revenues are managed through new fees,\21\ fee 
increases, deficit budgets funded by excess reserves,\22\ revisions to 
pricing for propriety products, and other activities. The Board 
monitors its funding to determine whether the respective sources are 
contributing appropriately in light of the MSRB's statutory mandate and 
unique responsibilities in the municipal securities market.
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    \21\ As an example, the MSRB introduced a new fee on 
underwriters of 529 savings plans in 2018. Prior to this fee, 
underwriters of 529 savings plans had not paid a fee in this 
capacity since the MSRB began regulating such underwriters in 1999. 
See Release No. 34-81264 (July 31, 2017), 82 FR 36472 (August 4, 
2017) (File No. SR-MSRB-2017-05).
    \22\ As an example, the MSRB is generating a deficit budget for 
this fiscal year 2019 and utilizing a portion of its excess reserves 
by temporarily reducing the rate of assessment for the MSRB's 
underwriting, transaction, and technology fees for dealers under 
Rule A-13 with respect to assessible activity occurring from April 
1, 2019 through September 30, 2019. See Release No. 34-85400 (March 
22, 2019), 84 FR 11841 (March 28, 2019) (``Temporary Reduction 
Release'').
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    Based on its ongoing fee review, and, in light of the current 
concentration in revenue sources discussed immediately below, the MSRB 
believes that its current fee structure should be revised to strive for 
greater fairness in its allocation of expenses and costs among its 
regulated entities and, thereby, promote less concentration in certain 
of its revenue sources.
The Board's Current Fee Structure
    The MSRB assesses regulated entities various fees designed to 
defray the costs of its operations and administration. Section 
15B(b)(2)(J) of the Act \23\ provides, in pertinent part, that each 
regulated entity shall pay to the Board such reasonable fees and 
charges as may be necessary or appropriate to defray the costs of 
operating and administering the Board and that the MSRB shall have 
rules specifying the amount of such fees. The current fees are:
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    \23\ 15 U.S.C. 78o-4(b)(2)(J).

