
[Federal Register Volume 76, Number 240 (Wednesday, December 14, 2011)]
[Notices]
[Pages 77865-77877]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32087]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65918; File No. SR-MSRB-2011-09]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Instituting Proceedings to Determine Whether to Disapprove 
Proposed Rule Change, as Modified by Amendment No. 2, Consisting of 
Interpretive Notice Concerning the Application of MSRB Rule G-17 to 
Underwriters of Municipal Securities

 December 8, 2011.

I. Introduction

    On August 22, 2011, the Municipal Securities Rulemaking Board 
(``MSRB'' or ``Board'') filed with the Securities

[[Page 77866]]

and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) 
of the Securities Exchange Act of 1934 (``Exchange Act'' or ``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposal consisting of an 
interpretive notice concerning the application of MSRB Rule G-17 
(Conduct of Municipal Securities and Municipal Advisory Activities) to 
underwriters of municipal securities (``Notice''). The proposed rule 
change was published for comment in the Federal Register on September 
9, 2011.\3\ The Commission received five comment letters on the 
proposed rule change.\4\ On October 11, 2011, the MSRB extended the 
time period for Commission action to December 7, 2011. On November 3, 
2011, the MSRB filed Amendment No. 1 to the proposed rule change. On 
November 10, 2011, the MSRB withdrew Amendment No. 1, responded to 
comments,\5\ and filed Amendment No. 2 to the proposed rule change. The 
proposed rule change, as modified by Amendment No. 2, was published in 
the Federal Register on November 21, 2011.\6\ The Commission received 
eight comment letters on the proposed rule change, as modified by 
Amendment No. 2, and a response from the MSRB.\7\ On December 6, 2011, 
the MSRB extended the time period for Commission action to December 8, 
2011.
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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. 65263 (September 6, 
2011), 76 FR 55989.
    \4\ See Letters from Joy A. Howard, Principal, WM Financial 
Strategies, dated September 30, 2011 (``WM Letter''); Mike Nicholas, 
Chief Executive Officer, Bond Dealers of America, dated September 
30, 2010 (``BDA Letter''); Colette J. Irwin-Knott, CIPFA, President, 
National Association of Independent Public Finance Advisors, dated 
September 30, 2011 (``NAIPFA Letter''); Leslie M. Norwood, Managing 
Director and Associate General Counsel, Securities Industry and 
Financial Markets Association, dated September 30, 2011 (``SIFMA 
Letter''); and Susan Gaffney, Director, Federal Liaison Center, 
Government Finance Officers Association, dated October 3, 2011 
(``GFOA Letter'').
    \5\ See Letter from Margaret C. Henry, General Counsel, Market 
Regulation, MSRB, to Elizabeth M. Murphy, Secretary, Commission, 
dated November 10, 2011 (``Response Letter I'').
    \6\ See Securities Exchange Act Release No. 65749 (November 15, 
2011), 76 FR 72013.
    \7\ See Letters from Colette J. Irwin-Knott, CIPFA, President, 
National Association of Independent Public Finance Advisors, dated 
November 30, 2011 (``NAIPFA Letter II''); E. John White, Chief 
Executive Officer, Public Financial Management, Inc., dated November 
30, 2011 (``PFM Letter''); Leslie M. Norwood, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association, dated November 30, 2011 (``SIFMA Letter II''); Joy A. 
Howard, Principal, WM Financial Strategies, dated November 30, 2011 
(``WM Letter II''); Michael Nicholas, CEO, Bond Dealers of America, 
dated December 1, 2011 (``BDA Letter II''); Susan Gaffney, Director, 
Federal Liaison Center, Government Finance Officers Association, 
dated December 1, 2011 (``GFOA Letter II''); Robert Doty, AGFS, 
dated December 1, 2011 (``AGFS Letter''); and Peter C. Orr, CFA, 
President, Intuitive Analytics LLC, dated December 7, 2011 (``IA 
Letter''). See Letter from Margaret C. Henry, General Counsel, 
Market Regulation, MSRB, to Elizabeth M. Murphy, Secretary, 
Commission, dated December 7, 2011 (``Response Letter II'').
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    This order institutes proceedings under Section 19(b)(2)(B) of the 
Act to determine whether to disapprove the proposed rule change.

