[Federal Register Volume 85, Number 155 (Tuesday, August 11, 2020)]
[Notices]
[Pages 48579-48587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17454]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89484; File No. SR-MSRB-2020-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change Consisting of 
Amendments to MSRB Rules A-3 and A-6 That Are Designed To Improve Board 
Governance

August 5, 2020.

I. Introduction

    On June 5, 2020, the Municipal Securities Rulemaking Board (the 
``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or ``Exchange 
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change 
consisting of amendments to MSRB Rules A-3 and A-6, regarding Board 
governance (the ``proposed rule change''). The proposed rule change was 
published for comment in the Federal Register on June 24, 2020.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 89092 (June 18, 2020) 
(the ``Notice of Filing''), 85 FR 37974 (June 24, 2020).
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    The Commission received five comment letters on the proposed rule 
change.\4\ On July 29, 2020, the MSRB responded to those comments.\5\ 
This order approves the proposed rule change.
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    \4\ See Letter to Secretary, Commission, from Steve Apfelbacher, 
Renee Boicourt, Marianne Edmonds, Robert Lamb and Noreen White, 
former MSRB Board members (collectively, ``Former MSRB Board 
Members''), dated July 15, 2020 (the ``Former MSRB Board Members 
Letter''); Letter to Secretary, Commission, from Emily Swenson 
Brock, Director, Federal Liaison Center, Government Finance Officers 
Association (``GFOA''), dated July 15, 2020 (the ``GFOA Letter''); 
Letter to Secretary, Commission, from Emily Brock, GFOA, John 
Godfrey, American Public Power Association, Charles Thompson, 
International Municipal Lawyers Association, Eryn Hurley, National 
Association of Counties, Chuck Samuels, National Assn. of Health and 
Educational Facilities Finance Authorities, Cornelia Chebinou, 
National Association of State Auditors, Comptrollers and Treasurers, 
Brian Egan, National Association of State Treasurers, Michael 
Gleeson, National League of Cities, and Emery Real Bird, Native 
American Finance Officers Association (collectively, the ``Issuer 
Organizations''), dated July 15, 2020 (the ``Issuer Organizations 
Letter''); Letter to Secretary, Commission, from Susan Gaffney, 
Executive Director, National Association of Municipal Advisors 
(``NAMA''), dated July 15, 2020 (the ``NAMA Letter''); and Letter to 
Secretary, Commission, from Mike Nicholas, Chief Executive Officer, 
Bond Dealers of America (``BDA''), dated July 15, 2020 (the ``BDA 
Letter'').
    \5\ See Letter to Secretary, Commission, from Jacob N. Lesser, 
Associate General Counsel, Municipal Securities Rulemaking Board 
(``MSRB''), dated July 29, 2020 (the ``MSRB Response Letter'').
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II. Description of Proposed Rule Change

    As described further below and in the Notice of Filing, the MSRB 
proposed amendments designed to improve Board governance that would: 
(i) Extend to five years the length of time that an individual must 
have been separated from employment or other association with any 
regulated entity to serve as a public representative to the Board; (ii) 
reduce the Board's size from 21 to 15 members through a transition plan 
that includes an interim year in which the Board will have 17 members; 
(iii) replace the requirement that at least one and not less than 30% 
of regulated members on the 21-member Board be municipal advisors with 
a requirement that the 15-member Board include at least two municipal 
advisors; (iv) impose a six-year limit on Board service; (v) remove 
overly prescriptive detail from the description of the Board's 
nominations process while preserving in the rule the key substantive 
requirements; (vi) require that any Board committee with 
responsibilities for nominations, governance, or audit be chaired by a 
public representative; and (vii) make certain other reorganizational 
and technical changes.\6\
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    \6\ See Notice of Filing, 85 FR at 37974.
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    The MSRB requested that the proposed rule change become effective 
on October 1, 2020.\7\
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    \7\ Id.
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Background

    The Exchange Act establishes basic requirements for the Board's 
size and composition and requires the Board to adopt rules that 
establish ``fair procedures for the nomination and election of members 
of the Board and assure fair representation in such nominations and 
elections.'' \8\ As amended by the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (the ``Dodd-Frank Act''), the Exchange 
Act categorizes Board members in two broad groups: Individuals who must 
be independent of any dealer \9\ or municipal advisor (``public 
representatives'') and individuals who must be associated with a dealer 
or municipal advisor (``regulated representatives'').\10\ The Exchange 
Act requires the Board to establish by rule requirements regarding the 
independence of public representatives and provides that all Board 
members--whether public or regulated representatives--must be 
``knowledgeable of matters related to the municipal securities 
markets.'' \11\
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    \8\ 15 U.S.C. 78o-4(b)(2)(B).
    \9\ As used herein, the term ``dealer'' refers to a broker, 
dealer, or municipal securities dealer.
    \10\ 15 U.S.C. 78o-4(b)(1).
    \11\ 15 U.S.C. 78o-4(b)(1); 15 U.S.C. 78o-4(b)(2)(B)(iv).
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    Within the public representative category, at least one Board 
member must be representative of institutional or retail investors in 
municipal securities, at least one must be representative of municipal 
entities, and at least one must be a member of the public with 
knowledge of or experience in the municipal industry.\12\ Within the 
regulated representative category, at least one Board member must be 
associated with a dealer that is a bank, at least one must be 
associated with a dealer that is not a bank, and at least one must be 
associated with a municipal advisor.\13\
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    \12\ 15 U.S.C. 78o-4(b)(1).
    \13\ Id.
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    The MSRB states that the Exchange Act, as amended by the Dodd-Frank 
Act, recognizes the benefits that a Board composed of both public and 
regulated representatives brings to regulation of the municipal 
securities market in the public interest and the protection of 
investors, municipal entities, and obligated persons.\14\ The MSRB 
further states that, although regulated representatives may bring 
specialized expertise to the regulation of a market with features and 
functions that are markedly different from those of other financial 
markets, public representatives

[[Page 48580]]