1. Municipal advisor professional fee (Rule A-11)
    $500 for each covered representative as of January 31 of each year, 
as further described herein;
2. Initial registration fee (Rule A-12)
    $1,000 one-time registration fee to be paid by each dealer to 
register with the MSRB before engaging in municipal securities 
activities and by each municipal advisor to register with the MSRB 
before engaging in municipal advisory activities;
3. Annual registration fee (Rule A-12)
    $1,000 annual fee to be paid by each dealer and municipal advisor 
registered with the MSRB;
4. Late fee (Rules A-11 and A-12)
    $25 monthly late fee and a late fee on overdue balances computed 
according to the prime rate until such balance is paid; \24\
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    \24\ Consistent with Rule A-11(b), a municipal advisor firm is 
only required to pay one $25 monthly late fee (regardless of the 
number of its covered representative(s) for which the per 
professional fee was not timely paid) if it fails timely to pay in 
full the total fee due under Rule A-11(a). This late fee is in 
addition to a late fee on the total overdue balance based on the 
Prime Rate.
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5. Underwriting fee (Rule A-13) \25\
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    \25\ The MSRB temporarily reduced the rate of assessment for the 
MSRB's underwriting fees for activity that occurs from April 1, 2019 
through and including September 30, 2019 to .00185% ($0.0185 per 
$1,000) of the applicable par value. See Rule A-13(h)(i). The 
temporary fee reduction is targeted at this fee, the transaction 
fee, and the technology fee in acknowledgment that these three fees 
``contributed to the excess reserve position'' as compared to the 
MSRB's other fees. See Temporary Reduction Release, supra note 23, 
84 FR at 11842 (March 28, 2019).
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    $.0275 per $1,000 of the par value paid by a dealer, on all 
municipal securities purchased from an issuer by or through such 
dealer, whether acting as principal or agent as part of a primary 
offering, except in limited circumstances; and in the case of an 
underwriter of a primary offering of certain municipal fund securities 
(as defined in Rule G-45), $.005 per $1,000 of the total aggregate 
assets for the reporting period (i.e., the 529 savings plan fee on 
underwriters); \26\
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    \26\ As of May 2018, the Board invoices underwriters of a 
primary offering of certain municipal fund securities for the 
assessments due. See Release No. 34-81264 (July 31, 2017), 82 FR 
36472 (August 4, 2017) (File No. SR-MSRB-2017-05) (Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change to Assess an 
Underwriting Fee on Dealers That Are Underwriters of Primary 
Offerings of Plans).
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6. Transaction fee (Rule A-13) \27\
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    \27\ The MSRB temporarily reduced the rate of assessment for the 
MSRB's transaction fees for activity that occurs from April 1, 2019 
through and including September 30, 2019 to .00067% ($0.0067 per 
$1,000) of the applicable par value. See Rule A-13(h)(ii). The 
temporary fee reduction is targeted at this fee, the underwriting 
fee, and the technology fee in acknowledgment that these three fees 
``contributed to the excess reserve position'' as compared to the 
MSRB's other fees. See Temporary Reduction Release, supra note 23, 
84 FR at 11842 (March 28, 2019).
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    .001% ($.01 per $1,000) of the total par value to be paid by a 
dealer, except in limited circumstances, for inter-dealer sales and 
customer sales reported to the MSRB pursuant to Rule G-14(b), on 
transaction reporting requirements;
7. Technology fee (Rule A-13) \28\
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    \28\ The MSRB temporarily reduced the rate of assessment for the 
MSRB's technology fees for activity that occurs from April 1, 2019 
through and including September 30, 2019 to $0.67 per transaction. 
See Rule A-13(h)(iii). The temporary fee reduction is targeted at 
this fee, the underwriting fee, and the transaction fee in 
acknowledgment that these three fees ``contributed to the excess 
reserve position'' as compared to the MSRB's other fees. See 
Temporary Reduction Release, supra note 23, 84 FR at 11842 (March 
28, 2019).
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    $1.00 paid by a dealer per transaction for each inter-dealer sale 
and for each sale to customers reported to the MSRB pursuant to Rule G-
14(b); and
8. Professional qualification examination fee (Rule A-16)
    $150 test development fee assessed per candidate for each MSRB 
professional qualification examination.

    As discussed in the following section, the MSRB's present fee 
structure leads to a concentration of fee revenue paid by dealer firms 
and, thereby, creates certain revenue dependencies.
The Board's Current Revenue Sources
    The MSRB funds its operations primarily by assessing fees on 
regulated entities, but also generates a small percentage of its 
revenue from other sources, like the sale of certain proprietary data 
subscription services.\29\ The vast majority of the MSRB's revenue is 
generated from dealer-paid market activity fees, namely transaction 
fees, underwriting fees, and technology fees. Although the 
organization's revenue sources have become marginally more diversified 
since the initial enactment of the Dodd-Frank Act--when market activity 
fees accounted for 90% or more of the Board's annual revenue in certain 
fiscal years--dealer fees still accounted for more than 80% of revenue 
in fiscal year 2018. Absent further action, this desired shift towards 
more equitable fee allocations may not continue under the existing 
revenue framework, so the Board is evaluating changes to its fee 
structure that will further alleviate the

[[Page 51701]]