II. Description of the Proposal

    MSRB proposes to adopt an interpretive notice with respect to MSRB 
Rule G-17, which states that ``[i]n the conduct of its municipal 
securities or municipal advisory activities, each broker, dealer, 
municipal securities dealer, and municipal advisor shall deal fairly 
with all persons and shall not engage in any deceptive, dishonest, or 
unfair practice.''
    The scope of the Notice would apply to underwriters and their duty 
to municipal entity \8\ issuers of municipal securities in negotiated 
underwritings (except as set forth otherwise), but would not apply to 
selling group members or when a dealer is serving as an advisor to a 
municipal entity. The Notice includes the following sections: (1) Basic 
Fair Dealing Principle; (2) Role of the Underwriter/Conflicts of 
Interest; (3) Representations to Issuers; (4) Required Disclosures to 
Issuers; (5) Underwriter Duties in Connection with Issuer Disclosure 
Documents; (5) Underwriter Compensation and New Issue Pricing; (6) 
Conflicts of Interest; (7) Retail Order Periods; and (8) Dealer 
Payments to Issuer Personnel.
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    \8\ The Notice defines the term ``municipal entity'' as that 
term is defined by Section 15B(e)(8) of the Exchange Act: ``any 
State, political subdivision of a State, or municipal corporate 
instrumentality of a State, including--(A) any agency, authority, or 
instrumentality of the State, political subdivision, or municipal 
corporate instrumentality; (B) any plan, program, or pool of assets 
sponsored or established by the State, political subdivision, or 
municipal corporate instrumentality or any agency, authority, or 
instrumentality thereof; and (C) any other issuer of municipal 
securities.'' See proposed Notice endnote 1.
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A. Basic Fair Dealing Principle

    The Notice would specify that an underwriter must not misrepresent 
or omit the facts, risks, potential benefits, or other material 
information about municipal securities activities undertaken with a 
municipal entity issuer. The Notice would also state that MSRB Rule G-
17 establishes a general duty of a dealer to deal fairly with all 
persons (including, but not limited to, issuers of municipal 
securities), even in the absence of fraud.

B. Role of the Underwriter/Conflicts of Interest

    Under the Notice, MSRB Rule G-17's duty to deal fairly with all 
persons would require the underwriter to make certain disclosures to 
the issuer of municipal securities to clarify the underwriter's role in 
an issuance of municipal securities and the actual or potential 
material conflicts of interest with respect to such issuance.
1. Disclosures Concerning the Underwriter's Role
    The Notice would require an underwriter to disclose the following 
information to an issuer: (A) MSRB Rule G-17 requires an underwriter to 
deal fairly at all times with both municipal issuers and investors; (B) 
the underwriter's primary role is to purchase securities with a view to 
distribution in an arm's-length commercial transaction with the issuer 
and it has financial and other interests that differ from those of the 
issuer; (C) unlike a municipal advisor, the underwriter does not have a 
fiduciary duty to the issuer under the federal securities laws and is 
not required by federal law to act in the best interest of the issuer 
without regard to the underwriter's own financial or other interests; 
(D) the underwriter has a duty to purchase securities from the issuer 
at a fair and reasonable price, but must balance that duty with its 
duty to sell municipal securities to investors at prices that are fair 
and reasonable; and (E) the underwriter will review the official 
statement for the issuer's securities in accordance with, and as part 
of, its responsibilities to investors under the federal securities 
laws, as applied to the facts and circumstances of the transaction. 
Moreover, the Notice would state that the underwriter must not 
recommend that the issuer not retain a municipal advisor.
2. Disclosure Concerning the Underwriter's Compensation
    The Notice would require an underwriter to disclose to an issuer 
whether its underwriting compensation will be contingent on the closing 
of a transaction. The underwriter must also disclose that compensation 
that is contingent on the closing of a transaction or the size of a 
transaction presents a conflict of interest, because it may cause the 
underwriter to recommend a transaction that it is unnecessary or to 
recommend that the size of the transaction be larger than is necessary.

[[Page 77867]]