may bring a broader perspective of the public interest and the 
protection of investors, municipal entities, and obligated persons.\15\ 
The MSRB observes that, striking the balance between the two 
perspectives--public and regulated--in the Dodd-Frank Act, Congress 
specified that the Board at all times must be majority public but that 
it also must be as evenly divided between public and regulated 
representatives as possible.\16\
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    \14\ See Notice of Filing, 85 FR at 37975.
    \15\ Id.
    \16\ See Notice of Filing, 85 FR at 37975; 15 U.S.C. 78o-
4(b)(2)(B)(i).
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    The MSRB states that, since the enactment of the Dodd-Frank Act, 
the Board has elected public representatives with a range of 
backgrounds and experience.\17\ The MSRB observes that, in addition to 
the statutorily specified municipal entity and investor 
representatives, they have included individuals with prior municipal 
securities regulated industry experience, academics and individuals 
with rating agency experience.\18\ The MSRB further observes that, in 
most years, municipal entity representation on the Board has exceeded 
the statutory minimum.\19\ The MSRB states that it has also required, 
either by rule or by policy, that committees responsible for 
nominations, governance and audit be chaired by a public 
representative.\20\
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    \17\ See Notice of Filing, 85 FR at 37975.
    \18\ Id.
    \19\ Id.
    \20\ Id.
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    The Exchange Act sets the number of Board members at 15 but 
provides that the rules of the Board ``may increase the number of 
members which shall constitute the whole Board, provided that such 
number is an odd number.'' \21\ The MSRB notes that, in response to the 
enactment of the Dodd-Frank Act, which established a new registration 
requirement and regulatory framework for municipal advisors, the Board 
increased the size of the Board to 21 members (11 public and 10 
regulated) in October 2010.\22\ The MSRB further notes that, at the 
same time, the Board also provided for municipal advisor membership on 
the Board that was greater than the statutory minimum, requiring that 
at least 30% of the regulated representatives be associated with 
municipal advisors.\23\ The MSRB states that these changes were 
designed to ensure the Board could achieve appropriately balanced 
representation and would have sufficient knowledge and expertise to 
implement the new municipal advisor regulatory framework without 
detracting from its ability to continue fulfilling its existing 
rulemaking responsibilities with respect to dealer activity.\24\ The 
MSRB further states that, although its expanded duties with regard to 
the protection of municipal entities and obligated persons and the 
regulation of municipal advisors are ongoing, the Board has completed 
the rulemaking activity associated with implementation of the Dodd-
Frank Act, including establishment of the core municipal advisor 
regulatory regime.\25\
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    \21\ 15 U.S.C. 78o-4(b)(1); 15 U.S.C. 78o-4(b)(2)(B)(iii).
    \22\ See Notice of Filing, 85 FR at 37975.
    \23\ Id. MSRB Rule A-3 provides that these municipal advisors 
may not be associated with dealers.
    \24\ See Notice of Filing, 85 FR at 37975; Exchange Act Release 
No. 65158 (Aug. 18, 2011), 76 FR 61407, 61408 (Oct. 4, 2011); 
Exchange Act Release No. 63025 (Sept. 30, 2010), 75 FR 61806, 61809 
(Oct. 6, 2010).
    \25\ See Notice of Filing, 85 FR at 37975.
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    In September 2019, the Board announced the formation of a special 
committee to examine all aspects of the Board's governance.\26\ In 
January 2020, the Board published a Request for Comment on potential 
changes to MSRB Rule A-3 (the ``RFC'') to solicit comment on changes to 
MSRB Rule A-3,\27\ and the MSRB states that the proposed rule change 
reflects the Board's consideration of the comments it received.\28\
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    \26\ MSRB, ``MSRB to Begin FY 2020 With a Focus on Governance'' 
(Sept. 23, 2019), available at http://www.msrb.org/News-and-Events/Press-Releases/2019/MSRB-to-Begin-FY-2020-with-Focus-on-Governance.aspx.
    \27\ MSRB Notice 2020-02 (Jan. 28, 2020), available at http://
www.msrb.org/~/media/Files/Regulatory-Notices/RFCs/2020-
02.ashx??n=1. Comments on the RFC are available on the Board's 
website at http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2020/2020-02.aspx?c=1. The MSRB states that, after it issued 
the RFC, the special committee focused on, among other things, 
reorganizational and technical changes to the Board's administrative 
rules that would improve interested persons' ability to locate and 
understand MSRB requirements. These reorganizational and technical 
amendments, which were not included in the RFC, are included in the 
proposed rule change, as described herein.
    \28\ See Notice of Filing, 85 FR at 37975. The comments received 
by the MSRB on the RFC, along with the Board's responses to those 
comments, are described in the Notice of Filing, 85 FR at 37981-5.
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Independence Standard

    The Exchange Act requires the Board to establish by rule 
``requirements regarding the independence of public representatives.'' 
\29\ MSRB Rule A-3 currently defines the term ``independent of any 
municipal securities broker, municipal securities dealer, or municipal 
advisor'' to mean that an individual has ``no material business 
relationship with'' such an entity. MSRB Rule A-3 further provides that 
the term ``no material business relationship'' is defined to mean, at a 
minimum, that: (i) The individual is not, and within the last two years 
was not, associated with a dealer or municipal advisor; and (ii) the 
individual does not have a relationship with any dealer or municipal 
advisor, compensatory or otherwise, that reasonably could affect the 
individual's independent judgment or decision making.
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    \29\ 15 U.S.C. 78o-4(b)(2)(B)(iv).
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    The proposed rule change includes an amendment to MSRB Rule A-3 
that would increase the two-year separation period in the definition of 
``no material business relationship'' to five years.\30\ The MSRB 
states that this amendment is intended to enhance the independence of 
public representatives who have prior regulated entity associations and 
better avoid any appearance of a conflict of interest on the part of a 
public representative.\31\
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    \30\ See Notice of Filing, 85 FR at 37975.
    \31\ See Notice of Filing, 85 FR at 37976.
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    The MSRB states that it continues to believe that the Board's 
public representatives have acted with the independence required by the 
Exchange Act, MSRB rules and their duties as public representatives, 
notwithstanding any prior affiliation with a regulated entity.\32\ At 
the same time, the MSRB states that it believes that a five-year 
separation period would further enhance not only independence in fact 
but also the appearance of independence, which should, in turn, provide 
additional assurance that the Board's decisions are made in furtherance 
of its mission to protect investors, municipal entities, obligated 
persons and the public interest, and to promote a fair and efficient 
municipal securities market.\33\
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    \32\ Id.
    \33\ Id. See also MSRB Mission Statement, available at http://www.msrb.org/About-MSRB/About-the-MSRB/Mission-Statement.aspx.
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Board Size

    The Exchange Act establishes a 15-member Board but permits the MSRB 
to increase the size, provided that:
     The number of Board members is an odd number;
     A majority of the Board is composed of public 
representatives; and
     The Board is as closely divided in number as possible 
between public and regulated representatives.\34\
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    \34\ 15 U.S.C. 78o-4(b)(1); 15 U.S.C. 78o-4(b)(2)(B).
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    MSRB Rule A-3 currently sets the size of the Board at 21 members.
    The proposed rule change includes an amendment to MSRB Rule A-3 
that would return the Board's size to 15 members, the original number

[[Page 48581]]

established by the Exchange Act.\35\ The MSRB states that, although the 
21-member Board size was particularly valuable during the period of 
heightened rulemaking activity required to implement the Dodd-Frank 
Act, particularly the complex rulemaking necessary to establish the 
core regulatory framework for municipal advisors as a new type of 
regulated entity, that rulemaking activity is now complete.\36\ Thus, 
the MSRB states that it believes that it can now return to the 
statutorily prescribed Board size of 15, and the attendant efficiency 
and lower cost of such a smaller Board, without decreasing its ability 
to discharge its expanded responsibilities under the Exchange Act, as 
amended by the Dodd-Frank Act.\37\
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    \35\ See Notice of Filing, 85 FR at 37976. As required by 
Section 15B(b)(1) of the Exchange Act, the 15-member Board would be 
composed of eight public representatives and seven regulated 
representatives.
    \36\ See Notice of Filing, 85 FR at 37976.
    \37\ Id.
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    The MSRB states that it believes that the 15-member Board size 
established by Congress will continue to allow for a broad range of 
viewpoints as the Board fulfills its statutory mission.\38\ The MSRB 
observes that, each year, through its annual nominations and elections 
process, the Board seeks to constitute a Board that not only meets the 
requirements of the Exchange Act and MSRB rules but that also provides 
the Board with a broad and diverse range of perspectives.\39\ Although 
there will be fewer Board members, the MSRB states that it believes 
that the 15-member size contemplated by the Exchange Act allows the 
Board to continue to assemble a Board that reflects the wide range of 
backgrounds and experiences within each of the statutorily required 
Board member categories.\40\
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    \38\ Id.
    \39\ Id. See also Notice of Filing, 85 FR at 37983.
    \40\ See Notice of Filing, 85 FR at 37976.
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Board Composition