MSRB's concentrated dependency on dealer-paid revenue sources.
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    \29\ The MSRB charges data subscription service fees for 
subscribers, who include dealers, municipal advisors, and entities 
not regulated by the MSRB, seeking direct electronic delivery of 
municipal trade data and disclosure documents associated with 
municipal bond issues.
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    More specifically, market activity fees consistently comprise the 
majority of MSRB-revenue. The Board has determined that it must 
evaluate its other revenue sources, particularly to determine whether 
non-dealer fee changes may be enacted to strike a more sustainable and 
fairer balance of funding. The proposed rule change partially addresses 
this issue by increasing the total fee contribution of municipal 
advisor firms and, thereby, growing the MSRB's revenue base away from 
the strong dependency on dealer-paid market activity fees and more 
fairly and equitably allocating the costs associated with the 
organization's regulation of municipal advisors.
    While the Board seeks to increase the aggregate fee contribution 
paid by municipal advisors as compared to dealers, it also seeks a fee 
increase that is equitable among all registered municipal advisor firms 
and does not place an undue fee burden on small firms. Of the 
approximately 500 municipal advisor firms registered with the MSRB in 
fiscal year 2018, a small minority of firms paid $10,000 or more in 
total annual municipal advisor professional fees, while the vast 
majority of firms paid no more than $2,500.\30\ By assessing the fees 
on a per professional basis, the Board believes the fee increase is 
allocated fairly across the universe of municipal advisor firms.
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    \30\ Based on internal data, the MSRB calculates that 24 firms, 
or about 5% of firms registered in fiscal year 2018, fell into this 
highest tier of annual municipal advisor professional fee payments, 
while 401 firms, or about 80% of then-registered firms, fell into 
this lowest tier of these fee payments.
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    In this regard, the Board considered a range of alternative fee 
modifications before deciding on the proposed rule change, including, 
among others, the collection of additional data to enable the 
assessment of fees based on a firm's overall market activity, as well 
as fees based on new issue par volume analogous to the dealer 
underwriting fee. However, the lack of uniformity in the services 
provided by municipal advisor firms \31\ and the potential burden of 
new reporting requirements, particularly on small firms, led the Board, 
at this time, to elect an increase in the existing municipal advisor 
professional fee under Rule A-11. The Board believes that the number of 
covered representatives serves as a reasonable proxy for overall market 
activity, especially in the absence of other market data, and, thus, 
the proposed rule change will lead to a fee structure that better 
reflects a firm's overall municipal advisory activities by increasing 
the total proportion of fees paid by larger firms with more covered 
representatives. The proposed rule change is expected to result in the 
increased total aggregate contribution of all municipal advisor firms 
and, particularly, the total fees paid by larger firms.
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    \31\ For example, the MSRB understands that some municipal 
advisor firms may focus solely on providing advice to clients about 
swap activities and, thus, a municipal advisor fee analogous to the 
dealer underwriting fee based on new issue par volume would not 
affect such a firm, regardless of whether the firm was very active 
or inactive in the market. Similarly, the MSRB understands that 
municipal advisors can have varying compensation structures, such as 
hourly rates, per-transaction fees, and/or project-based 
compensation. MSRB fees that did not adequately account for this 
variation could lead to inequitable payment outcomes or other market 
distortions.
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The Board's Annual Municipal Advisor Professional Fee
    The MSRB established Rule A-11 in 2014 to help defray the costs and 
expenses of operating and administering the MSRB, particularly the 
increased costs as a result of the regulation of municipal 
advisors.\32\ Rule A-11(a) currently provides that each municipal 
advisor that is registered with the Commission shall pay to the Board a 
recurring annual fee equal to $500 \33\ for each covered representative 
\34\ by April 30th of each year.\35\ The annual professional fee under 