3. Other Conflicts Disclosures
    The Notice would require an underwriter to disclose other potential 
or actual material conflicts of interest, including, but not limited 
to, the following: (A) Any payments described below in Section II 
(G)(1) ``Conflicts of Interest--Payments to or from Third Parties''; 
(B) any arrangements described below in Section II (G)(2) ``Conflicts 
of Interest--Profit-Sharing with Investors''; (C) the credit default 
swap disclosures described below in Section II (G)(3) ``Conflicts of 
Interest--Credit Default Swaps''; and (D) any incentives for the 
underwriter to recommend a complex municipal securities financing and 
other associated conflicts of interest described below in Section II 
(D) ``Required Disclosures to Issuers''.
    The Notice would permit disclosures concerning the role of the 
underwriter and the underwriter's compensation to be made by a 
syndicate manager on behalf of other syndicate members. The Notice 
would require other conflicts disclosures to be made by the particular 
underwriters subject to such conflicts.
4. Timing and Manner of Disclosures
    The Notice would require that all of the disclosures be made in 
writing to an official of the issuer that the underwriter reasonably 
believes has the authority to bind the issuer by contract with the 
underwriter and that, to the knowledge of the underwriter, is not a 
party to a disclosed conflict. The Notice would specify that the 
disclosures must be made in a manner designed to make clear to such 
official the subject matter of the disclosures and their implications 
for the issuer.
    The Notice would specify when the disclosures must be made. First, 
disclosure concerning the arm's-length nature of the underwriter-issuer 
relationship must be made in the earliest stages of the underwriter's 
relationship with the issuer, for example, in a response to a request 
for proposals or in promotional materials provided to an issuer. Other 
disclosures concerning the role of the underwriter and the 
underwriter's compensation generally must be made when the underwriter 
is engaged to perform underwriting services, for example, in an 
engagement letter, not solely in a bond purchase agreement. Moreover, 
conflicts disclosures must be made at the same time, except with regard 
to conflicts discovered or arising after the underwriter has been 
engaged. For example, a conflict may not be present until an 
underwriter has recommended a particular financing. In that case, the 
disclosure must be provided in sufficient time before the execution of 
a contract with the underwriter to allow the official to evaluate the 
recommendation, as described below in Section II (D) ``Required 
Disclosures to Issuers''.
5. Acknowledgement of Disclosures
    The Notice would require an underwriter to attempt to receive 
written acknowledgement (other than by automatic email receipt) by the 
official of the issuer of receipt of the foregoing disclosures. If the 
official of the issuer agrees to proceed with the underwriting 
engagement after receipt of the disclosures but will not provide 
written acknowledgement of receipt, the underwriter may proceed with 
the engagement after documenting with specificity why it was unable to 
obtain such written acknowledgement.

C. Representations to Issuers

    The Notice would require all representations made by underwriters 
to issuers of municipal securities in connection with municipal 
securities undertakings, whether written or oral, to be truthful and 
accurate and not misrepresent or omit material facts. Underwriters must 
have a reasonable basis for the representations and other material 
information contained in documents they prepare and must refrain from 
including representations or other information they know or should know 
is inaccurate or misleading. For example, in connection with a 
certificate signed by the underwriter that will be relied upon by the 
issuer or other relevant parties to an underwriting, for example, an 
issue price certificate, the dealer must have a reasonable basis for 
the representations and other material information contained therein.
    In addition, an underwriter's response to an issuer's request for 
proposals or qualifications must fairly and accurately describe the 
underwriter's capacity, resources, and knowledge to perform the 
proposed underwriting as of the time the proposal is submitted and must 
not contain any representations or other material information about 
such capacity, resources, or knowledge that the underwriter knows or 
should know to be inaccurate or misleading. Matters not within the 
personal knowledge of those preparing the response, for example, 
pending litigation, must be confirmed by those with knowledge of the 
subject matter. An underwriter must not represent that it has the 
requisite knowledge or expertise with respect to a particular financing 
if the personnel that it intends to work on the financing do not have 
the requisite knowledge or expertise.

D. Required Disclosures to Issuers

    The Notice would require that disclosures be tailored to the 
personnel of the issuer if knowledge or experience is lacking with a 
particular type of structure. While many municipal securities are 
issued using financing structures that are routine and well understood 
by the typical municipal market professional, including most issuer 
personnel that have the lead responsibilities in connection with the 
issuance of municipal securities, the underwriter must provide 
disclosures on the material aspects of structures when the underwriter 
reasonably believes issuer personnel lacks knowledge or experience with 
such structures that it recommends.
    In cases where the issuer personnel responsible for the issuance of 
municipal securities would not be well positioned to fully understand 
or assess the implications of a financing in its totality, because the 
financing is structured in an unique, atypical, or otherwise complex 
manner, the underwriter in a negotiated offering that recommends such 
complex financing has an obligation to make more particularized 
disclosures than otherwise required in a routine financing.\9\ Examples 
of complex financings include variable rate demand obligations and 
financings involving derivatives such as swaps. The underwriter must 
disclose the material financial characteristics of the complex 
financing, as well as the material financial risks of the financing 
that are known to the underwriter and reasonably foreseeable at the 
time of the disclosure.\10\ The underwriter must also

[[Page 77868]]

