[Federal Register Volume 84, Number 199 (Tuesday, October 15, 2019)]
[Notices]
[Pages 55192-55194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22388]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87256; File No. SR-MSRB-2019-10]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change To 
Amend and Restate the MSRB's August 2, 2012 Interpretive Notice 
Concerning the Application of Rule G-17 to Underwriters of Municipal 
Securities

October 8, 2019.

I. Introduction

    On August 1, 2019, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule (the ``original proposed rule change'') 
to amend and restate the MSRB's August 2, 2012 interpretive notice 
concerning the application of MSRB Rule G-17 to underwriters of 
municipal securities (the ``2012 Interpretive Notice'').\3\ The 
original proposed rule change was published for comment in the Federal 
Register on August 9, 2019.\4\ The Commission received three comment 
letters on the original proposed rule change.\5\ On September 10, 2019, 
the MSRB granted an extension of time for the Commission to act on the 
filing until November 7, 2019. On October 7, 2019, the MSRB responded 
to the comments \6\ and filed Amendment No. 1 to the original proposed 
rule change (``Amendment No. 1''). The text of Amendment No. 1 is 
available on the MSRB's website. \7\ The Commission is publishing this 
notice to solicit comments on Amendment No. 1 from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The 2012 Interpretive Notice was approved by the SEC on May 
4, 2012 and became effective on August 2, 2012. See Release No. 34-
66927 (May 4, 2012); 77 FR 27509 (May 10, 2012) (File No. SR-MSRB-
2011-09); and MSRB Notice 2012-25 (May 7, 2012). The 2012 
Interpretive Notice is available here.
    \4\ Exchange Act Release No. 86572 (Aug. 5, 2019), 84 FR 39646 
(Aug. 9, 2019) (``Notice''). The comment period closed on August 30, 
2019.
    \5\ See Letter to Secretary, Commission, from Tamara K. Salmon, 
Associate General Counsel, Investment Company Institute dated Aug. 
30, 2019, Letter to Secretary, Commission, from Leslie M. Norwood, 
Managing Director and Associate General Counsel, Securities Industry 
and Financial Markets Association, dated August 30, 2019; Letter to 
Secretary, Commission, from Susan Gaffney, Executive Director, 
National Association of Municipal Advisors, dated August 30, 2017.
    \6\ See Letter from Gail Marshall, Chief Compliance Officer, 
MSRB, to Secretary, SEC, dated October 7, 2019, available at https://www.sec.gov/comments/sr-msrb-2019-10/srmsrb201910-6261133-193028.pdf.
    \7\ Amendment No. 1 is available at http://msrb.org/~/media/
Files/SEC-Filings/2019/MSRB-2019-10-A-1.ashx?.
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II. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Amendment