Rule A-11(a) is due by April 30th each year in the manner provided by 
the MSRB Registration Manual. Rule A-11(b) also provides for late fees 
on annual professional fees that are not paid in full.
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    \32\ See Release No. 34-72019 (April 25, 2014), 79 FR 24798, 
24798 (May 1, 2014) (File No. SR-MSRB-2014-03) (Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change Consisting of New 
Rule A-11, on Assessments for Municipal Advisor Professionals); see 
also MSRB Notice 2014-09, MSRB to Implement New MSRB Rule A-11 
Establishing Fees for Municipal Advisor Professionals (April 17, 
2014).
    \33\ As first adopted in 2014, Rule A-11 required payment to the 
Board of an annual fee equal to $300 for each covered 
representative. Id. The MSRB amended Rule A-11 in 2017 to increase 
this fee from $300 to $500 for each covered representative and made 
other technical changes. See Release No. 34-81841 (October 10, 
2017), 82 FR 48135 (October 16, 2017) (File No. SR-MSRB-2017-07) 
(Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change Consisting to MSRB Rule A-11, on Assessments for Municipal 
Advisor Professionals, To Amend the Annual Municipal Advisor 
Professional Fee).
    \34\ As previously defined above, the term ``covered 
representative'' for purposes of this filing means each person 
associated with the municipal advisor who is qualified as a 
municipal advisor representative in accordance with Rule G-3 and for 
whom the municipal advisor has on file with the Commission a Form 
MA-I as of January 31 of each year.
    \35\ A person is qualified as a municipal advisor representative 
in accordance with Rule G-3(d) when such person has taken and passed 
the Series 50 Exam. As of September 12, 2017, only an associated 
person of a municipal advisor firm who has passed the Series 50 Exam 
may engage in municipal advisory activities on behalf of the 
municipal advisor firm. Additionally, municipal advisor principals 
must likewise qualify as a municipal advisor representative by 
passing the Series 50 Exam. See MSRB Notice 2017-09, MSRB Reminds 
Municipal Advisors that the Series 50 Exam Deadline is September 12, 
2017 (May 8, 2017). Because, pursuant to Rule G-3, all municipal 
advisor principals must also qualify by examination as a municipal 
advisor representative, the proposed fee increase will equally apply 
to municipal advisor principals.
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    The proposed rule change will provide that each municipal advisor 
that is registered with the Commission shall pay to the Board an annual 
fee equal to $750 for each covered representative for the MSRB's fiscal 
year 2020 and equal to $1,000 for each covered representative for the 
MSRB's fiscal year 2021 and thereafter.\36\ The Board estimates that 
the proposed rule change will generate approximately $760,000 in 
additional revenue for fiscal year 2020 and $1.5 million in additional 
revenue for fiscal year 2021, as compared to current estimates under 
the present fee structure. In percentage terms, the proposed rule 
change is expected to result in the municipal advisor professional fee 
accounting for approximately 5.7% of the MSRB's fiscal year 2020 
budgeted revenue and approximately 7.0% of MSRB's fiscal year 2021 
budgeted revenue, up from 3.9% and 3.6%, respectively, under 
projections absent the proposed rule change. Specific to the allocation 
of fees among municipal advisors, the MSRB estimates that the vast 
majority of municipal advisor firms will have an incremental increase 
above current fee rates of between $250 and $1,250 in fiscal year 2020 
and between $500 and $2,500 in fiscal year 2021. The forecasted median 
increase for municipal advisor firms will be $500 in fiscal year 2020 
and $1,000 in fiscal year 2021. Accordingly, the Board believes the 
proposed increases will not impose an undue fee burden on small firms.
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    \36\ While the MSRB has designated the proposed rule change for 
immediate effectiveness, by its terms, the assessment of the amended 
annual professional fees for each covered representative will be 
based on the number of covered representatives as of January 31 of 
each respective fiscal year. The MSRB intends to send the first 
invoice of the applicable fee level (measured as of January 31 for 
each year) to firms on or about the beginning of April each year for 
payment by April 30.
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Conclusion
    The Board believes that the proposed rule change is reasonable as 
well as necessary and appropriate to help defray the expenses and costs 
of