    The MSRB states that, when it established the 21-member Board, the 
MSRB required that municipal advisor representation be greater than the 
statutory minimum.\41\ Specifically, the Board provided in MSRB Rule A-
3:
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    \41\ Id.

at least one, and not less than 30 percent of the total number of 
regulated representatives, shall be associated with and 
representative of municipal advisors and shall not be associated 
with a broker, dealer, or municipal securities dealer.\42\
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    \42\ MSRB Rule A-3(a)(ii)(3).

    Along with the increased Board size, the MSRB states that the 
change was intended to ensure that the Board could achieve 
appropriately balanced representation and would have sufficient 
knowledge and expertise to implement the new municipal advisor 
regulatory framework without detracting from its ability to continue 
fulfilling its existing rulemaking responsibilities with respect to 
dealer activity.\43\
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    \43\ See Notice of Filing, 85 FR at 37976.
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    In connection with reducing the Board's size to 15 members, the 
proposed rule change amends MSRB Rule A-3 to provide that at least two 
of the regulated representatives shall be associated with and 
representative of municipal advisors and shall not be associated with a 
broker, dealer or municipal securities dealer.\44\ The MSRB states that 
it believes that it remains appropriate, in light of the broad range of 
municipal advisors subject to MSRB regulation, to require municipal 
advisor representation greater than the statutory minimum of one.\45\ 
The MSRB states that this amendment would preserve as closely as 
possible the current percentage of municipal advisors on the Board as 
the Board moves from a 21-member Board to a 15-member Board.\46\ 
Specifically, the proposed amendment to MSRB Rule A-3 would require 
that at least two (28.6%) of the regulated representatives on a 15-
member Board be municipal advisor representatives, which the MSRB 
states is very close to the 30% representation currently required.\47\ 
The MSRB observes that retaining the 30% requirement with the 15-member 
Board would require that three of the seven (or 42.9%) regulated 
members be municipal advisors; although there may be times the Board 
chooses to have a municipal advisor contingent of that size (just as 
the Board routinely has representations greater than the minimum for 
the other statutorily specified categories), the Board states that it 
does not believe imposing a minimum larger than two is in the public 
interest.\48\
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    \44\ Id.
    \45\ Id.
    \46\ Id.
    \47\ Id.
    \48\ Id.
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Member Qualifications

    The MSRB notes that MSRB Rule A-3 tracks the Exchange Act 
requirement that all Board members must be knowledgeable of matters 
related to the municipal securities markets.\49\ The MSRB states that, 
in its processes for the nomination and election of new members, the 
Board has consistently sought candidates who meet that standard, but 
who also have demonstrated personal and professional integrity.\50\ The 
MSRB further states that, in order to further convey to the public the 
seriousness with which the Board conducts its elections and bolster 
public confidence in its process, the proposed rule change includes an 
amendment to MSRB Rule A-3 that would add an express requirement that 
Board members be individuals of integrity.\51\ The MSRB notes that it 
will continue to determine whether a candidate possesses the requisite 
personal and professional integrity through its rigorous nominations 
and elections processes, which include, among other things, candidate 
interviews, extensive screening, and background checks.\52\
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    \49\ Id.
    \50\ Id.
    \51\ Id.
    \52\ Id.
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Transition Plan to Reduced Board Size

    The MSRB states that the proposed change to a 15-member Board 
requires a transition plan, and the Board has designed a plan to effect 
the necessary changes expeditiously, while minimizing any risk of 
disruption to MSRB governance, programs and operations.\53\
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    \53\ See Notice of Filing, 85 FR at 37976-7.
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    The proposed rule change includes a transition plan that would 
reduce the Board size to 17 members for fiscal year 2021, which begins 
on October 1, 2020.\54\ The MSRB observes that the plan included in the 
proposed rule change transitions the Board's class structure from three 
classes of five members and one class of six members to three classes 
of four members and one class of three members.\55\ The MSRB states 
that each of the new Board classes would have the same number of public 
and regulated representatives except for

[[Page 48582]]

the class of three, which would have two public representatives.\56\
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    \54\ See Notice of Filing, 85 FR at 37977. The Board sought 
comment in the RFC on a transition plan that would reduce the 
Board's size to 15 members in the next fiscal year because the 15 
Board members returning after the six Board members serving in their 
fourth year complete their terms on September 30, 2020 would meet 
the Board composition requirements for a Board of that size. In the 
Notice of Filing, the MSRB states that, although it generally seeks 
to assemble a Board that includes more than one issuer 
representative, under the transition plan described in the RFC, the 
Board would have had just a single issuer representative in fiscal 
year 2021. The Board states that it was persuaded by commenters on 
the RFC that having more than one issuer representative is of 
particular importance next fiscal year in light of the ongoing 
COVID-19 pandemic and its effects on municipal entities. The MSRB 
notes that reducing the Board size to 17 members in the first year 
of the transition will enable the Board to include a second issuer 
member for fiscal year 2021. Id.
    \55\ See Notice of Filing, 85 FR at 37977.
    \56\ Id.
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    Pursuant to the transition plan included in the proposed rule 
change, all new Board members elected during the transition, and 
thereafter, would be appointed to four-year terms. The Board would 
resume electing new members for a four-member class with terms 
commencing in fiscal year 2022, which begins on October 1, 2021. No new 
Board members would be elected for terms beginning on October 1, 2020. 
The transition would be completed in fiscal year 2024, which ends on 
September 30, 2024.\57\
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    \57\ Id.
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    The MSRB states that, to effect the transition, the Board would 
grant one-year term extensions to five public representatives and three 
regulated representatives, as follows:
     One public representative and one regulated representative 
whose terms would otherwise end on September 30, 2020;
     One public representative whose term would otherwise end 
on September 30, 2021;
     One public representative and one regulated representative 
whose terms would otherwise end on September 30, 2022; and
     Two public representatives and one regulated 
representative whose terms would otherwise end on September 30, 
2023.\58\
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    \58\ Id.
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    The MSRB states that, each year, members would be considered for 
the one-year extensions as part of the Board's annual nominations 
process, once that process resumes during fiscal year 2021, so that 
overall Board composition, resulting from existing member extensions 
and new member elections, can be considered holistically.\59\
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    \59\ Id.
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Terms

