[Federal Register Volume 88, Number 248 (Thursday, December 28, 2023)]
[Notices]
[Pages 89796-89802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28612]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99226; File No. SR-MSRB-2023-07]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-
12 To Promote the Completion of Allocations, Confirmations, and 
Affirmations by the End of Trade Date

December 21, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on December 20, 2023, the Municipal Securities 
Rulemaking Board (``MSRB'' or ``Board'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the MSRB. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change to amend 
MSRB Rule G-12 (``Rule G-12''), on uniform practice, to promote the 
completion of allocations, confirmations, and affirmations by the end 
of trade date for municipal securities transactions between brokers, 
dealers and municipal securities dealers and their institutional 
customers to facilitate the move to a settlement cycle of one business 
day (the ``proposed rule change'').
    The MSRB requests that the proposed rule change be approved with a 
compliance date of May 28, 2024, to align with the compliance date for 
amended Exchange Act Rule 15c6-1 and new Exchange Act Rule 15c6-2, as 
described herein.\3\
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    \3\ See Exchange Act Release No. 96930 (Feb. 15, 2023), 88 FR 
13872 at 13918 (Mar. 6, 2023) (File No. S7-05-22) (the ``Commission 
T+1 Adopting Release''). If the Commission's compliance date were to 
change, the MSRB would issue a regulatory notice to modify the 
compliance date for the proposed rule change to remain aligned with 
the Commission's revised compliance date.
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    The text of the proposed rule change is available on the MSRB's 
website at https://msrb.org/2023-SEC-Filings, at the MSRB's principal 
office, and at the Commission's Public Reference Room.