disclose any incentives to recommend the financing and other associated 
conflicts of interest.\11\ These disclosures must be made in a fair and 
balanced manner based on principles of fair dealing and good faith.
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    \9\ The Notice would state that if a complex municipal 
securities financing consists of an otherwise routine financing 
structure that incorporates a unique, atypical or complex element 
and the issuer personnel have knowledge or experience with respect 
to the routine elements of the financing, the disclosure of material 
risks and characteristics may be limited to those relating to such 
specific element and any material impact such element may have on 
other features that would normally be viewed as routine. See 
proposed Notice endnote 6.
    \10\ The Notice would provide an example that an underwriter 
that recommends variable rate demand obligations should inform the 
issuer of the risk of interest rate fluctuations and material risks 
of any associated credit or liquidity facilities (for example, the 
risk that the issuer might not be able to replace the facility upon 
its expiration and might be required to repay the facility provider 
over a short period of time). As an additional example, if the 
underwriter recommends that the issuer swap the floating rate 
interest payments on the variable rate demand obligations to fixed 
rate payments under a swap, the underwriter must disclose the 
material financial risks (including market, credit, operational, and 
liquidity risks) and material financial characteristics of the 
recommended swap (for example, the material economic terms of the 
swap, the material terms relating to the operation of the swap, and 
the material rights and obligations of the parties during the term 
of the swap), as well as the material financial risks associated 
with the variable rate demand obligation.
    Such disclosure should be sufficient to allow the issuer to 
assess the magnitude of its potential exposure as a result of the 
complex municipal securities financing. The underwriter must also 
inform the issuer that there may be accounting, legal, and other 
risks associated with the swap and that the issuer should consult 
with other professionals concerning such risks. If the underwriter's 
affiliated swap dealer is proposed to be the executing swap dealer, 
the underwriter may satisfy its disclosure obligation with respect 
to the swap if such disclosure has been provided to the issuer by 
the affiliated swap dealer or the issuer's swap or other financial 
advisor that is independent of the underwriter and the swap dealer, 
as long as the underwriter has a reasonable basis for belief in the 
truthfulness and completeness of such disclosure. If the issuer 
decides to enter into a swap with another dealer, the underwriter is 
not required to make disclosures with regard to that swap. Dealers 
that recommend swaps or security-based swaps to municipal entities 
may also be subject to rules of the Commodity Futures Trading 
Commission or those of the Commission. See proposed Notice endnote 
7.
    \11\ The Notice would provide an example that a conflict of 
interest may exist when the underwriter is also the provider of a 
swap used by an issuer to hedge a municipal securities offering or 
when the underwriter receives compensation from a swap provider for 
recommending the swap provider to the issuer. See proposed Notice 
endnote 8.
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    The Notice would dictate that the level of required disclosure may 
vary according to the issuer's knowledge or experience with the 
proposed financing structure or similar structures, capability of 
evaluating the risks of the recommended financing, and financial 
ability to bear the risks of the recommended financing, in each case 
based on the reasonable belief of the underwriter.\12\ In all events, 
the underwriter must disclose any incentives for the underwriter to 
recommend the complex municipal securities financing and other 
associated conflicts of interest.
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    \12\ The Notice would state that even a financing in which the 
interest rate is benchmarked to an index that is commonly used in 
the municipal marketplace, such as LIBOR or SIFMA, may be complex to 
an issuer that does not understand the components of that index or 
its possible interaction with other indexes. See proposed Notice 
endnote 9.
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    The Notice would require that this disclosure be made in writing to 
an official of the issuer whom the underwriter reasonably believes has 
the authority to bind the issuer by contract with the underwriter in 
(A) sufficient time before the execution of a contract with the 
underwriter to allow the official to evaluate the recommendation and 
(B) a manner designed to make clear to such official the subject matter 
of such disclosures and their implications for the issuer. The complex 
financing disclosures must address the specific elements of the 
financing and cannot be general in nature. Finally, the Notice would 
require the underwriter to make additional efforts reasonably designed 
to inform the official of the issuer if the underwriter does not 
reasonably believe that the official is capable of independently 
evaluating the disclosures.

E. Underwriter Duties in Connection With Issuer Disclosure Documents

    The Notice would note that underwriters often play an important 
role in assisting issuers in the preparation of disclosure documents, 
such as preliminary official statements and official statements.\13\ 
These documents are critical to the municipal securities transaction, 
in that investors rely on the representations contained in the 
documents in making their investment decisions. Investment 
professionals, such as municipal securities analysts and ratings 
services, rely on the representations in forming an opinion regarding 
the credit.
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    \13\ The Notice would state that underwriters that assist 
issuers in preparing official statements must remain cognizant of 
the underwriters' duties under federal securities laws. With respect 
to primary offerings of municipal securities, the SEC has noted, 
``By participating in an offering, an underwriter makes an implied 
recommendation about the securities.'' See Securities Exchange Act 
Release No. 34-26100 (September 22, 1988), 53 FR 37778 (September 
28, 1998) (proposing Exchange Act Rule 15c2-12) at text following 
note 70. The SEC has stated that ``this recommendation itself 
implies that the underwriter has a reasonable basis for belief in 
the truthfulness and completeness of the key representations made in 
any disclosure documents used in the offerings.'' Furthermore, 
pursuant to SEC Rule 15c2-12(b)(5), an underwriter may not purchase 
or sell municipal securities in most primary offerings unless the 
underwriter has reasonably determined that the issuer or an 
obligated person has entered into a written undertaking to provide 
certain types of secondary market disclosure and has a reasonable 
basis for relying on the accuracy of the issuer's ongoing disclosure 
representations. Securities Exchange Act Release No. 34-34961 
(November 17, 1994), 59 FR 59590 (November 10, 1994) (adopting 
continuing disclosure provisions of Exchange Act Rule 15c2-12) at 
text following note 52. See proposed Notice endnote 10.
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    The Notice would provide that a dealer's duty to have a reasonable 
basis for the representations it makes, and other material information 
it provides, to an issuer and to ensure that such representations and 
information are accurate and not misleading extends to representations 
and information provided by the underwriter in connection with the 
preparation by the issuer of its disclosure documents, for example, 
cash flows.