[[Page 51702]]

operating and administering the MSRB. It is an important step towards 
the Board's strategic goal of promoting the organization's long-term 
financial stability. The Board believes the proposed fee increases will 
help the organization provide for assessments that are more fairly and 
equitably apportioned among all MSRB regulated entities by further 
diversifying the MSRB's revenue base away from its strong dependency on 
dealer-paid market activity fees.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(J) of the Act,\37\ which states that the MSRB's rules 
shall:
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    \37\ 15 U.S.C. 78o-4(b)(2)(J).

. . . provide that each municipal securities broker, municipal 
securities dealer, and municipal advisor shall pay to the Board such 
reasonable fees and charges as may be necessary or appropriate to 
defray the costs and expenses of operating and administering the 
Board. Such rules shall specify the amount of such fees and charges, 
which may include charges for failure to submit to the Board, or to 
any information system operated by the Board, within the prescribed 
timeframes, any items of information or documents required to be 
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submitted under any rule issued by the Board.

    The MSRB believes that the proposed rule change is necessary and 
appropriate to fund the operation and administration of the Board and 
satisfies the requirements of Section 15B(b)(2)(J).\38\ The MSRB 
believes the proposed rule change is necessary and appropriate because 
it will help defray the costs of the Board's rulemaking, compliance 
support, professional qualifications programs, and other activities 
relating to municipal advisors.
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    \38\ Id.
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    As discussed above, the MSRB has engaged in significant rulemaking 
to put into place a regulatory framework for municipal advisors and has 
engaged in considerable activities to assist municipal advisors in 
understanding their obligations and complying with the applicable 
rules. Because the MSRB does not have authority to examine or enforce 
its rules, the MSRB coordinates closely with the regulatory authorities 
responsible for such examination and enforcement, including by making 
market statistics, analytical data, and other municipal securities 
information available in support of their examination and enforcement 
activities and providing training regarding the municipal market and 
MSRB rules. The MSRB expects to continue its many activities relating 
to the municipal securities market, including the regulation of 
municipal advisors, with a continued focus on providing resources that 
enhance the understanding of MSRB rules and improve compliance 
therewith.
    The proposed rule change will assist in defraying some of the costs 
and expenses associated with these activities and will help ensure the 
MSRB is funding these regulatory activities in a financially 
responsible way. However, even with the proposed rule change's fee 
increase, the Revised Professional Fee will only defray a small portion 
of the costs and expenses of operating and administering the MSRB--
generating an estimated 5.7% of fiscal year 2020 budgeted revenue and 
7.0% of fiscal year 2021 budgeted revenue.\39\ Thus, the Board believes 
the proposed rule change is necessary and appropriate because it is a 
measured, incremental approach that moves towards a more equitable 
balance of fees among regulated entities and a fairer allocation of the 
expenses of the regulatory activities, systems development, and 
operational activities undertaken by the organization, while not overly 
burdening municipal advisors with more accelerated fee increases at 
this time.
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    \39\ The Board does not believe that it is necessary to strictly 
allocate its fees among regulated entities based upon the proportion 
of the MSRB's activities devoted to that class of regulated entity 
(i.e., dealers versus municipal advisors). See, e.g., Release No. 
34-63621 (December 29, 2011), 76 FR 604, at 606-607 (January 5, 
2011) (File No. SR-MSRB-2010-10) (summarizing the MSRB's response to 
comments from dealers desiring the increase of municipal advisor 
fees to an amount that covers the ``entire cost of their own 
regulation''). Section 15B(b)(2)(J) (15 U.S.C. 78o-4(b)(2)(J)) 
grants the Board discretion to provide for the payment of ``such 
reasonable fees and charges as may be necessary or appropriate to 
defray the costs and expenses of operating and administering the 
Board'' (emphasis added). Regardless of the Board's statutory 
authority to collect payments from municipal advisors to fund its 
overall operation and administration, the Board has determined that 
the percentages stated above are far less than the proportion of the 
MSRB's activities that are related to municipal advisors and the 
historical costs associated with such activities.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Board has conducted an analysis on the proposed rule change to 
gauge its overall economic impact and assess its burden on 
competition.\40\ For the reasons discussed below, the Board has 
determined that the proposed rule change will not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Exchange Act, nor will it impose any unnecessary or 
inappropriate regulatory burden on small municipal advisors.
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    \40\ The scope of the Board's policy on the use of economic 
analysis generally excludes proposed rule changes that are qualified 
to be filed as immediately effective. See Policy on the Use of 
Economic Analysis in MSRB Rulemaking, at http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx. Despite this 
exclusion, the MSRB typically conducts such an analysis on those 
rule changes for which the MSRB seeks immediate effectiveness. Such 
analyses primarily focus on the burden of competition on regulated 
entities for those immediately effective rule changes. Consistent 
with its prior proposed rule changes, the Board conducted the 
analysis described herein.
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The Board's Determinations Regarding the Proposed Rule Change's Burden 
on Competition
    Section 15B(b)(2)(C) \41\ of the Exchange Act provides that MSRB 
rules shall ``not be designed . . . to impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of this 
title.'' The Board believes the proposed rule change is consistent with 
Section 15B(b)(2)(C),\42\ because the proposed rule change is necessary 
and appropriate to ensure that municipal advisors more equitably 
contribute to defraying the costs and expenses of operating and 
administering the MSRB. The Board also believes that the proposed rule 
change does not result in any burden on competition that is not 
necessary or appropriate, principally because the fee applies equally 
to all municipal advisors based on the number of covered 
representatives at each municipal advisor firm.
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    \41\ 15 U.S.C. 78o-4(b)(2)(C).
    \42\ Id.
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 The Board's Analysis of the Existing Fee Structure and the 
Necessity of the Revised Professional Fee
    The goal of the proposed rule change is to diversify the MSRB's 
revenue base away from its strong dependency on dealer-paid market 
activity fees and to more fairly align the aggregate amount of fees 
paid by a given class of regulated entities with the overall costs of 
the MSRB's regulatory activities associated with those entities and the 
overall costs of the organization. When the Board analyzed the 
aggregate amount of fees paid by dealers against the aggregate amount 
of fees paid by municipal advisors, the Board determined that the fees 
historically paid, and forecasted to be paid, by municipal advisors are 
out of proportion to the overall costs and expenses of operating and 
administering the Board. Similarly, when it analyzed its expenses, the 
Board determined that the amounts paid by municipal advisors under the 
current fee structure have not, and are not projected to, fully defray 
the costs and expenses associated with the MSRB's comprehensive 
regulatory framework for municipal advisors.
    The Board came to these determinations based in part on the fact