[[Page 89797]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the MSRB included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The MSRB has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change would amend Rule G-12 by adding a new 
section (k) to promote the completion of allocations, confirmations, 
and affirmations by the end of trade date for transactions in municipal 
securities between brokers, dealers and municipal securities dealers 
(``dealers'') and their institutional customers. This proposed rule 
change would align with the same-day allocation, confirmation, and 
affirmation process for equities and corporate bonds under Exchange Act 
Rule 15c6-2, as adopted.\4\ Although Exchange Act Rule 15c6-2, as 
adopted,\5\ does not apply to municipal securities transactions, the 
MSRB believes that the same-day allocation, confirmation, and 
affirmation process for municipal securities transactions in the 
secondary market should be consistent with that for equity and 
corporate bond transactions. This proposal is designed to facilitate 
the industry's move to a settlement cycle of one business day (``T+1'') 
as described further below. To align with Exchange Act Rule 15c6-2, as 
adopted,\6\ the MSRB is proposing to amend Rule G-12 by adding a 
section (k) to require dealers effecting municipal securities 
transactions subject to the T+1 settlement cycle to either enter into 
written agreements as specified in the proposed rule change or 
establish, maintain, and enforce written policies and procedures 
reasonably designed to address certain objectives related to completing 
allocations, confirmations, and affirmations as soon as technologically 
practicable and no later than the end of trade date.
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    \4\ 17 CFR 240.15c6-2.
    \5\ Id.
    \6\ Id.
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Background
    On February 15, 2023, the Commission adopted amendments to Exchange 
Act Rule 15c6-1 (``Amended Exchange Act Rule 15c6-1'') \7\ to shorten 
the settlement cycle of most equity and corporate bond transactions 
from two business days to T+1. In alignment with Amended Exchange Act 
Rule 15c6-1, the MSRB amended its Rule G-12(b)(ii)(B)-(D) and Rule G-
15(b)(ii)(B)-(C) to define regular-way settlement as occurring on the 
first business day following the trade date rather than on the second 
business day following the trade date.\8\
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    \7\ 17 CFR 240.15c6-1.
    \8\ See Exchange Act Release No. 97585 (May 25, 2023), 88 FR 
35961 (June 1, 2023) (File No. SR-MSRB-2023-03).
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    In the Commission T+1 Adopting Release, the Commission stated that 
implementing a T+1 standard settlement cycle would require significant 
improvements in the current rates of same-day allocations, 
confirmations, and affirmations to help ensure timely settlement in a 
T+1 environment.\9\ In the Commission T+1 Adopting Release, the 
Commission proposed new Exchange Act Rule 15c6-2 to establish 
requirements that facilitate the completion of allocations, 
confirmations, and affirmations by the end of the trade date, helping 
to facilitate the settlement of institutional transactions in a T+1 or 
shorter standard settlement cycle by promoting the timely and orderly 
transmission of trade data necessary to achieve settlement.\10\
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    \9\ See Commission T+1 Adopting Release, 88 FR at 13890.
    \10\ See id. at 13947.
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    Exchange Act Rule 15c6-2 provides two options by which broker-
dealers may comply with the rule, as adopted.\11\ The first option 