A. Delivery of Complex Municipal Securities Financing Disclosures

    In response to concerns raised in the comments, the MSRB is 
proposing in Amendment No. 1 to modify the original proposed rule 
change to state that the underwriter making a recommendation to an 
issuer regarding a financing structure or product, including, when 
applicable, a Complex Municipal Securities Financing Recommendation,\8\ 
has the fair dealing obligation to deliver the applicable transaction-
specific disclosures.\9\ Consequently, when the syndicate manager (or 
any other underwriter in the syndicate) is not the underwriter making 
the recommendation of a financing structure or product to the issuer, 
the MSRB proposes in Amendment No. 1 to provide that such underwriter 
does not have a fair dealing obligation under the proposed rule change, 
as amended by Amendment No.1, to deliver the transaction-specific 
disclosures.\10\ The MSRB states that Amendment No. 1, thus, proposes 
to revise the text of the original proposed rule change to clearly 
state and underscore that the transaction-specific disclosures ``must 
be provided to the issuer by the underwriter who has recommended a 
financing structure or product to the issuer.'' \11\ Similarly, 
Amendment No. 1 also proposes to add a footnote to the original 
proposed rule change stating: ``Each underwriter, whether a sole 
underwriter, syndicate manager, or other member of the underwriting 
syndicate, has a fair dealing obligation under this notice to deliver 
transaction-specific disclosures where such underwriter has made a 
recommendation to an issuer regarding a financing structure or 
product.'' \12\ Consistent with this modification, the MSRB in 
Amendment No. 1 proposes to make conforming revisions throughout the 
original proposed rule intended by the MSRB to emphasize and clearly 
articulate: (1) The circumstances when an underwriter has made a 
recommendation to an issuer regarding a financing structure and (2) 
that only an underwriter that has made such a recommendation to an 
issuer has the responsibility to deliver the applicable transaction-
specific disclosures.\13\ As an example of the type of revisions 
resulting from this modification, the MSRB in Amendment No. 1 proposes 
to change the original proposed rule change's references to the ``sole 
underwriter'' or ``syndicate manager'' under the section of the 
interpretive notice entitled ``Timing and Manner of Disclosures'' by 
replacing these references with revised references to an 
``underwriter,'' ``the underwriter who has made a recommendation,'' and 
similar conforming language to emphasize that the transaction-specific 
disclosures must be provided by an underwriter who makes, or has made, 
a recommendation to an issuer regarding a financing structure.\14\
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    \8\ As defined in Exhibit 5 to Amendment No. 1.
    \9\ See Amendment No. 1.
    \10\ Id.
    \11\ Id.
    \12\ Id.
    \13\ Id.
    \14\ Id.
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B. Application to Underwriters Serving as Placement Agents

    In response to concerns raised in the comments, the MSRB is 
proposing in Amendment No. 1 to modify the original proposed rule 
change to further supplement the text incorporated into the 2012 
Interpretive Notice by the original proposed rule change from the 
Implementation Guidance \15\ that describes the ability of dealers to 
modify certain standard disclosures when acting as an agent to place 
securities on behalf of an issuer.\16\ Pursuant to Amendment No. 1, the 
MSRB proposes to supplement the text in the original proposed rule 
change with the following, ``[a]s a threshold matter, the disclosures 
delivered by an underwriter to an issuer must not be inaccurate or 
misleading, and nothing in this notice should be construed as requiring 
an underwriter to make a disclosure to an issuer that is false.'' \17\ 
The MSRB believes this modification to be a clarifying change. By 
incorporating this additional language into the proposed rule change, 
the MSRB intends to further alleviate any potential

[[Page 55193]]

misperceptions that an underwriter's duty of fair dealing requires it 
to deliver particular disclosure language in situations where such 
language is not actually true.\18\
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    \15\ As defined in the Notice.
    \16\ See Amendment No. 1.
    \17\ Id.
    \18\ Id.
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C. Application to Underwriters of Municipal Fund Securities

    In response to concerns raised in the comments, the MSRB is 
proposing in Amendment No. 1 to delete text incorporated into the 
original proposed rule change from the Implementation Guidance that, as 
originally filed, defines the application of the original proposed rule 
change to the circumstances of a continuous offering of municipal fund 
securities.\19\ As revised by Amendment No. 1, the proposed rule change 
would state, ``[t]his notice does not apply to a dealer acting as a 
primary distributor in a continuous offering of municipal fund 
securities.'' \20\ Thus, the proposed rule change, as revised by 
Amendment No. 1, makes clear that the specific fair dealing duties 
outlined in the proposed rule change--which articulate the delivery of 
certain disclosures at particular times during the course of an 
underwriting transaction--would not be applicable to the situations of 
a dealer serving as a primary distributor in a continuous offering of 
municipal fund securities.\21\
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    \19\ Id.
    \20\ Id.
    \21\ Id.
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    The MSRB notes that Amendment No. 1 does not revise the portion of 
the text of the original proposed rule change indicating that the fair 
dealing obligations outlined in the interpretive notice may serve as 
one of many bases for dealers acting in a capacity not specifically 
addressed therein--such as a dealer serving as a primary distributor in 
a continuous offering of municipal fund securities--to determine how to 
establish appropriate policies and procedures for ensuring it meets its 
fair dealing obligations under Rule G-17.\22\ Accordingly, the MSRB 
notes, dealers acting as a primary distributor in a continuous offering 
of municipal fund securities could use the proposed rule change as a 
basis to determine how to establish appropriate policies and procedures 
for ensuring it meets its fair dealing obligations under Rule G-17, 
until such time as the MSRB issues more specific guidance.\23\
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    \22\ Id.
    \23\ Id.
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D. Conforming the Personnel to Whom Disclosures May Be Delivered

