
[Federal Register Volume 75, Number 249 (Wednesday, December 29, 2010)]
[Notices]
[Pages 82119-82120]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-32732]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63599; File No. SR-MSRB-2010-16]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of Amendments to Rule G-5, on 
Disciplinary Actions by Appropriate Regulatory Agencies, Remedial 
Notices by Registered Securities Associations; and Rule G-17, on 
Conduct of Municipal Securities Activities

December 22, 2010.

I. Introduction

    On November 1, 2010, the Municipal Securities Rulemaking Board 
(``MSRB''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change which consists of amendments to 
Rule G-5, on disciplinary actions by appropriate regulatory agencies, 
and Rule G-17, the Board's basic fair practice rule, to apply the rules 
to municipal advisors. The proposed rule change was published for 
comment in the Federal Register on November 18, 2010.\3\ The Commission 
received one comment letter about the proposed rule change which 
supported the proposed rule change.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 63309 (November 12, 
2010), 75 FR 70756 (the ``Commission's Notice'').
    \4\ See letter from the National Association of Independent 
Public Finance Advisors, dated December 9, 2010.
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    This order approves the proposed rule change.

II. Description of the Proposed Rule Change

    Rule G-5 currently provides that brokers, dealers, and municipal 
securities dealers (``dealers'') may not engage in municipal securities 
activities in contravention of restrictions imposed on them by the 
Commission, a registered securities association, or another appropriate 
regulatory agency. The purpose of the portion of the proposed rule 
change consisting of amendments to Rule G-5 are a) to remove a 
reference to an outdated National Association of Securities Dealers 
(``NASD'') \5\ rule and b) to provide that municipal advisors and their 
associated persons may not engage in the municipal advisory activities 
described in Section 15B(e)(4)(A)(i) and (ii) of the Act in 
contravention of restrictions imposed upon them by the Commission.
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    \5\ In 2007, the NASD merged with the New York Stock Exchange's 
regulation committee to form the Financial Industry Regulatory 
Authority, or FINRA. See Securities Exchange Act Release No. 56145 
(July 26, 2007), 72 FR 42169 (August 1, 2007).
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    Rule G-17 currently provides that, in the conduct of its municipal 
securities activities, each dealer shall deal fairly with all persons 
and shall not engage in any deceptive, dishonest, or unfair practice. 
The purpose of the portion of the proposed rule change consisting of 
amendments to Rule G-17 is to apply the MSRB's core fair dealing rule 
to municipal advisors in the same manner that it currently applies to 
dealers.
    A more complete description of the proposal is contained in the 
Commission's Notice.
    The proposed rule change shall be effective upon Commission 
approval.

 III. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change 
and finds that the proposed rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the MSRB \6\ and, in particular, the 
requirements of Section 15B(b)(2) of the Exchange Act \7\ and the rules 
and regulations thereunder. Section 15B(b)(2)(C) of the Exchange Act 
requires, among other things, that the MSRB's rules 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.\8\ Section 15B(b)(2)(L) of the Exchange Act requires, 
among other things, that the rules of the MSRB not impose a regulatory 
burden on small municipal advisors that is not necessary or appropriate 
in the public interest and for the protection of investors, municipal 
entities, and obligated

[[Page 82120]]

persons, provided that there is robust protection of investors against 
fraud.\9\
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    \6\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78o-4(b)(2).
    \8\ 15 U.S.C. 78o-4(b)(2)(C).
    \9\ 15 U.S.C. 78o-4(b)(2)(L).
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    The Commission believes that the proposed rule change is consistent 
with Section 15B(b)(2) of the Exchange Act, because it provides that: 
(i) municipal advisors shall deal fairly with all persons and not 
engage in any deceptive, dishonest, or unfair practice and (ii) 
municipal advisors and their associated persons shall not conduct 
municipal advisory activities in contravention of restrictions imposed 
upon them by the Commission. Such restrictions are, amongst other 
things, consistent with Section 15B(b)(2)(C) of the Exchange Act 
because they are designed to prevent fraudulent and manipulative acts 
and practices and to promote just and equitable principles of trade. 
The Commission further believes that the proposed rule change is 
consistent with Section 15B(b)(2)(L) of the Exchange Act because the 
proposed rule change does not impose a regulatory burden on small 
municipal advisors that is not necessary or appropriate in the public 
interest and the proposed rule change is necessary for the robust 
protection of investors against fraud as well as the protection of 
municipal entities and obligated persons. Many municipal advisors play 
a key role in the structuring of offerings of municipal securities and 
the preparation of offering documents used to market those securities 
to investors. In some cases, they advise on the appropriateness of 
municipal financial products, including municipal derivatives, entered 
into by municipal entities, the effectiveness of which may have a 
substantial impact on the finances of those municipal entities. In 
other cases, they solicit municipal entities and obligated persons for 
investment advisory business with respect to funds held by or on behalf 
of such municipal entity or obligated person which, if not conducted 
according to the highest standards, may have a substantial effect on 
the finances of the municipal entities and obligated persons that 
control those funds. Investors, therefore, have a substantial interest 
in municipal advisors conducting their municipal advisory activities 
fairly, not engaging in fraudulent conduct, and not engaging in 
municipal advisory activities contrary to disciplinary actions imposed 
by the Commission.
    The proposal will become effective upon Commission approval.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\10\ that the proposed rule change (SR-MSRB-2010-16), be, 
and it hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32732 Filed 12-28-10; 8:45 am]
BILLING CODE 8011-01-P