under Exchange Act Rule 15c6-2 provides that, where parties have agreed 
to engage in an allocation, confirmation, or affirmation process, a 
broker-dealer would be prohibited from effecting or entering into a 
contract for the purchase or sale of a security (other than an exempted 
security, a government security, a municipal security, commercial 
paper, bankers' acceptances, or commercial bills) on behalf of a 
customer unless such broker-dealer has entered into a written agreement 
with the customer that requires the allocation, confirmation, 
affirmation, or any combination thereof, to be completed no later than 
the end of the day on trade date in such form as may be necessary to 
achieve settlement in compliance with Exchange Act Rule 15c6-1(a).\12\ 
The second option under Exchange Act Rule 15c6-2 provides an 
alternative where, in lieu of a written agreement, a broker-dealer may 
choose to establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure the completion of the 
allocation, confirmation, affirmation, or any combination thereof, for 
the transaction as soon as technologically practicable and no later 
than the end of the day on trade date in such form as necessary to 
achieve settlement of the transaction.\13\ Exchange Act Rule 15c6-2 
sets out several specific requirements for such written policies and 
procedures.\14\
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    \11\ 17 CFR 240.15c6-2.
    \12\ 17 CFR 240.15c6-2(a)(1).
    \13\ 17 CFR 240.15c6-2(a)(2).
    \14\ 17 CFR 240.15c6-2(b)(1-5).
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Proposal
    The proposed amendments to Rule G-12 would add a new section (k) 
that would establish the core standard of same-day allocation, 
confirmation and affirmation for all regular-way transactions in 
municipal securities required to be settled on the first business day 
following the trade date under Rule G-12(b)(ii)(B) or MSRB Rule G-
15(b)(ii)(B). Proposed Rule G-12(k)(i) refers to the terms 
``confirmation,'' ``affirmation'' and ``allocation'' as having the same 
meaning as used in the Securities Exchange Act Rule 15c6-2. For 
purposes of proposed Rule G-12(k), the terms ``confirmation'' and 
``affirmation'' refer to the transmission of messages among dealers, 
institutional investors, and custodian banks to confirm the terms of a 
trade executed for an institutional investor, a process necessary to 
ensure the accuracy of the trade being settled, consistent with how 
such terms are used in Exchange Act Rule 15c6-2.\15\ Additionally, the 
term ``allocation'' refers to the process by which an institutional 
investor (often an investment adviser) allocates a large trade among 
various client accounts or determines how to apportion securities 
trades ordered contemporaneously on behalf of multiple funds or non-
fund clients, consistent with how such term is used in Exchange Act 
Rule 15c6-2.\16\
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    \15\ See Commission T+1 Adopting Release, 88 FR at 13886. The 
term ``confirmation'' under proposed Rule G-12(k) refers to the 
operational message that includes trade details provided by the 
dealer to the customer to verify trade information so that a trade 
can be prepared for timely settlement. This is in contrast to trade 
confirmations required under Rule G-12(c) or MSRB Rule G-15(a), 
which list a series of disclosures that dealers are required to 
provide in writing to dealers or customers at or before completion 
of a transaction.
    \16\ Id.
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    Similar to Exchange Act Rule 15c6-2, proposed Rule G-12(k)(ii) 
would provide two options by which dealers would comply with the rule 
to meet the