F. Underwriter Compensation and New Issue Pricing

1. Excessive Compensation
    The Notice states that an underwriter's compensation for a new 
issue (including both direct compensation paid by the issuer and other 
separate payments, values, or credits received by the underwriter from 
the issuer or any other party in connection with the underwriting), in 
certain cases and depending upon the specific facts and circumstances 
of the offering, may be so disproportionate to the nature of the 
underwriting and related services performed as to constitute an unfair 
practice with regard to the issuer that it is a violation of MSRB Rule 
G-17. The Notice would look at factors such as the credit quality of 
the issue, the size of the issue, market conditions, the length of time 
spent structuring the issue, and whether the underwriter is paying the 
fee of the underwriter's counsel or any other relevant costs related to 
the financing.
2. Fair Pricing
    The Notice states that the duty of fair dealing under MSRB Rule G-
17 includes an implied representation that the price an underwriter 
pays to an issuer is fair and reasonable, taking into consideration all 
relevant factors, including the best judgment of the underwriter as to 
the fair market value of the issue at the time it is priced.\14\ In 
general, a dealer purchasing bonds in a competitive underwriting for 
which the issuer may reject any and all bids will be deemed to have 
satisfied its duty of fairness to the issuer with respect to the 
purchase price of the issue as long as the dealer's bid is a bona fide 
bid as defined in MSRB Rule G-13 \15\ that is based on the dealer's 
best judgment of

[[Page 77869]]

the fair market value of the securities that are the subject of the 
bid.
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    \14\ The Notice would state that the MSRB has previously 
observed that whether an underwriter has dealt fairly with an issuer 
for purposes of MSRB Rule G-17 is dependent upon all of the facts 
and circumstances of an underwriting and is not dependent solely on 
the price of the issue. The Notice refers to MSRB Notice 2009-54 and 
Rule G-17 Interpretive Letter--Purchase of new issue from issuer, 
MSRB interpretation of December 1, 1997. See proposed Notice endnote 
11.
    \15\ The Notice would refer to MSRB Rule G-13(b)(iii), which 
provides: ``For purposes of subparagraph (i), a quotation shall be 
deemed to represent a ``bona fide bid for, or offer of, municipal 
securities'' if the broker, dealer or municipal securities dealer 
making the quotation is prepared to purchase or sell the security 
which is the subject of the quotation at the price stated in the 
quotation and under such conditions, if any, as are specified at the 
time the quotation is made.'' See proposed Notice endnote 12.
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    In a negotiated underwriting, the underwriter has a duty under MSRB 
Rule G-17 to negotiate in good faith with the issuer. This duty would 
include the obligation of the dealer to ensure the accuracy of 
representations made during the course of such negotiations, including 
representations regarding the price negotiated and the nature of 
investor demand for the securities, for example, the status of the 
order period and the order book. If, for example, the dealer represents 
to the issuer that it is providing the ``best'' market price available 
on the new issue, or that it will exert its best efforts to obtain the 
``most favorable'' pricing, the dealer may violate MSRB Rule G-17 if 
its actions are inconsistent with such representations.\16\
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    \16\ The Notice would refer to Rule G-17 Interpretive Letter--
Purchase of new issue from issuer, MSRB interpretation of December 
1, 1997. See proposed Notice endnote 13.
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G. Conflicts of Interest