    The MSRB is proposing in Amendment No. 1 to revise the original 
proposed rule change to clarify the particular issuer personnel to whom 
a disclosure must be delivered and to articulate a uniform and 
consistent standard in each section of the revised interpretive 
notice.\24\ Under the section entitled ``Acknowledgement of 
Disclosure,'' the text of the original proposed rule change modified 
the language of the 2012 Interpretive Notice to state that, ``[w]hen 
delivering a disclosure, the underwriter must attempt to receive a 
written acknowledgement by the official of the issuer identified by the 
issuer as the as the primary contact for the issuer of receipt of the 
foregoing disclosures. In the absence of such identification, an 
underwriter may seek acknowledgement from an official of the issuer 
whom the underwriter reasonably believes has authority to the bind the 
issuer by contract with the underwriter.'' However, under the section 
entitled ``Timing and Manner of Disclosures,'' the original proposed 
rule change maintains the original text of the 2012 Interpretive Notice 
without revision to state that the standard disclosures, transaction-
specific disclosures, and dealer-specific disclosures, ``. . . must be 
made in writing to an official of the issuer that the underwriter 
reasonably believes has the authority to bind the issuer by contract 
with the underwriter and that, to the knowledge of the underwriter, is 
not a party to a disclosed conflict.'' The MSRB stated that it believes 
that the relevant provisions could be misinterpreted as inconsistent 
and potentially understood to result in different disclosure outcomes. 
Accordingly, the MSRB proposes in Amendment No. 1 to modify the 
proposed rule change to uniformly clarify the issuer personnel to whom 
a disclosure must be delivered, including by making revisions to the 
portion of the text under the sections entitled ``Timing and Manner of 
Disclosures,'' ``Acknowledgment of Disclosure,'' and ``Required 
Disclosures to Issuers.'' \25\ The MSRB believes this amendment to be 
of a technical nature, intended to avoid potential confusion regarding 
an underwriter's fair dealing obligations to deliver certain 
disclosures to an issuer.\26\
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    \24\ Id.
    \25\ Id.
    \26\ Id.
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E. Other Conforming Technical Amendments

    The MSRB is proposing in Amendment No. 1 to modify the original 
proposed rule change with technical revisions that the MSRB intends to 
improve internal consistency of the proposed rule change and otherwise 
improve its clarity.\27\ For example, the original proposed rule change 
stated in a footnote that:
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    \27\ Id.

    For the avoidance of doubt, in offerings where a syndicate is 
formed, the disclosure obligation for an underwriter to make its 
dealer-specific disclosures is triggered--if any such actual 
material conflicts of interest or potential material conflicts of 
interest must be so disclosed--when such underwriter becomes engaged 
as a member of the underwriting syndicate (except with regard to 
conflicts discovered or arising after such co-managing underwriter 
has been engaged). Consistent with the obligation of sole 
underwriters and syndicate managers, each underwriter in the 
syndicate must make any applicable dealer-specific disclosures 
discovered or arising after being engaged as an underwriter in the 
syndicate as soon as practicable after being discovered and with 
sufficient time for the issuer to fully evaluate such a conflict and 
its implications.\28\
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    \28\ See Exhibit 5 to the Notice.