[[Page 89798]]

standard of same-day allocation, confirmation and affirmation for all 
regular-way transactions in municipal securities, also referred to as 
``same-day affirmation.'' The first option under the newly added 
section (k)(ii)(A) to Rule G-12 would allow dealers to enter into a 
written agreement with the relevant parties to ensure completion of the 
allocation, confirmation, affirmation, or any combination thereof, for 
the transaction as soon as technologically practicable and no later 
than the end of the day on trade date in such form as necessary to 
achieve settlement of the transaction.
    The term ``relevant parties'' should be read more broadly than 
merely customers and would include, for example, investment advisers, 
custodians, or other agents to the extent that such parties would 
participate in the allocation, confirmation, and affirmation 
process.\17\ Similar to Exchange Act Rule 15c6-2, when entering into 
written agreements, the dealer would need to identify and enter into 
agreements with only the relevant parties that would have a role in 
completing the allocation, confirmation and affirmation process.\18\ If 
a dealer is acting in the capacity of an executing broker on behalf of 
a customer and another dealer is settling the transaction (i.e., as a 
clearing broker), then the executing broker would only comply with the 
rule to the extent that it participates in the allocation, confirmation 
and affirmation process. In such a scenario, the executing broker would 
ensure that its arrangements with the clearing broker identify that the 
clearing broker will be the dealer engaging in the allocation, 
confirmation, and affirmation process for compliance with the proposed 
rule change. To the extent that there is no such arrangement between 
the executing broker and the clearing broker, the executing broker 
should consider whether it needs to establish, implement, and maintain 
policies and procedures to identify and explain its role and 
relationship with the clearing broker.\19\ An executing broker that 
does not participate in allocation, confirmation, and affirmation 
processes would face no obligations under the proposed rule change.\20\ 
A dealer would not be deemed to have violated Rule G-12 as amended by 
the proposed rule change based on the actions of the counterparty 
(e.g., if an investment adviser fails to provide allocation information 
to the dealer as required under the agreement) as long as the written 
agreement describes the obligations of the parties to ensure the 
allocation, confirmation, or affirmation of the transaction, and the 
dealer itself has complied with its obligations under the written 
agreement.\21\
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    \17\ See id. at 13892.
    \18\ See id.
    \19\ See id.
    \20\ See id.
    \21\ See id. at 13891.
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    The MSRB believes that the term ``trade'' and ``end of the day on 
trade date'' are widely used by the industry and sufficiently 
understood to facilitate compliance with the proposed rule change.\22\ 
The proposed rule change uses the term ``end of the day on trade date'' 
rather than requiring a specific time earlier than end of day to allow 
firms to maximize their internal processes to meet the appropriate 
cutoff times and other deadlines, as soon as technologically 
practicable. The MSRB believes that this would allow for the relevant 
parties to negotiate terms and expectations that are responsive to 
their specific operational arrangements and in turn facilitate the 
same-day allocation, confirmation and affirmation to further facilitate 
the timely settlement of the transaction.\23\
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    \22\ See id. at 13897.
    \23\ See id.
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    The second option to meet the core standard of same-day allocation, 
confirmation and affirmation is listed in the proposed amendment to 
Rule G-12 under the newly added section (k)(ii)(B). Under this option, 
dealers would be required to establish, maintain, and enforce written 
policies and procedures reasonably designed to ensure completion of the 
allocation, confirmation and affirmation for the transaction as soon as 
technologically practicable and no later than the end of the day on 
trade date. At a minimum, the policies and procedures required under 
the proposed new section Rule G-12(k)(ii)(B) must:
    (A) Identify and describe any technology systems, operations, and 
processes that the dealer uses to coordinate with other relevant 
parties, including investment advisers and custodians, to ensure 
completion of the allocation, confirmation, or affirmation process for 
the transaction;
    (B) Set target time frames on trade date for completing the 
allocation, confirmation, and affirmation for the transaction;
    (C) Describe the procedures that the dealer will follow to ensure 
the prompt communication of trade information, investigate any 
discrepancies in trade information, and adjust trade information to 
help ensure that the allocation, confirmation, and affirmation can be 
completed by the target time frames on trade date;
    (D) Describe how the dealer plans to identify and address delays if 
another party, including an investment adviser or a custodian, is not 
promptly completing the allocation or affirmation for the transaction, 
or if the dealer experiences delays in promptly completing the 
confirmation; and
    (E) Measure, monitor, and document the rates of allocations, 
confirmations, and affirmations completed as soon as technologically 
practicable and no later than the end of the day on trade date.
    The policies and procedures alternative in proposed Rule G-
12(k)(ii)(B) could help ensure that, when the parties to a transaction 
encounter obstacles that may prevent them from completing an 
allocation, confirmation, or affirmation on trade date, they have 
policies and procedures to navigate, address, and, when possible, 
mitigate or overcome such obstacles. For example, similar to Exchange 
Act Rule 15c6-2, reasonably designed policies and procedures generally 
could include robust compliance and monitoring systems; processes to 
escalate identified instances of noncompliance for remediation; 
procedures that designate responsibility to business line personnel for 
supervision of functions and persons; processes for escalating issues; 
processes for periodic review and testing of the adequacy and 
effectiveness of policies and procedures; and training on policies and 
procedures.\24\
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    \24\ See id. at 13894.
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    Under proposed Rule G-12(k)(iii)(A), the policies and procedures 
should be reasonably designed to ensure that the dealer considers 
holistically the range of systems and tools it has available to 
facilitate the same-day affirmation objective, as well as the range of 
operations and processes that a dealer uses to facilitate same-day 
affirmations across different customer and commercial 
relationships.\25\ Similar to Exchange Act Rule 15c6-2, the MSRB 
believes that different processes may be necessary to facilitate same-
day affirmations because certain transactions or customer types require 
different arrangements and a dealer may require different arrangements 
for a customer who engages directly with the dealer versus a customer 
whose investment adviser or custodian engages with the dealer on its 
behalf. Further, to be reasonably designed, dealers would need to 
categorize and assess the range of operational arrangements and