1. Payments To or From Third Parties
    The Notice would state that in certain cases, compensation received 
by the underwriter from third parties, such as the providers of 
derivatives and investments (including affiliates of the underwriters), 
may color the underwriter's judgment and cause it to recommend 
products, structures, and pricing levels to an issuer when it would not 
have done so absent such payments. The MSRB would view the failure of 
an underwriter to disclose to the issuer the existence of payments, 
values, or credits received by the underwriter in connection with its 
underwriting of the new issue from parties other than the issuer, and 
payments made by the underwriter in connection with such new issue to 
parties other than the issuer (in either case including payments, 
values, or credits that relate directly or indirectly to collateral 
transactions integrally related to the issue being underwritten), to be 
a violation of the underwriter's obligation to the issuer under MSRB 
Rule G-17.
    For example, the MSRB would consider it to be a violation of MSRB 
Rule G-17 for an underwriter to compensate an undisclosed third party 
in order to secure municipal securities business. Similarly, the MSRB 
would consider it to be a violation of MSRB Rule G-17 for an 
underwriter to receive undisclosed compensation from a third party in 
exchange for recommending that third party's services or products to an 
issuer, including business related to municipal securities derivative 
transactions. The Notice does not require that the amount of such third 
party payments be disclosed.
    In addition, the underwriter must disclose to the issuer whether 
the underwriter has entered into any third-party arrangements for the 
marketing of the issuer's securities.
2. Profit-Sharing With Investors
    The Notice would state that arrangements between the underwriter 
and an investor purchasing new issue securities from the underwriter 
(including purchases that are contingent upon the delivery by the 
issuer to the underwriter of the securities) according to which profits 
realized from the resale by such investor of the securities are 
directly or indirectly split or otherwise shared with the underwriter 
would, depending on the facts and circumstances (including, in 
particular, if such resale occurs reasonably close in time to the 
original sale by the underwriter to the investor), constitute a 
violation of the underwriter's fair dealing obligation under MSRB Rule 
G-17. Such arrangements could also constitute a violation of MSRB Rule 
G-25(c), which precludes a dealer from sharing, directly or indirectly, 
in the profits or losses of a transaction in municipal securities with 
or for a customer.\17\
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    \17\ MSRB Rule D-9 defines the term ``customer'' as: ``Except as 
otherwise specifically provided by rule of the Board, the term 
``Customer'' shall mean any person other than a broker, dealer, or 
municipal securities dealer acting in its capacity as such or an 
issuer in transactions involving the sale by the issuer of a new 
issue of its securities.''
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3. Credit Default Swaps
    The issuance or purchase by a dealer of credit default swaps for 
which the reference is the issuer for which the dealer is serving as 
underwriter, or an obligation of that issuer, may pose a conflict of 
interest, because trading in such municipal credit default swaps has 
the potential to affect the pricing of the underlying reference 
obligations, as well as the pricing of other obligations brought to 
market by that issuer. The Notice would require a dealer to disclose 
the fact that it engages in such activities to the issuers for which 
the dealer serves as underwriter.
    The Notice would not require disclosures for activities with regard 
to credit default swaps based on baskets or indexes of municipal 
issuers that include the issuer or its obligations, unless the issuer 
or its obligations represents more than 2% of the total notional amount 
of the credit default swap or the underwriter otherwise caused the 
issuer or its obligations to be included in the basket or index.

H. Retail Order Periods

    The Notice would require an underwriter that has agreed to 
underwrite a transaction with a retail order period to honor such 
agreement.\18\ The Notice would require a dealer that wishes to 
allocate securities in a manner that is inconsistent with an issuer's 
requirements to obtain the issuer's consent.
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    \18\ The Notice refers to MSRB Interpretation on Priority of 
Orders for Securities in a Primary Offering under Rule G-17, MSRB 
interpretation of October 12, 2010, reprinted in the MSRB Rule Book. 
The Notice would remind underwriters of previous MSRB guidance on 
the pricing of securities sold to retail investors and refer to 
Guidance on Disclosure and Other Sales Practice Obligations to 
Individual and Other Retail Investors in Municipal Securities, MSRB 
Notice 2009-42 (July 14, 2009). See proposed Notice endnote 15.
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    The Notice would require an underwriter that has agreed to 
underwrite a transaction with a retail order period to take reasonable 
measures to ensure that retail clients are bona fide. An underwriter 
that knowingly accepts an order that has been framed as a retail order 
when it is not, for example, a number of small orders placed by an 
institutional investor that would otherwise not qualify as a retail 
customer, would violate MSRB Rule G-17 if its actions are inconsistent 
with the issuer's expectations regarding retail orders. Moreover, a 
dealer that places an order that is framed as a qualifying retail order 
but in fact represents an order that does not meet the qualification 
requirements to be treated as a retail order, for example, an order by 
a retail dealer without ``going away'' orders \19\ from retail 
customers when such orders are not within the issuer's definition of 
``retail,'' would violate its MSRB Rule G-17 duty of fair dealing.
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    \19\ The Notice would state that a ``going away'' order is an 
order for new issue securities for which a customer is already 
conditionally committed and cites Securities Exchange Act Release 
No. 62715 (August 13, 2010), 75 FR 51128 (August 18, 2010) (File No. 
SR-MSRB-2009-17). See proposed Notice endnote 16.
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    The Notice specifies that the MSRB will continue to review 
activities relating to retail order periods to ensure that they are 
conducted in a fair and orderly manner consistent with the intent of 
the issuer and the MSRB's investor protection mandate.