    The Exchange Act provides that Board members ``shall serve as 
members for a term of 3 years or for such other terms as specified by 
the rules of the Board.'' \60\ MSRB Rule A-3 currently provides for 
four-year terms and prohibits a Board member from serving more than two 
consecutive terms. The proposed rule change includes an amendment to 
MSRB Rule A-3 that would impose a six-year lifetime limit on Board 
service.\61\ The MSRB observes that the six-year maximum service 
provision would effectively limit a Board member to one complete four-
year term.\62\ The MSRB states that allowing for up to an additional 
two years would permit the Board to fill a vacancy that arises in the 
middle of a Board member's term expeditiously, as it has in the past, 
by re-appointing a sitting member, or electing a former Board member, 
to serve for the remainder of the term of the Board member whose 
departure created the vacancy rather than leaving the vacancy unfilled 
until a more exhaustive, but time-consuming, search for a new Board 
member can be completed.\63\
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    \60\ Exchange Act Section 15B(b)(1), 15 U.S.C 78o-4(b)(1).
    \61\ See Notice of Filing, 85 FR at 37977.
    \62\ Id.
    \63\ Id.
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    Based on its experience, the MSRB states that it believes that 
regularly refreshing the Board with new members benefits the Board and, 
in turn, the municipal market, by bringing new and diverse perspectives 
to the policymaking process.\64\ The MSRB states that the six-year 
lifetime limit is intended to enhance these benefits by increasing the 
rate at which new members will join the Board.\65\
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    \64\ Id.
    \65\ Id.
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    The proposed rule change also includes an amendment to MSRB Rule A-
3 that would permit a Board member filling a vacancy to serve for any 
part of an unexpired term, rather than requiring such a Board member to 
serve for the entire unexpired portion.\66\ The MSRB states that this 
change is necessary to implement the six-year lifetime limit described 
above because a Board member may leave the Board with more than two 
years remaining in his or her term.\67\ The MSRB states that, in many 
such cases, requiring the replacement Board member to serve the 
remainder of the term would disqualify current and former Board members 
due to the six-year limit.\68\
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    \66\ Id.
    \67\ Id.
    \68\ Id.
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    Finally, MSRB Rule A-3(d) currently provides that ``[v]acancies on 
the Board shall be filled by vote of the members of the Board,'' and 
states in the final sentence that the term ``vacancies on the Board'' 
includes a vacancy resulting from the resignation of a Board member 
prior to the commencement of his or her term.\69\ The proposed rule 
change deletes this final sentence to clarify that the term includes 
all vacancies that arise prior to conclusion of a term for any 
reason.\70\
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    \69\ MSRB Rule A-3(d).
    \70\ See Notice of Filing, 85 FR at 37977. As discussed below, 
the proposed rule change also includes amendments to MSRB Rule A-3 
to reorganize the rule. As reorganized, the provision on vacancies 
would be a subsection of section (b), which governs Board 
nominations and elections.
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Amendments to Board Nominations and Elections Provisions

    The MSRB notes that MSRB Rule A-3 includes a detailed description 
of the composition, responsibilities and processes of the Board's 
Nominating and Governance Committee.\71\ The MSRB states that the 
proposed rule change includes amendments to MSRB Rule A-3 that would 
preserve the key features of this important Board committee while 
removing what the MSRB describes as overly prescriptive detail that 
could be provided instead, and the Board believes more appropriately, 
in governing documents such as committee charters and Board 
policies.\72\ The MSRB further states that it believes these amendments 
will enhance the Board's flexibility to respond efficiently to changes 
in circumstances.\73\
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    \71\ See Notice of Filing, 85 FR at 37977.
    \72\ Id.
    \73\ Id.
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    Specifically, the proposed rule change would remove references in 
MSRB Rule A-3 to the ``Nominating and Governance Committee'' and 
replace them with references to a committee charged with the nominating 
process. The proposed rule change retains the substantive requirements 
that the committee responsible for the nominating process be: (1) 
Composed of a majority of public representatives, (2) chaired by a 
public representative, and (3) representative of the Board's 
membership, but removes the more detailed requirements.\74\ The 
proposed rule change would also move these requirements, as amended by 
the proposed rule change, to MSRB Rule A-6, Committees of the 
Board.\75\ The MSRB states that it believes that moving these 
requirements relating to committee composition to a more logical 
location will improve transparency by making Board requirements easier 
to find.\76\
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    \74\ Id.
    \75\ See Notice of Filing, 85 FR at 37977-8.
    \76\ Id. at 37978.
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    The proposed rule change also includes an amendment to MSRB Rule A-
3 that updates the requirement for the Board to publish a notice 
seeking applicants for Board membership, which the MSRB states that it 
believes has become antiquated.\77\ Specifically, the amendment would 
replace the requirement to publish the notice ``in a financial journal 
having national circulation among members of the municipal securities 
industry and in a

[[Page 48583]]

separate financial journal having general national circulation'' with 
the more general requirement to publish the notice ``by means 
reasonably designed to provide broad dissemination to the public.'' 
\78\ The MSRB states that this broader and more flexible requirement 
recognizes that in addition to publishing the notice in financial 
journals as specified in MSRB Rule A-3, the Board currently uses a 
variety of methods to reach a broad range of potential candidates, 
including press releases, the MSRB website, and the Board's social 
media channels.\79\ The MSRB states that the amendment to MSRB Rule A-3 
would permit the Board to continue to use these methods, as well as to 
determine other ways to reach a wide range of potential applicants in 
light of available technology and media.\80\
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    \77\ Id.
    \78\ Id.
    \79\ Id.
    \80\ Id.
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Public Representative Committee Chairs

    The MSRB states that it believes it should retain administrative 
flexibility to design and from time to time change its committee 
structure.\81\ The MSRB further states that the proposed rule change 
would enable the Board to establish its committee structure through 
governance mechanisms such as charters and policies.\82\ The MSRB 
observes that it could, for example, continue to have a committee 
responsible for both nominations and governance, or it could establish 
a separate committee on governance, freeing the nominating committee to 
focus on identifying, recruiting and vetting new members.\83\
---------------------------------------------------------------------------

    \81\ Id.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

    The MSRB believes that, irrespective of the committee structure the 
Board from time to time may establish, responsibility for both 
nominations and governance should continue to be in a committee or 
committees chaired by a public representative, as currently required by 
MSRB Rule A-3.\84\ Current Board policy requires that the audit 
committee also be chaired by a public representative. In light of the 
importance of public representative leadership of the audit committee 
to the Board's corporate governance system, the MSRB states that it 
believes this requirement should be included in the Board's rules, 
rather than only in a Board policy.\85\ Accordingly, the proposed rule 
change codifies these existing rule and policy requirements in a single 
location in MSRB Rule A-6, Committees of the Board.\86\
---------------------------------------------------------------------------

    \84\ Id.
    \85\ Id.
    \86\ Id.
---------------------------------------------------------------------------