[[Page 89799]]

processes that would be used to facilitate the same-day affirmation 
process across the full range of different customer and transaction 
types for which it offers services.\26\
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    \25\ See id. at 13895.
    \26\ See id. at 13895-13896.
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    The MSRB is aware that a dealer may not be able to complete the 
same-day affirmation process on the trade date with respect to every 
transaction it executes for every customer in every circumstance. 
Therefore, proposed Rule G-12(k)(iii)(B) requires that the policies and 
procedures should set target time frames for the range of transaction 
and customer types the dealer serves, as well as the range of systems 
and operational processes it might employ.\27\ Similar to the 
Commission, the MSRB believes that reasonably designed procedures would 
be able to categorize the range of transactions and customer 
relationships that a dealer has established and estimate the length of 
time it takes to complete each of the allocation, confirmation, and 
affirmation to set its target time frames.\28\ A dealer is required to 
enforce its policies and procedures, meaning that it is obligated to 
design its systems and commit the necessary resources to ensure that it 
can comply with its own policies and procedures under the proposed rule 
change.\29\
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    \27\ See id. at 13896.
    \28\ See id.
    \29\ See id.
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    Proposed Rule G-12(k)(iii)(C) would require that policies and 
procedures lay out the ex ante steps that the dealer would take to 
promptly communicate trade information, as well as to investigate 
discrepancies and adjust trade information in response to information 
the dealer receives.\30\ Although target time frames will not always be 
met, and although affirmations will not always be complete on trade 
date, a dealer is required to enforce its policies and procedures to 
ensure that an action fully within the dealer's own control is not 
preventing the completion of the allocation, confirmation, or 
affirmation for the transaction.\31\
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    \30\ See id.
    \31\ See id.
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    Proposed Rule G-12(k)(iii)(D) would require that policies and 
procedures describe how the dealer plans to identify and address delays 
if another party, including an investment adviser or a custodian, is 
not promptly completing the allocation or affirmation for the 
transaction, or if the dealer experiences delays in promptly completing 
the confirmation. In addition, policies and procedures generally should 
identify the circumstances under which a dealer may experience delays 
in promptly completing the confirmation and what steps it would take to 
resolve the delays or any recurring problems.\32\
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    \32\ See id.
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    Finally, proposed Rule G-12(k)(iii)(E) would require that policies 
and procedures be reasonably designed to measure, monitor, and document 
the rates of allocations, confirmations, and affirmations completed 
within the target time frames established under proposed Rule G-
12(k)(iii)(B), as well as the rates of allocations, confirmations, and 
affirmations completed as soon as technologically practicable and no 
later than the end of trade date.\33\ While proposed Rule G-12(k) does 
not require that same-day affirmation occur for every transaction that 
a dealer executes and settles, for policies and procedures to be 
effective, the dealer generally should use the metrics identified by 
proposed Rule G-12(k)(iii)(E) to assess how well its policies and 
procedures ensure the completion of same-day affirmation and update its 
policies and procedures over time with improvements.
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    \33\ See id.
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Compliance Date
    The compliance date of the proposed rule change will correspond 
with the industry's transition to T+1 settlement consistent with the 
compliance date for amended Exchange Act Rule 15c6-1 \34\ and new 
Exchange Act Rule 15c6-2,\35\ which is currently scheduled for May 28, 
2024. If the Commission's compliance date were to change, the MSRB 
would issue a regulatory notice to modify the compliance date of the 
proposed rule change to remain aligned with the Commission's revised 
compliance date.\36\
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    \34\ See id. at 13916.
    \35\ See id. at 13918.
    \36\ The compliance date for the MSRB's amendments to Rule G-
12(b)(ii)(B)-(D) and MSRB Rule G-15(b)(ii)(B)-(C) to transition to 
T+1 settlement for regular-way municipal securities transactions 
would also be correspondingly modified to remain aligned with the 
Commission's revised compliance date. See Exchange Act Release No. 
97585 (May 25, 2023), 88 FR 35961 (June 1, 2023) (File No. SR-MSRB-
2023-03).
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2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
section 15B(b)(2) of the Exchange Act,\37\ which provides that the MSRB 
shall propose and adopt rules to effect the purposes of the Exchange 
Act with respect to transactions in municipal securities effected by 
dealers and advice provided to or on behalf of municipal entities or 
obligated persons by dealers and municipal advisors with respect to 
municipal financial products, the issuance of municipal securities, and 
solicitations of municipal entities or obligated persons undertaken by 
dealers and municipal advisors.
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    \37\ 15 U.S.C. 78o-4(b)(2).
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    Section 15B(b)(2)(C) of the Exchange Act \38\ provides that the 
MSRB's rules shall be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in municipal securities and municipal 
financial products, to remove impediments to and perfect the mechanism 
of a free and open market in municipal securities and municipal 
financial products, and, in general, to protect investors, municipal 
entities, obligated persons, and the public interest.
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    \38\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB believes the proposed rule change is consistent with 
section 15B(b)(2)(C) of the Exchange Act.\39\ The proposed rule change 
will foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in municipal securities by applying the 
same standard for same-day allocation, confirmation and affirmation 
established by the SEC to transactions in municipal securities. 
Fostering a consistent standard across asset classes of securities 
would continue to promote just and equitable principles of trade by 
facilitating compliance and reducing the risk of regulatory confusion 
that could result from an obligation to apply different standards for 
different asset classes of securities.
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    \39\ Id.
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    Further, the proposed rule change would foster cooperation and 
coordination among regulators by having similar same-day allocation, 
confirmation and affirmation standards as the Commission. By providing 
a uniform standard for all types of broker-dealers engaging in equity 
securities, corporate bonds and/or municipal securities transactions, 
this alignment of the regulatory scheme will foster greater cooperation 
and coordination among the MSRB and the Commission and Financial 
Industry Regulatory Authority, as well as greater cooperation and 
coordination among the authorities that examine dealers for compliance 
with MSRB rules.

[[Page 89800]]