    The MSRB proposes in Amendment No. 1 to delete the ``for avoidance 
of doubt'' phrase and to add a comma to the final sentence to improve 
the clarity of the footnote. The MSRB believes this revision and others 
similar to it to be of a technical nature.\29\ Similarly, the original 
proposed rule change defines the term ``issuers'' to mean ``states and 
their political subdivisions that are issuers of municipal 
securities,'' but then uses the phrase ``issuers of municipal 
securities'' in several instances. The MSRB believes the phrases to be 
redundant with the term ``issuers'' as defined in the original proposed 
rule change and so proposes to revise the relevant text to just state 
``issuers'' or ``issuer,'' as appropriate.\30\
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    \29\ See Amendment No. 1.
    \30\ Id.
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    Relatedly, the original proposed rule change revised the 2012 
Interpretive Notice to pluralize certain references to underwriters. 
The MSRB proposes in Amendment No. 1 to reverse these changes to 
promote clarity. The proposed rule change also incorporated various 
references from the Implementation Guidance related to an underwriter's 
recommendation of a ``structure or product,'' but did not make 
conforming references throughout the text. The MSRB proposes in 
Amendment No. 1 to avoid potential confusion in this regard by revising

[[Page 55194]]

relevant portions of the original proposed rule change to reference a 
``financing structure or product'' where a conforming reference is 
appropriate.\31\
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    \31\ Id.
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    As a final example, the original proposed rule change defines the 
terms ``complex municipal securities financing'' and ``Complex 
Municipal Financing Recommendation.'' In Amendment No. 1, the MSRB 
proposes to revise the proposed rule change to promote consistency of 
these concepts by redefining the latter term to ``Complex Municipal 
Securities Financing Recommendation'' and make conforming changes 
throughout the document.\32\
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    \32\ Id.
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III. Date of Effectiveness of the Proposed Rule Change and Amendment 
No. 1

    As stated in the original proposed rule change, following the 
approval of the proposed rule change, the MSRB will publish a 
regulatory notice within 90 days of the publication of approval in the 
Federal Register (the 2012 Interpretive Notice, so amended by the 
proposed rule change, is referred to herein as the ``Revised 
Interpretive Notice''), and such notice shall specify the compliance 
date for the amendments described in the proposed rule change, which in 
any case shall be not less than 90 days, nor more than one year, 
following the date of the notice establishing such compliance date.\33\
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    \33\ See Notice.
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    The MSRB is requesting accelerated approval of Amendment No. 1.\34\ 
The MSRB believes the Commission has good cause, pursuant to Section 
19(b)(2) of the Act, for granting accelerated approval of Amendment No. 
1.\35\ The MSRB believes that the Commission has good cause, pursuant 
to Section 19(b)(2) of the Securities Exchange Act of 1934, for 
granting accelerated approval of Amendment No. 1. Specifically, the 
MSRB believes that the modifications to the original proposed rule 
change are responsive to commenters. The MSRB states that Amendment No. 
1 proposes to revise the original proposed rule change to state that 
(1) the underwriter making a recommendation to the issuer regarding a 
financing structure, including, when applicable, a Complex Municipal 
Securities Financing Recommendation, has the fair dealing obligation to 
deliver the applicable transaction-specific disclosures and (2) the 
notice does not apply to a dealer acting as a primary distributor in a 
continuous offering of municipal fund securities. Beyond these 
modifications, the MSRB states that Amendment No. 1 otherwise proposes 
to revise the original proposed rule change with technical 
modifications intended to more precisely define the scope of its 
application and/or to promote clarity in its interpretation. The MSRB 
believes that these modifications are consistent with the original 
proposed rule change.\36\
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    \34\ See Amendment No. 1.
    \35\ Id.
    \36\ Id.
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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 filing as 
amended by Amendment No. 1 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-2019-10 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-2019-10. 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-2019-10 and should be submitted on 
or before October 29, 2019.
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    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.\37\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-22388 Filed 10-11-19; 8:45 am]
 BILLING CODE 8011-01-P