Reorganizational and Technical Changes

MSRB Rule A-3 Title
    The proposed rule change would change the title of MSRB Rule A-3 
from ``Membership on the Board'' to ``Board Membership: Composition, 
Elections, Removal, Compensation.'' The MSRB states that the new title 
will describe all of the topics covered by the rule and should make it 
easier for interested persons to locate relevant MSRB rule 
requirements.\87\
---------------------------------------------------------------------------

    \87\ Id.
---------------------------------------------------------------------------

MSRB Rule A-3 Organization
    The MSRB states that the proposed rule change reorganizes the 
content of MSRB Rule A-3 so that similar provisions are grouped 
together, topics are presented in a more logical sequence, and overall 
readability is improved.\88\ The provision on vacancies, currently 
section (d), would be included as a subsection of section (b), 
regarding nominations and elections. Similarly, the provision on Board 
member affiliations, currently section (f), would be included within 
section (a), which describes the number of Board members and the 
requirements for Board composition. The titles of sections (b) and (c) 
would be revised to more completely describe the topics covered and new 
subsection headers would be added to section (b) to provide a better 
roadmap to the section's contents.\89\ Although none of these changes 
is substantive, the MSRB states that they should make it easier for 
interested persons to find and understand relevant MSRB 
requirements.\90\
---------------------------------------------------------------------------

    \88\ Id.
    \89\ Id.
    \90\ Id.
---------------------------------------------------------------------------

Board Member Changes in Employment and Other Circumstances
    The MSRB states that Board policies describe certain changes in a 
Board member's circumstances, such as a change in employment, that 
could result in the Board member's disqualification from continuing to 
serve on the Board.\91\ For example, a Board member who is a public 
representative at the time of his or her election may accept a position 
with a regulated entity during the course of his or her Board term. 
Assuming there are no Board vacancies at the time, the MSRB observes 
that such a change would result in the Board no longer being majority 
public and no longer as evenly divided in number as possible between 
public and regulated representatives.\92\ The MSRB states that Board 
policy provides that the member would be disqualified from continuing 
to serve because the change in employment would cause a conflict with 
Board composition requirements.\93\
---------------------------------------------------------------------------

    \91\ Id.
    \92\ Id.
    \93\ Id.
---------------------------------------------------------------------------

    The MSRB states that the proposed rule change would include the 
substance of this policy in MSRB Rule A-3(c), with minor updates.\94\ 
Specifically, new subsection (c)(ii) would provide that:
---------------------------------------------------------------------------

    \94\ Id.
---------------------------------------------------------------------------

     If a member's change in employment or other circumstances 
results in a conflict with the Board composition requirements described 
in section (a) of MSRB Rule A-3, as proposed to be amended, the member 
shall be disqualified from serving on the Board as of the date of the 
change.
     If the Board determines that a member's change in 
employment or other circumstances does not result in disqualification 
pursuant to the above provision but changes the category of 
representative in which the Board member serves, the member will remain 
on the Board pending a vote of the other members of the Board, to be 
taken within 30 days, determining whether the member is to be retained.
    The MSRB states that including these provisions in the Board's 
rules, rather than its policies, is intended to improve transparency 
about the Board's approach to changes in Board member circumstances, 
including changes that require immediate disqualification due to a 
conflict with Board composition requirements and changes that do not 
cause a conflict with those requirements but might still, in the 
Board's judgment, require removal because, for example, they negatively 
affect the balanced representation on the Board that the Board seeks to 
maintain.\95\
---------------------------------------------------------------------------

    \95\ Id.
---------------------------------------------------------------------------

III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received five comment letters 
on the proposed rule change, as well as the MSRB Response Letter.

Independence Standard

    One commenter reiterated its concern, expressed in its response to 
the RFC, that ``five years away from the industry and the market is too 
long for a Board member to be effective.'' \96\ This

[[Page 48584]]

commenter stated that the Board has ``provided no evidence that the 
current two-year required separation has created any conflicts or even 
the perception of conflicts'' and that the only effect of an increase 
to five years would be to prevent qualified and knowledgeable persons 
from serving on the Board.\97\
---------------------------------------------------------------------------

    \96\ See BDA Letter at 1.
    \97\ Id.
---------------------------------------------------------------------------

    The MSRB stated that, while the five-year separation requirement 
may postpone the time when some otherwise qualified persons may apply 
for Board membership, the comment's intimation that former regulated 
entity employees are the primary--or the best--source of public members 
is not correct.\98\ The MSRB noted that Section 15B(b)(1) of the 
Exchange Act provides that all Board members ``shall be knowledgeable 
of matters related to the municipal securities markets'' and that at 
least one of the public representatives must be a member of the public 
``with knowledge of or experience in the municipal industry.'' \99\ The 
MSRB stated that it does not view prior experience with a dealer or 
municipal advisor as a prerequisite for Board service as a public 
representative, and public representatives may gain the required 
knowledge in any number of ways.\100\
---------------------------------------------------------------------------

    \98\ See MSRB Response Letter at 3.
    \99\ See MSRB Response Letter at 3-4.
    \100\ See MSRB Response Letter at 4. See also Notice of Filing, 
85 FR at 37982.
---------------------------------------------------------------------------

    One commenter stated that the ``knowledge standard requirement for 
public applicants, as written, is very subjective and, in the past, has 
been too narrowly interpreted by the MSRB Board and Committees'' and 
suggested that the Board ``should ensure that individuals with broad 
knowledge of the public interest be considered in addition to those who 
have specialized industry expertise and have been traditionally 
appointed to these seats.'' \101\ The MSRB stated that it continues to 
believe, as it noted in the RFC, that ``while regulated representatives 
may bring specialized expertise to the regulation of a market with 
features and functions that are vastly different from those of other 
financial markets, public representatives may bring a broader 
perspective of the public interest.'' \102\ The MSRB stated that, 
through its nominations and elections process, the Board will continue 
to seek qualified public representatives who can bring that perspective 
to bear on Board decision-making.\103\
---------------------------------------------------------------------------

    \101\ See NAMA Letter at 2.
    \102\ See MSRB Response Letter at 4. See also RFC at 3.
    \103\ See MSRB Response Letter at 4.
---------------------------------------------------------------------------

    The MSRB further stated that, while some stakeholders perceive--
accurately, in the Board's view--that the Board's public 
representatives are independent of the entities that the Board 
regulates, that perception is not universally held.\104\ Accordingly, 
the MSRB stated that increasing the length of the separation period is 
intended in part to address the perception held by some stakeholders 
that public representatives are not sufficiently independent, and that 
it continues to believe that enhancing the appearance of independence 
of public representatives will provide additional assurance that the 
Board's decisions are made in furtherance of its mission to protect 
investors, municipal entities, obligated persons and the public 
interest and to promote a fair and efficient municipal securities 
market.\105\
---------------------------------------------------------------------------

    \104\ Id.
    \105\ See MSRB Response Letter at 4-5.
---------------------------------------------------------------------------