    The MSRB believes that the proposed rule change will also foster 
cooperation with other market participants and assist in timely and 
orderly settlement of securities transactions, because many dealers 
will have relationships across multiple investment advisers, 
custodians, and other types of agents, and therefore could be 
instrumental in introducing better processes and procedures across a 
range of different relationships. These improvements to facilitate 
same-day allocations, confirmations, and affirmations can in turn 
facilitate an orderly and efficient transition to a T+1 settlement 
cycle. The proposed rule change would incentivize dealers to identify 
and deploy effective practices for achieving allocations, 
confirmations, and affirmations ex ante, thereby improving the rate of 
allocations, confirmations, and affirmations over time, which in turn 
can enhance the adoption of the industry's move to T+1.
    Facilitation of a shorter settlement cycle would remove impediments 
to and perfect the mechanism of a free and open market in municipal 
securities by yielding long-term benefits of promoting an orderly 
settlement process and reducing the likelihood of exceptions or other 
processing errors that could lead to settlement failures.\40\ The 
proposed rule change would allow for agreements or policies and 
procedures to be in place that would give dealers means by which to 
address the obstacles in same-day affirmation, allocation, and 
confirmation processes which are instrumental in timely settlement of 
transactions. The sooner the parties can affirm the trade information 
for their transaction, the lower the likelihood of a settlement 
failure, which may give parties time to resolve any errors, improve 
processes over time and implement new technologies instead of ``just in 
time'' solutions that can cause delays in timely settlement of 
transactions. This would foster continued improvements in institutional 
trade processing, further promote accuracy and efficiency, reduce the 
potential for settlement fails, and more generally, reduce the 
potential for operational risk, which would promote investor protection 
and the public interest.
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    \40\ Commission T+1 Adopting Release, 88 FR at 13897.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 15B(b)(2)(C) of the Exchange Act \41\ requires that MSRB 
rules not be designed to impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. The MSRB believes that the proposed rule change would not impose 
any unnecessary or inappropriate burden on competition, as the proposed 
rule change would apply a uniform standard for a same-day allocation, 
confirmation and affirmation for all transactions in municipal 
securities to align with the newly revised standard applicable to, 
among other securities, equity and corporate bond transactions under 
the amended Exchange Act Rule 15c6-2. In addition, the proposed rule 
change would be applied equally to all dealers. Therefore, the MSRB 
believes the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.
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    \41\ 15 U.S.C. 78o-4(b)(2)(C).
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    The MSRB was guided by the MSRB's Policy on the Use of Economic 
Analysis in MSRB Rulemaking.\42\ In accordance with this policy, the 
MSRB has evaluated the potential impacts on competition of the proposed 
rule change. The proposed rule change would add a new section (k) to 
the rule that would establish a core-standard of a same-day allocation, 
confirmation and affirmation for all transactions in municipal 
securities.
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    \42\ Policy on the Use of Economic Analysis in MSRB Rulemaking 
is available at http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx. In evaluating whether there was any burden on 
competition that is not necessary or appropriate in furtherance of 
the purposes of the Exchange Act, the MSRB was guided by its 
principles that required the MSRB to consider costs and benefits of 
a rule change, its impact on capital formation and the main 
reasonable alternative regulatory approaches.
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    Although the proposed rule change would be applied equally to 
dealers, the MSRB acknowledges potential burdens for firms that only 
participate in the municipal securities market, and those firms likely 
have relatively smaller revenue bases than firms that also trade other 
securities. These firms may incur costs associated with system changes 
to achieve a ``same-day affirmation,'' and may be disproportionately 
impacted by changes that would require investments in working towards 
ensuring the same-day affirmation in that such costs would be borne 
solely by their municipal securities activities whereas other firms 
with a more diversified securities business likely would have already 
invested in the cost of coming into compliance with Exchange Act Rule 
15c6-2 across their business lines. However, the MSRB believes the 
proposed rule change would not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the 
Exchange Act,\43\ as any such regulatory burden would be necessary or 
appropriate to align with the newly revised standard applicable to 
other securities under the amended Exchange Act Rule 15c6-2 to 
facilitate compliance with the upcoming T+1 settlement obligations. 
Without the proposed amendments, market participants would encounter 
different standards between municipal securities and other securities 
such as equity and corporate bonds, which could result in market 
inefficiencies and cause confusion, especially for investors who trade 
both municipal securities and other securities. Accordingly, the 
proposed rule change would be in the public interest and ultimately for 
the protection of investors, municipal entities, and obligated 
persons.\44\ In addition, dealers may encounter difficulty complying 
with the upcoming T+1 settlement obligations without the analogous 
Exchange Act Rule 15c6-2 requirements that the proposed rule change 
would incorporate into Rule G-12.
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    \43\ 15 U.S.C. 78o-4(b)(2)(C).
    \44\ Id.
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Benefits, Costs and Effect on Competition
    The MSRB considered the economic impact associated with the 
proposed rule change, relative to the baseline, which is the current 
Rule G-12 that does not align with Exchange Act Rule 15c6-2 on same-day 
allocation, confirmation and affirmation, and assessed incremental 
changes in benefits and costs in the proposed future state of a same-
day allocation, confirmation and affirmation process, in both cases in 
light of the already approved move to a T+1 settlement cycle in May 
2024.
Benefits
    The proposed rule change would facilitate compliance with the 
upcoming T+1 settlement obligations. The proposed rule change would 
help expedite the transmission and affirmation of trade data that is 
expected to enhance the accuracy and efficiency of institutional trade 
processing. The MSRB also expects that the same-day allocation, 
confirmation and affirmation standard would encourage the development 
of more standardized and automated dealer practices. While much of the 
industry has moved to a same-day allocation, confirmation and 
affirmation standard, the MSRB understands that there remain outliers 
who have not yet done so. By adopting a settlement process, either by 
agreement or