[[Page 51703]]

that the vast majority of the MSRB's revenue is generated from dealer 
firms, particularly market activity fees paid exclusively by dealers. 
Fiscal year 2018 revenue is generally representative of this fee 
concentration. Dealer market activity fees paid pursuant to Rule A-13 
amounted to about 80% of revenue in fiscal year 2018. Registration fees 
paid by dealers pursuant to Rule A-12 amounted to approximately 3.3% in 
additional revenue for that fiscal year. By comparison, the aggregate 
amount of registration fees paid by municipal advisors pursuant to Rule 
A-12 totaled about 1.2% of revenue and annual professional fees paid by 
municipal advisors pursuant to Rule A-11 totaled about 3.8%, 
respectively, in the same period. In sum, municipal advisors paid a 
total of approximately 5.0% of the MSRB's aggregate revenue in fiscal 
year 2018.
    The Board has determined that the proportion of revenue generated 
by fees from municipal advisors is significantly below the costs of 
MSRB activities related to municipal advisors.\43\ As a result, the 
proportion of the MSRB operations funded by contributions from dealers 
is above the costs of MSRB activities related to dealers, and some 
portion of dealer-paid fees are effectively subsidizing the MSRB's 
regulatory activities associated with municipal advisors. The Board 
believes the Revised Professional Fee is necessary and appropriate to 
ensure that municipal advisors more equitably contribute to defraying 
the costs and expenses of operating and administering the MSRB.
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    \43\ Despite the fee increase of the proposed rule change, the 
Board has determined that revenues generated by the Revised 
Professional Fee will continue to be below these costs going 
forward. Expenses associated with market regulation and professional 
qualifications amounted to more than $6,400,000 in fiscal year 2018. 
Limiting the attribution of expenses solely to these activities, and 
excluding any expenses attributable to other activities that 
municipal advisors benefit from or are impacted by--such as outreach 
and education; administration of the board of directors; executive, 
financial, and risk management; and market structure, transparency, 
and operations--the revenue generated from the annual municipal 
advisor professional fee offsets less than 25% of the MSRB's market 
regulation and professional qualification expenses. The Board, 
however, declines to more steeply increase fees on municipal 
advisors in this proposed rule change for the reasons stated in this 
section, including because of the Board's determination that an 
incremental increase of an existing municipal advisor fee is 
superior to possible alternatives at this time.
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 The Board's Determinations Regarding the Revenue Impacts of 
the Revised Professional Fee
    The proposed rule change will be implemented in two phases--first, 
from the current level of $500 to $750 in MSRB fiscal year 2020, and, 
then, to $1,000 in MSRB fiscal year 2021 and thereafter. With these 
incremental increases, the Revised Professional Fee will account for an 
estimated 5.7% of MSRB's total revenue in fiscal year 2020 and an 
estimated 7.0% of total revenue in fiscal year 2021. Nonetheless, the 
MSRB believes that even after the Revised Professional Fee has been 
implemented, the fee revenue paid by municipal advisors will not fully 
defray the costs and expenses of their comprehensive regulatory 
framework and the proportionate costs associated with operating the 
organization.\44\ The Board has determined that the Revised 
Professional Fee will result in a fairer and more equitable fee 
structure when compared to this current distribution of fees.
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    \44\ Id.
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    While further increases may be necessary and appropriate in the 
future, the Board has determined that an incremental, phase-in approach 