Board Composition--Municipal Advisor Representation

    One commenter believed that only a minimum of one municipal advisor 
representative should be required,\106\ while two commenters believed 
that a minimum of three municipal advisor representatives should be 
required.\107\ The commenter that believed that only one municipal 
advisor representative should be required stated that requiring only 
the statutory minimum of one municipal advisor would provide the Board 
with the maximum flexibility to determine municipal advisor 
representation based on its anticipated agenda.\108\ Noting that 
dealers pay more in fees to the MSRB than municipal advisors, this 
commenter ``call[ed] on the MSRB to set the ratio of board seats 
between dealers and MAs based on each constituency's relative financial 
contribution to the organization, subject to statutory requirements.'' 
\109\
---------------------------------------------------------------------------

    \106\ See BDA Letter.
    \107\ See Former MSRB Board Members Letter; NAMA Letter.
    \108\ See BDA Letter at 1-2.
    \109\ See BDA Letter at 2. The BDA Letter also states, in 
support of its position that only one municipal advisor should be 
required, that five commenters on the RFC opposed the Board's 
proposal to require at least two municipal advisors while only two 
agreed with it. See BDA Letter at 1. As noted in the Notice of 
Filing, two commenters (one of which was BDA) believed that one 
municipal advisor should be required, two believed that two 
municipal advisors should be required, and three believed that three 
municipal advisors should be required. See Notice of Filing, 85 FR 
at 37983. See also MSRB Response Letter at 6.
---------------------------------------------------------------------------

    The commenters that believed at least three municipal advisor 
representatives should be required noted that municipal advisor 
regulation remains a significant focus of the Board.\110\ These 
commenters suggested that at least three municipal advisors are 
necessary to represent the diverse range of that profession as well as 
the issuer clients it serves.\111\ One believed that it would be 
difficult for two municipal advisors ``to make their voices heard'' on 
a Board with five dealer representatives and stated that just as MSRB 
Rule A-3 recognizes the difference between bank and non-bank dealers, 
``the broad and different nature of our MA businesses [should] also be 
considered.'' \112\ This commenter also disagreed that representation 
on the Board should be proportionate to fees paid.\113\
---------------------------------------------------------------------------

    \110\ See Former MSRB Board Members Letter at 1, 2; NAMA Letter 
at 1. The MSRB noted that both commenters characterized statements 
in the Notice of Filing that the Board had completed the rulemaking 
associated with implementation of the Dodd-Frank Act, including the 
establishment of the core municipal advisor regulatory regime, see 
Notice of Filing at 37975, 37976, as minimizing the continued 
significance of rulemaking involving municipal advisors. These 
commenters noted that municipal advisor regulation will continue to 
present the Board with challenges going forward. The MSRB stated 
that it agrees that ``its expanded duties with regard to the 
protection of municipal entities and obligated persons and the 
regulation of municipal advisors are ongoing.'' See Notice of 
Filing, 85 FR at 37975. See also MSRB Response Letter at 6.
    \111\ See Former MSRB Board Members Letter at 1; NAMA Letter at 
1.
    \112\ See Former MSRB Board Members Letter at 2.
    \113\ Id. at 1-2.
---------------------------------------------------------------------------

    After considering these comments, the MSRB stated that it continues 
to believe that while municipal advisor representation on the Board 
should be greater than the statutory minimum of one, requiring at least 
three of seven regulated representatives (or 42.9%) to be municipal 
advisors not associated with a dealer would not be appropriate.\114\ As 
an initial matter, the MSRB noted that Rule A-3 sets the minimum number 
of Board members within each regulated category and that once those 
minimums are met the Board seeks to balance the Board each year with 
the mix of members it believes will best serve its mission to protect 
investors, municipal entities, obligated persons and the public 
interest and to promote a fair and efficient municipal securities 
market.\115\ The MSRB stated that, while that mix may, in a particular 
year, include three municipal advisors, the proposed rule change 
reflects the Board's view that it should always include at least two 
municipal advisors not associated with a dealer.\116\
---------------------------------------------------------------------------

    \114\ See MSRB Response Letter at 7.
    \115\ Id.
    \116\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it reached that position for some of the 
reasons

[[Page 48585]]

described by commenters.\117\ Specifically, the MSRB stated that it 
agrees that municipal advisor representation greater than the statutory 
minimum continues to be appropriate in light of the broad range of 
municipal advisors subject to MSRB regulation, though it disagrees, 
based on its experience with the current Board composition, that a 
proportional increase in municipal advisor representation is 
warranted.\118\
---------------------------------------------------------------------------

    \117\ Id.
    \118\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it also disagrees with the comment that the 
Board should ``set the ratio of board seats between dealers and MAs 
based on each constituency's relative financial contribution to the 
organization, subject to statutory requirements.'' \119\ The MSRB 
observed that nothing in the Exchange Act suggests that fees paid to 
the Board should be tied to Board composition and, in fact, the 
Exchange Act treats the two topics in separate provisions.\120\ 
Exchange Act Section 15B(b)(2)(B) requires MSRB Rules to ``establish 
fair procedures for the nomination and election of members of the Board 
and assure fair representation in such nominations and elections of 
public representatives, broker dealer representatives, bank 
representatives, and advisor representatives.'' \121\ The MSRB 
explained that the proposed rule change would maintain, as closely as 
possible on a 15-member Board, the existing balance of representation 
among regulated representatives and that the Board believes that 
requiring municipal advisor representation greater than the statutory 
minimum continues to assure fair representation in light of the broad 
range of MAs subject to MSRB regulation.\122\ The MSRB concluded that, 
for these reasons, the Board believes that the amendments related to 
Board composition are consistent with the Exchange Act.\123\
---------------------------------------------------------------------------

    \119\ See MSRB Response Letter at 7-8.
    \120\ Id.
    \121\ 15 U.S.C. 78o-4(b)(2)(B).
    \122\ See MSRB Response Letter at 8.
    \123\ Id.
---------------------------------------------------------------------------

    With respect to the comments regarding the fees paid by regulated 
entities and their proportionate representation on the Board, the MSRB 
stated that comments on the MSRB fee structure are outside the scope of 
the proposed rule change.\124\
---------------------------------------------------------------------------

    \124\ See MSRB Response Letter at 8.
---------------------------------------------------------------------------

Board Composition--Issuer Representation

    The MSRB noted that, although the proposed rule change includes no 
amendments related to Board composition other than as it relates to 
municipal advisors, three commenters urged the Board to increase the 
required number of issuer representatives.\125\ One such commenter 
stated that a Board with eight public members should include three 
issuers, three investors, and two ``general public members'' and asked 
the Commission not to approve the proposed rule change without 
increasing the number of issuers.\126\ This commenter believed that a 
single issuer representative is insufficient to represent the broad 
spectrum of issuers in the municipal market, and stated that 
``[w]ithout issuers, none of the other parties would exist, and because 
of this, the voice of the issuer community is essential to ensure 
robust capital formation within the parameters of the MSRB's regulatory 
regime.'' \127\
---------------------------------------------------------------------------

    \125\ See GFOA Letter; Issuer Organizations Letter; NAMA Letter.
    \126\ See GFOA Letter at 2.
    \127\ See GFOA Letter at 1. See also NAMA Letter at 2 (stating 
that ``the issuer community is extremely diverse and should be well 
and better represented on the Board to allow for the different ways 
that issuers approach the capital markets''); Issuer Organizations 
Letter at 1 (describing the diverse range of issuers and urging the 
Board to require at least two issuer representatives to ``ensure 
that issuer voices are heard and utilized by the MSRB in its 
rulemaking, management of the EMMA system, and municipal market 
educational efforts'').
---------------------------------------------------------------------------