[[Page 89801]]

strengthening existing policies and procedures, the MSRB believes that 
more institutional trades would be successfully processed and receive 
an affirmed confirmation on the same trade date. The proposed rule 
change for regular-way municipal securities transactions in the 
secondary market would be consistent with Exchange Act Rule 15c6-2, 
which applies to equity and corporate bond transactions. Market 
efficiencies could be eroded if market participants encounter differing 
allocation, confirmation and affirmation standards in settlement cycles 
when trading equity securities or corporate bonds along with municipal 
securities. Finally, the MSRB expects that an increase in same-day 
affirmation rates would help reduce the number of settlement failures 
as affirmations on the same-day can help mitigate the risk of errors.
Costs
    The MSRB believes that some dealers would incur costs associated 
with systems changes to achieve a same-day allocation, confirmation and 
affirmation standard. For upfront costs, dealers would need to create 
written agreements for relevant parties and/or update existing policies 
and procedures. While firms may already have written agreements as part 
of their practices, firms would still need to review the existing 
policies and procedures framework to ensure their compliance with the 
proposed rule change. There would also be ongoing costs associated with 
compliance and recordkeeping in relation to the written policies and 
procedures and written agreements, including measuring and documenting 
the rate at which trades are meeting a same-day allocation, 
confirmation and affirmation standard.
    The T+1 settlement obligation is applicable to all firms regardless 
of how many asset classes they trade, and firms that only participate 
in the municipal securities market may be disproportionately impacted 
by changes that could require system or staffing investments in working 
towards ensuring a same-day allocation, confirmation and affirmation. 
This is in contrast to firms that participate in multiple asset 
classes, for which the incremental costs would be smaller or negligible 
as these firms are assumed to be in compliance with Exchange Act Rule 
15c6-2 obligations for asset classes other than municipal securities 
(as of the effective date of those obligations). For the limited number 
of dealers who only trade municipal securities, the MSRB assumes these 
dealers would likely choose the second option of establishing policies 
and procedures to comply with the proposed rule change, as the first 
option of entering written agreements could generally be more costly 
unless a particular dealer already uses written agreements to manage 
their relationship with their customers.\45\ The MSRB estimates that 
one-time upfront costs for system upgrades and policy and procedure 
revisions would be approximately $44,440 per firm and that ongoing 
annual costs for compliance and recordkeeping would be approximately 
$3,448 per firm. This calculation is based on the Commission's upper-
bound estimates of $88,880 per firm for the one-time upfront cost and 
$172,416 per firm for the annual ongoing cost when including all 
securities, other than an exempted security (a government security, a 
municipal security, commercial paper, bankers' acceptances, or 
commercial bills).\46\
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    \45\ See Commission T+1 Adopting Release, 88 FR at 13938. There 
is also a possibility that the industry would develop a standard 
written agreement for investors to complete and send to dealers over 
the longer term, but the MSRB is not aware of the possibility 
currently.
    \46\ See id., 88 FR at 13946. The Commission estimated 411 
broker-dealers would be subject to the requirements of Exchange Act 
Rule 15c6-2. Id. at 13939. The MSRB's internal analysis assumes a 
cost saving of 50% for the one-time upfront cost for municipal 
securities only, as opposed to many other securities, such as 
equities, corporate bonds, asset-backed securities, mortgage-backed 
securities, and stock options, etc., accounting for some fixed costs 
when working on a single security product. For the ongoing cost, the 
MSRB estimated the number of trades for municipal securities would 
be less than 2% of trades for other securities. Conservatively, two 
percentage points are used for estimating the ongoing costs related 
to municipal securities. The MSRB believes these estimates reflect 
an upper bound on the compliance costs.
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Burden on Competition and Capital Formation
    The proposed rule change would promote regulatory consistency and 
market efficiency by adopting a consistent standard of completing the 
trade matching and affirmation process on the trade date for all 
securities and harmonizing with Exchange Act Rule 15c6-2. The proposed 
rule change would also facilitate compliance with the upcoming T+1 
settlement obligations. As a result, the MSRB believes that by 
providing a uniform standard across all asset classes the proposed rule 
change would foster capital formation.
    The proposed rule change would be applied equally to all dealers 
transacting in municipal securities. The MSRB assumes that firms that 
will be subject to newly adopted Exchange Act Rule 15c6-2 would be 
equipped with the necessary technology and personnel for the completion 
of the allocation, confirmation and affirmation process on trade date 
as of the effective date of those obligations. For the remaining 
limited number of municipal dealers who only trade municipal 
securities, the estimated upfront costs would be relatively minor 
though necessary. Finally, the estimated annual ongoing costs would 
also be minor and would be proportional to each firm's trading 
activities. Therefore, the MSRB believes any broader impact on 
competition in the municipal securities market is expected to be minor, 
and the proposed rule change would not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Exchange Act.
Reasonable Alternatives
    One alternative the MSRB considered was instead of requiring 
dealers to develop written agreements or to establish, implement and 
enforce policies and procedures as prescribed in proposed Rule G-12(k), 
the proposed rule change would require dealers to have adequate 
policies and procedures in place that can support allocation. This 
principle-based approach would allow dealers to customize their 
policies and procedures while still proceeding towards the ultimate 
goal of same-day allocation, confirmation and affirmation. However, 
while this alternative may provide dealers more flexibility, it does 
not necessarily guarantee achieving same-day allocation, confirmation 
and affirmation, and does not facilitate the adoption of ``timely 
settlement.'' For example, while this principle-based approach may 
accelerate the allocation, confirmation and affirmation process for 
dealers, it may not lead to a market-wide adoption of same-day 
allocation, confirmation and affirmation standard immediately without 
the prescriptive obligations specified in policies and procedures in 
the proposed rule change for all dealers. In any case, the proposed 
rule change would promote an orderly settlement process regardless of 
the length of the settlement cycle.
    Another alternative would be to provide only one option for dealers 
to achieve a same-day allocation, confirmation and affirmation, for 
example, by withdrawing the written agreement requirement and instead 
only requiring the policies and procedures approach. This alternative 
would allow dealers to adopt their own internal policies and procedures 
to ensure that allocations, confirmations, and affirmations are 
completed on a timeline that would facilitate settlement on T+1. 
However, this approach could be more