I. Dealer Payments to Issuer Personnel

    The Notice would state that dealers are reminded of the application 
of MSRB Rule G-20 on gifts, gratuities, and non-cash compensation, and 
MSRB Rule G-17, in connection with certain

[[Page 77870]]

payments made to, and expenses reimbursed for, issuer personnel during 
the municipal bond issuance process.\20\ The Notice would further state 
that the rules are designed to avoid conflicts of interest and to 
promote fair practices in the municipal securities market.
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    \20\ The Notice would cite to MSRB Rule G-20 Interpretation--
Dealer Payments in Connection With the Municipal Securities Issuance 
Process, MSRB interpretation of January 29, 2007, reprinted in the 
MSRB Rule Book. See proposed Notice endnote 17.
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    The Notice would alert dealers to consider carefully whether 
payments they make in regard to expenses of issuer personnel in the 
course of the bond issuance process, including in particular, but not 
limited to, payments for which dealers seek reimbursement from bond 
proceeds or issuers, comport with the requirements of MSRB Rule G-20. 
For example, the Notice provides that a dealer acting as a financial 
advisor or underwriter may violate MSRB Rule G-20 by paying for 
excessive or lavish travel, meal, lodging and entertainment expenses in 
connection with an offering such as may be incurred for rating agency 
trips, bond closing dinners, and other functions, that inure to the 
personal benefit of issuer personnel and that exceed the limits or 
otherwise violate the requirements of the rule.\21\
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    \21\ The Notice cites to In the Matter of RBC Capital Markets 
Corporation, SEC Rel. No. 34-59439 (Feb. 24, 2009) (settlement in 
connection with broker-dealer alleged to have violated MSRB Rules G-
20 and G-17 for payment of lavish travel and entertainment expenses 
of city officials and their families associated with rating agency 
trips, which expenditures were subsequently reimbursed from bond 
proceeds as costs of issuance); In the Matter of Merchant Capital, 
L.L.C., SEC Rel. No. 34-60043 (June 4, 2009) (settlement in 
connection with broker-dealer alleged to have violated MSRB rules 
for payment of travel and entertainment expenses of family and 
friends of senior officials of issuer and reimbursement of the 
expenses from issuers and from proceeds of bond offerings). See 
proposed Notice endnote 18.
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III. Comment Letters and the MSRB's Responses

    As noted earlier, the Commission received five comments \22\ on the 
proposed rule change as originally proposed and eight comments \23\ on 
the proposed rule change, as modified by Amendment No. 2.\24\ The MSRB 
filed two letters responding to the comments.\25\ A summary of the 
comments and the MSRB's responses are set forth below.
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    \22\ See supra note 4.
    \23\ See supra note 7.
    \24\ One commenter stated that the amended Notice is a 
significant improvement over the original Notice. See PFM Letter. 
Another commenter stated that it supports the changes made in the 
Notice, as modified by Amendment No. 2, such as the limits on 
negotiated offerings, disclosures based on reasonable beliefs, and 
nondisclosure of third-party payment amounts. See GFOA Letter II.
    \25\ See supra notes 5 and 7.
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A. Basic Fair Dealing Principle

    Commenters generally supported the principle of fair dealing in 
MSRB Rule G-17,\26\ but some commenters believed that the principle of 
fair dealing should not be interpreted to impose a fiduciary duty on 
underwriters to issuers,\27\ while other commenters believed that 
underwriters have such a duty if they engage in certain activities.\28\ 
In Response Letter I, the MSRB responded that the Notice does not 
impose a fiduciary duty on underwriters and that the duties imposed by 
the Notice on underwriters are no different in many cases from the 
duties already imposed on them by MSRB rules with respect to customers. 
Further, the MSRB stated that an underwriter is not required to act in 
the best interest of an issuer without regard to the underwriter's own 
financial and other interests and is not required to consider all 
reasonably feasible alternatives to the proposed financings. Rather, 
the MSRB stated that one purpose of the Notice is to eliminate issuer 
confusion about the role of the underwriter.
---------------------------------------------------------------------------

    \26\ See SIFMA Letter I.
    \27\ See SIFMA Letter I; NAIPFA Letter I; BDA Letter I. Both 
NAIPFA Letter I and BDA Letter I noted that the imposition of a 
fiduciary duty would confuse municipal issuers on the role of 
underwriters. One commenter disagreed with the imposition of a 
fiduciary duty and noted that municipal issuers often do not 
understand the disclosures that they are provided and municipal 
issuers do not benefit from complex disclosures from firms that are 
not acting in a fiduciary capacity. See WM Letter I (stating its 
belief that the proposal will not improve transparency in the 
municipal market).
    \28\ See, e.g., PFM Letter. The commenter stated that advice 
given by brokers in their promotion of themselves to become 
underwriters makes them municipal advisors.
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B. Role of the Underwriter/Conflicts of Interest