    In the Notice of Filing, in response to similar comments on the 
RFC, the MSRB noted that although the proposed rule change does not 
include amendments that would change the number of required issuer 
representatives on the Board, the Board modified the plan described in 
the RFC for transitioning immediately to a 15-member Board in the next 
fiscal year in order to avoid being left with only one issuer 
representative for that year.\128\ The MSRB stated that it did so 
because it agreed with commenters on the RFC that operating with only 
one issuer is a particularly undesirable result in fiscal year 2021 in 
light of the effects of the COVID-19 pandemic on municipalities and the 
municipal securities market more generally.\129\ Accordingly, the MSRB 
stated that it determined to specify an interim Board size of 17 
members in the first year of its transition to the reduced Board size 
of 15 members, which will allow the Board the benefit of a second 
issuer representative in fiscal year 2021.\130\ At the same time, based 
on its experience with the current Board composition requirements, the 
MSRB stated that it continues to believe that maintaining the status 
quo as it relates to Board composition as closely as possible with the 
smaller Board size remains appropriate and will continue to assure fair 
representation.\131\
---------------------------------------------------------------------------

    \128\ See MSRB Response Letter at 9. See also Notice of Filing, 
85 FR at 37977.
    \129\ See MSRB Response Letter at 9.
    \130\ Id.
    \131\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received, and the MSRB Response Letter. The 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to the MSRB.
    In particular, the Commission believes that the proposed rule 
change is consistent with the provisions of Section 15B(b)(1) of the 
Act,\132\ which provides:
---------------------------------------------------------------------------

    \132\ 15 U.S.C. 78o-4(b)(1).

    The Municipal Securities Rulemaking Board shall be composed of 
15 members, or such other number of members as specified by rules of 
the Board pursuant to paragraph (2)(B), which shall perform the 
duties set forth in this section. The members of the Board shall 
serve as members for a term of 3 years or for such other terms as 
specified by rules of the Board pursuant to paragraph (2)(B), and 
shall consist of (A) 8 individuals who are independent of any 
municipal securities broker, municipal securities dealer, or 
municipal advisor, at least 1 of whom shall be representative of 
institutional or retail investors in municipal securities, at least 
1 of whom shall be representative of municipal entities, and at 
least 1 of whom shall be a member of the public with knowledge of or 
experience in the municipal industry (which members are hereinafter 
referred to as ``public representatives''); and (B) 7 individuals 
who are associated with a broker, dealer, municipal securities 
dealer, or municipal advisor, including at least 1 individual who is 
associated with and representative of brokers, dealers, or municipal 
securities dealers that are not banks or subsidiaries or departments 
or divisions of banks (which members are hereinafter referred to as 
``broker-dealer representatives''), at least 1 individual who is 
associated with and representative of municipal securities dealers 
which are banks or subsidiaries or departments or divisions of banks 
(which members are hereinafter referred to as ``bank 
representatives''), and at least 1 individual who is associated with 
a municipal advisor (which members are hereinafter referred to as 
``advisor representatives'' and, together with the broker-dealer 
representatives and the bank representatives, are referred to as 
``regulated representatives''). Each member of the board shall be 
knowledgeable of matters related to the municipal securities 
markets. Prior to the expiration of the terms of office of the 
members of the Board, an election shall be held under rules adopted 
by the Board

[[Page 48586]]

(pursuant to subsection (b)(2)(B) of this section) of the members to 
---------------------------------------------------------------------------
succeed such members.

    In addition, the Commission believes that the proposed rule change 
is consistent with the provisions of Section 15B(b)(2)(B) of the 
Act,\133\ which provides that the MSRB's rules shall:
---------------------------------------------------------------------------

    \133\ 15 U.S.C. 78o-4(b)(2)(B).

establish fair procedures for the nomination and election of members 
of the Board and assure fair representation in such nominations and 
elections of public representatives, broker dealer representatives, 
bank representatives, and advisor representatives. Such rules--
    (i) shall provide that the number of public representatives of 
the Board shall at all times exceed the total number of regulated 
representatives and that the membership shall at all times be as 
evenly divided in number as possible between public representatives 
and regulated representatives;
    (ii) shall specify the length or lengths of terms members shall 
serve;
    (iii) may increase the number of members which shall constitute 
the whole Board, provided that such number is an odd number; and
    (iv) shall establish requirements regarding the independence of 
public representatives.

    Furthermore, the Commission believes that the proposed rule change 
is consistent with the provisions of Section 15B(b)(2)(I) of the 
Act,\134\ which provides that the MSRB's rules shall:
---------------------------------------------------------------------------

    \134\ 15 U.S.C. 78o-4(b)(2)(I).

provide for the operation and administration of the Board, including 
the selection of a Chairman from among the members of the Board, the 
compensation of the members of the Board, and the appointment and 
compensation of such employees, attorneys, and consultants as may be 
necessary or appropriate to carry out the Board's functions under 
---------------------------------------------------------------------------
this section.

    MSRB Rule A-3 defines a public representative as independent if the 
public representative has ``no material business relationship'' with a 
regulated entity. An individual has no material business relationship 
with a regulated entity, under MSRB Rule A-3, if the individual has not 
been associated with a regulated entity for a two-year period. The 
Commission believes that the Board's determination to increase this 
period of time to five years, in order to further enhance the 
independence of public representatives, is consistent with Section 
15B(b)(2)(B)(iv) of the Exchange Act with respect to the requirement 
for the Board to ``establish requirements regarding the independence of 
public representatives.'' \135\
---------------------------------------------------------------------------

    \135\ 15 U.S.C. 78o-4(b)(2)(B)(iv).
---------------------------------------------------------------------------

    Section 15B(b)(1) of the Exchange Act \136\ provides that the Board 
``shall be composed of 15 members, or such other number of members as 
specified by rules of the Board pursuant to paragraph (2)(B). . . .'' 
and consist of eight public representatives and seven regulated 
representatives. The Board having previously increased its size, in 
accordance with Section 15B(b)(2)(B) of the Exchange Act,\137\ after 
the enactment of the Dodd-Frank Act, has determined that it is now 
appropriate to return to the size specified in the Exchange Act. The 
Commission believes that returning to a 15-member Board consisting of 
eight public representatives and seven regulated representatives would 
be consistent with Section 15B(b)(1) of the Exchange Act.\138\
---------------------------------------------------------------------------

    \136\ 15 U.S.C. 78o-4(b)(1).
    \137\ 15 U.S.C. 78o-4(b)(2)(B).
    \138\ 15 U.S.C. 78o-4(b)(1).
---------------------------------------------------------------------------