[[Page 89802]]

costly for certain dealers who may already have written agreements in 
place or would want to rely on written agreements over incurring 
compliance costs of establishing, implementing and enforcing policies 
and procedures. Thus, the MSRB has determined that the proposed rule 
change is superior to the potential alternative approaches because it 
would offer two options for dealers to work towards a same-day 
allocation, confirmation and affirmation standard, thereby facilitating 
a timely settlement.

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

    Written comments were neither solicited nor received on the 
proposed rule change. However, in connection with the MSRB's filing to 
adopt a T+1 settlement process for municipal securities,\47\ one 
commenter expressed general support to have consistent rules for 
municipal securities with those for equities and corporate bonds 
whenever possible.\48\ Specifically, the commenter encouraged the MSRB 
to consider a rule consistent with Exchange Act Rule 15c6-2, to improve 
the processing of institutional trades through new requirements for 
market participants related to same-day affirmations.\49\
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    \47\ Exchange Act Release No. 97257 (Apr. 6, 2023), 88 FR 22075 
(Apr. 12, 2023) (File No. SR-MSRB-2023-03).
    \48\ See Letter from Leslie M. Norwood, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association (May 3, 2023), available at https://www.sec.gov/comments/sr-msrb-2023-03/srmsrb202303-183739-336923.pdf.
    \49\ See id.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period of up to 90 days (i) as 
the Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MSRB-2023-07 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-2023-07. 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. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to File Number SR-MSRB-2023-07 and should be submitted on 
or before January 18, 2024.

    For the Commission, pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28612 Filed 12-27-23; 8:45 am]
BILLING CODE 8011-01-P