is superior to possible alternatives, particularly less incremental 
alternatives that would not allow municipal advisors the same amount of 
time to adjust to the increased amount of the Revised Professional Fee. 
Among other benefits, the incremental approach of the proposed rule 
change will give a municipal advisor firm a period to implement the 
Revised Professional Fee. This incremental approach will also have the 
ancillary benefit of providing the Board additional time to calibrate 
the costs of MSRB operations and evaluate possible fee alternatives. 
Accordingly, the Board believes the phase-in of the Revised 
Professional Fee over the following two years is appropriate to 
establish a transitional period for the increased fee.
 Other Precedents for SRO Fee Assessments Based on Firm Size
    Lastly, the MSRB notes that other self-regulatory organizations and 
independent oversight and rulemaking boards, such as the Financial 
Industry Regulatory Authority (``FINRA''), the Public Company 
Accounting Oversight Board (``PCAOB''), National Futures Association 
(``NFA'') and the Financial Accounting Standards Board (``FASB''), all 
have some annual fee assessment structure that is based on the size of 
firms under regulation. For example, FINRA's annual registration fee 
and new member application fee assessments for broker-dealers are based 
on the number of branch offices and the number of registered persons; 
the PCAOB's annual fee assessment is based on the number of issuer 
audit clients and the number of personnel within each public accounting 
firm; NFA's annual member dues for swap dealers and Forex dealers are 
based on the tier size of member firms; and FASB's accounting support 
fees are allocated based on the average market capitalization of each 
issuer. The Board believes the Revised Professional Fee is similar to 
these other SRO annual fees, where the number of covered 
representatives is a reasonable proxy for firm size, and so analogously 
consistent and appropriate under the Act.
The Board's Determinations Regarding Small Municipal Advisors
    Section 15B(b)(2)(L)(iv) of the Act \45\ provides that MSRB rules 
``not impose a regulatory burden on small municipal advisors that is 
not necessary or appropriate in the public interest and for the 
protection of investors, municipal entities, and obligated persons, 
provided that there is robust protection of investors against fraud.'' 
The Board believes that the Revised Professional Fee is consistent with 
this provision of the Act, because it will not impose an unnecessary or 
inappropriate regulatory burden on small municipal advisors.
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    \45\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
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    As is the case today, the total amount of the assessment payable by 
each municipal advisor will be dependent on the number of covered 
representatives employed by the firm and, therefore, will result in 
lower assessments for smaller firms with less covered 
representatives.\46\ In this way, each firm's annual professional fee 
will bear a reasonable relationship to the level of regulated municipal 
advisory activities that are undertaken by the firm, in that the MSRB 
believes that firms with more covered representatives generally will 
engage in more regulated municipal advisory activities. As illustrated 
in Table 1 below, a firm with 50 professionals currently pays about 17 
times as much in total fees as a firm with only a single professional. 
Under the Revised Professional Fee, however, the same firm with 50 
professionals will pay over 25 times as much in total fees as the firm 
with one professional.
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    \46\ The MSRB understands that the Form MA-I should be withdrawn 
for any person who fails to qualify as a municipal advisor 
representative in accordance with Rule G-3. See Registration of 
Municipal Advisors Frequently Asked Questions, at Question 16.1, 
available at https://www.sec.gov/info/municipal/mun-advisors-faqs.shtml.