    Section 15B(b)(2)(B) of the Exchange Act \139\ requires MSRB Rules 
to ``establish fair procedures for the nomination and election of 
members of the Board and assure fair representation in such nominations 
and elections of public representatives, broker dealer representatives, 
bank representatives, and advisor representatives.'' The proposed rule 
change would maintain, as closely as possible on a 15-member Board, the 
existing balance of representation among regulated representatives and 
includes no changes relating to the representation of public 
representatives. The Commission believes that requiring representation 
of municipal advisors not associated with a dealer greater than the 
statutory minimum and maintaining as nearly as possible the current 
balance between municipal advisor representatives and dealer 
representatives continues to assure fair representation of regulated 
entities on the Board and therefore is consistent with Section 
15B(b)(2)(B) of the Exchange Act.\140\ In addition, the Commission 
believes that the amendment that would add an explicit requirement that 
Board members be ``individuals of integrity'' to codify existing Board 
practice of seeking individuals of integrity in nominating and electing 
Board members is consistent with Section 15B(b)(2)(B) of the Exchange 
Act.\141\
---------------------------------------------------------------------------

    \139\ 15 U.S.C. 78o-4(b)(2)(B).
    \140\ Id.
    \141\ Id.
---------------------------------------------------------------------------

    The proposed rule change includes a plan for transitioning the 
Board from 21 members to 15 members, with an interim year with a 17-
member Board composed of nine public representatives and eight 
regulated representatives and with extensions to a limited number of 
terms for Board members to change the structure of the Board's member 
classes. The Commission believes that the amendment establishing the 
17-member Board is consistent with Section 15B(b)(2)(B)(iii) of the 
Exchange Act,\142\ which permits the Board to increase the statutorily 
specified 15-member Board, provided that the number of members is an 
odd number, and is also consistent with Section 15B(b)(2)(B)(i) of the 
Exchange Act,\143\ which requires the number of public representatives 
to at all times exceed the number of regulated representatives and the 
membership to at all times be as evenly divided in number as possible 
between public representatives and regulated representatives. 
Furthermore, the Commission believes that the amendments that provide 
for a limited number of term extensions, to include a fifth year of 
service, for Board members are consistent with Section 15B(b)(2)(B)(ii) 
of the Exchange Act,\144\ which requires the Board to ``specify the 
length or lengths of terms members shall serve.'' Finally, the 
Commission believes that the transition plan is consistent with Section 
15B(b)(2)(I) of the Exchange Act,\145\ which requires MSRB rules to 
``provide for the operation and administration of the Board,'' in that 
the plan would serve to administer the Board transition process in a 
manner intended to minimize risks of disruption to MSRB governance, 
programs and operations.
---------------------------------------------------------------------------

    \142\ 15 U.S.C. 78o-4(b)(2)(B)(iii).
    \143\ 15 U.S.C. 78o-4(b)(2)(B)(i).
    \144\ 15 U.S.C. 78o-4(b)(2)(B)(ii).
    \145\ 15 U.S.C. 78o-4(b)(2)(I).
---------------------------------------------------------------------------

    The proposed rule change includes amendments that would impose a 
six-year limit on Board service intended to increase the rate at which 
new members will join the Board, thereby more regularly refreshing the 
perspectives the Board may draw upon in carrying out its mission. The 
Commission believes that this amendment is consistent with Section 
15B(b)(2)(B) of the Exchange Act,\146\ which requires the Board to 
establish fair procedures for the nomination and election of members of 
the Board and ``specify the length or lengths of terms members shall 
serve,'' by promoting broader participation in Board membership and 
specifying the overall length of service permitted.
---------------------------------------------------------------------------

    \146\ 15 U.S.C. 78o-4(b)(2)(B).
---------------------------------------------------------------------------

    The proposed rule change includes amendments that the MSRB 
describes as removing overly-prescriptive detail from the Board's rule 
regarding nominations and elections, while preserving the key features 
of the process, as further

[[Page 48587]]

described above. The Commission believes that the amendments to these 
provisions providing for the operation and administration of the Board 
are consistent with Exchange Act Sections 15B(b)(2)(B) and (I),\147\ 
which require the Board's rules to establish fair procedures for the 
nomination and election of members and provide for the operation and 
administration of the Board.
---------------------------------------------------------------------------

    \147\ 15 U.S.C. 78o-4(b)(2)(B), (I).
---------------------------------------------------------------------------

    Amendments to MSRB Rule A-6 would codify existing MSRB rule and 
policy requirements that the chairs of Board committees with 
responsibilities for nominations, governance, and audit must be public 
representatives. As an administrative and operational matter, the Board 
has established a number of standing committees as well as special 
committees when appropriate. The Commission believes that the MSRB's 
determination to codify that such committees be chaired by public 
representatives is consistent with Section 15B(2)(I) of the Exchange 
Act \148\ to provide for the operation and administration of the Board.
---------------------------------------------------------------------------

    \148\ 15 U.S.C. 78o-4(b)(2)(I).
---------------------------------------------------------------------------

    The proposed rule change includes certain organizational and 
technical changes to MSRB Rule A-3 which make no substantive changes to 
these fair procedures but merely improve the rule's readability. 
Accordingly, the Commission believes that these amendments are 
consistent with Exchange Act Section 15B(b)(2)(B).\149\
---------------------------------------------------------------------------

    \149\ 15 U.S.C. 78o-4(b)(2)(B).
---------------------------------------------------------------------------

    The proposed rule change includes an amendment that would provide 
that a Board member is disqualified from further service if his or her 
change in employment or other circumstances would result in the Board's 
noncompliance with the requirements in Exchange Act Section 15B(b)(1) 
\150\ for Board composition, and provides procedures for the Board to 
determine whether to retain a member if a member's change in employment 
or other circumstances does not result in disqualification under the 
Board's composition requirements. The Commission believes the amendment 
allows the Board to remain in compliance with its statutory composition 
requirement and to preserve the balance of Board categories on the 
Board that it establishes each year when it elects new members, and 
therefore is consistent with Exchange Acts Section 15B(b)(1) \151\ and 
15B(b)(2)(B).\152\
---------------------------------------------------------------------------

    \150\ 15 U.S.C. 78o-4(b)(1).
    \151\ 15 U.S.C. 78o-4(b)(1).
    \152\ 15 U.S.C. 78o-4(b)(2)(B).
---------------------------------------------------------------------------

    In approving the proposed rule change, the Commission has 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation.\153\ Section 15B(b)(2)(C) of the 
Act \154\ requires that MSRB rules not be designed to impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed rule change relates only to the 
administration of the Board and would not impose requirements on 
dealers, municipal advisors or others. Accordingly, the Commission does 
not believe that the proposed rule change would result in any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.
---------------------------------------------------------------------------

    \153\ 15 U.S.C. 78c(f).
    \154\ 15 U.S.C. 78o-4(b)(2)(C).
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    As noted above, the Commission received five comment letters on the 
filing. The Commission believes that the MSRB, through its responses, 
has addressed commenters' concerns. For the reasons noted above, the 
Commission believes that the proposed rule change is consistent with 
the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\155\ that the proposed rule change (SR-MSRB-2020-04) be, and 
hereby is, approved.
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    \155\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\156\
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    \156\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17454 Filed 8-10-20; 8:45 am]
BILLING CODE 8011-01-P