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[[Page 51704]]

[GRAPHIC] [TIFF OMITTED] TN30SE19.000

The Board's Analysis of Alternatives to the Revised Professional Fee
    The Board considered a number of alternatives to the Revised 
Professional Fee. For example, the Board considered assessing a fee 
specifically tailored to the amount of regulated advisory activity each 
municipal advisory firm undertakes. The Board believed that such an 
approach would be more analogous to the market activity fees paid by a 
dealer, as the underwriting, transaction, and technology fees paid by a 
dealer firm under Rule A-13 roughly approximate the overall market 
activity of a dealer firm. However, the fees charged under Rule A-13 
are dependent on the data individual dealers firms report to the MSRB 
about their primary market offerings and secondary market trades. MSRB 
rules do not currently require a municipal advisor to report analogous 
information about its activities, and the MSRB does not otherwise 
collect such information. Although the Board could draft rules 
requiring the submission of this data, instituting such a requirement 
would add novel compliance and reporting burdens.\47\ Consequently, the 
Board determined that the Revised Professional Fee was superior at this 
time to these alternatives.
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    \47\ In contrast to the reporting requirements of dealer firms 
under MSRB Rule G-14 and MSRB Rule G-34 that provide important 
transparency to the market in addition to being a tool for tailoring 
dealer fee assessments, the Board believes that requiring municipal 
advisors to report data about their regulatory activities primarily 
for the purpose of the calculation of fees is a less desirable 
alternative at this time to the proposed rule change.
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The Board's Ongoing Analysis of the Revised Professional Fee
    Developing a fair and equitable, yet sustainable, financial model 
is, and will remain, an ongoing focus of the Board, as the organization 
continues to assess the costs of the MSRB's activities against the 
impacts and benefits its activities have on various stakeholders. The 
Board will continue to analyze the impact of the Revised Professional 
Fee, in the context of its overall fee structure, to inform future 
budgeting decisions and develop a more optimal allocation of revenues 
in the future. This analysis will necessarily focus on the fee burden 
of municipal advisors in particular, but also any broader impact the 
Revised Professional Fee may have on the municipal securities market.

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

    The Board did not solicit comment on the proposed rule change. 
Therefore, there are no comments on the proposed rule change received 
from members, participants or others.

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

    The foregoing proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \48\ and paragraph (f) of Rule 19b-4 
thereunder.\49\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \48\ 15 U.S.C. 78s(b)(3)(A).
    \49\ 17 CFR 240.19b-4(f).
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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-2019-11 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-2019-11. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MSRB-2019-11 and should be submitted on 
or before October 21, 2019.


[[Page 51705]]


    For the Commission, pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21100 Filed 9-27-19; 8:45 am]
BILLING CODE 8011-01-P