1. Disclosures Concerning the Underwriter's Role
    Some commenters suggested additional disclosures with respect to 
the role of underwriters.\29\ For example, commenters suggested that 
the MSRB require an underwriter to state: (1) That the underwriter does 
not have a fiduciary duty to the issuer and is a counterparty at arm's 
length; \30\ (2) that the issuer may choose to engage a financial 
advisor to represent its interests; \31\ (3) that the underwriter is 
not acting as an advisor; \32\ (4) that the underwriter has conflicts 
with issuers because the underwriter represents the interests of 
investors and other parties; \33\ (5) that the underwriter seeks to 
maximize profitability; \34\ and (6) that the underwriter has no 
continuing obligation to the issuer after the transaction.\35\
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    \29\ One commenter stated that it supports the proposal but 
believes that additional changes would be required to protect 
infrequent and/or small and unsophisticated issuers. See NAIPFA 
Letter I.
    \30\ See GFOA Letter I and NAIPFA Letter I. One commenter stated 
its belief that a simple disclosure from an underwriter to the 
issuer that the underwriter is not acting as financial advisor and 
that the issuer should consult with a financial advisor would be 
sufficient. See WM Letter I.
    \31\ See GFOA Letter I and NAIPFA Letter I (requesting a 
disclosure that an underwriter is no replacement for a municipal 
advisor and stating that when an issuer engages a municipal advisor, 
the underwriter disclosures should not overlap with areas covered by 
the role of municipal advisor). Other commenters stated their belief 
that in a negotiated sale, when the issuer of municipal securities 
engages a registered municipal advisor, disclosures should be 
reduced. See NAIPFA Letter II; SIFMA Letter II; and WM Letter II 
(stating that the exemption from some of the disclosures required by 
the rule for underwriters engaged in a competitive sale should be 
extended to all transactions in which a financial advisor has been 
retained). In Response Letter II, the MSRB noted its disagreement 
because it believes that more disclosure would empower, rather than 
confuse, issuers.
    \32\ See NAIPFA Letter I.
    \33\ See NAIPFA Letter I. One commenter objected to the required 
disclosure that an underwriter must balance a fair and reasonable 
price for issuers with a fair and reasonable price for investors. 
See BDA Letter II. The commenter stated its belief that there exists 
a reasonable price for both issuers and investors, and recommended 
that the disclosure be modified to reflect that statement. In 
Response Letter II, the MSRB stated its belief that it is 
appropriate to characterize the underwriter's duties of fair pricing 
as a balance between the interests of the issuer and investors.
    \34\ See NAIPFA Letter I.
    \35\ See NAIPFA Letter I.
---------------------------------------------------------------------------

    In Response Letter I, the MSRB noted that the Notice, as modified 
by Amendment No. 2, incorporates many of the recommendations suggested 
by the commenters, such as requiring underwriters to provide issuers 
with disclosure that underwriters do not have a fiduciary duty to 
issuers. In addition, the MSRB noted that the Notice, as modified by 
Amendment No. 2, requires disclosure regarding the underwriter's role 
compared to a municipal advisor,\36\ and prohibits an underwriter from 
recommending that the issuer not retain a municipal advisor.\37\ The 
MSRB also

[[Page 77871]]

stated that it does not believe that it is necessary for underwriters 
to disclose that they seek to maximize profitability and have no 
continuing obligation to the issuer after the transaction.
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    \36\ One commenter stated that the requirement for an 
underwriter to compare its obligations with others, such as a 
municipal advisor, should be eliminated. See BDA Letter II. In 
Response Letter II, the MSRB noted that it has determined to take 
the approach suggested by another commenter (GFOA) and, therefore, 
has not changed this provision of the proposal but will monitor 
disclosure practices under the proposal and will engage in a 
dialogue with industry participants and the Commission to determine 
whether sufficient improvements have occurred in the flow of 
disclosures to decision-making personnel of issuers or whether 
additional steps should be taken.
    \37\ One commenter agreed with the MSRB that an underwriter 
should not recommend that an issuer not retain a municipal advisor. 
See BDA Letter II. However, the commenter stated that it is 
concerned that municipal advisors are not subject to professional 
standards, continuing education, licensing or other requirements, or 
a prohibition against making political contributions.
---------------------------------------------------------------------------

    One commenter suggested that the MSRB require underwriters to 
disclose pending litigation that may affect the underwriter's municipal 
securities business, departure of experts that the issuer relied upon, 
and transactional risk including a comparison of different forms of 
financings.\38\ In Response Letter I, the MSRB disagreed that 
underwriters should disclose different types of financings that may be 
applicable to an issuer's particular situation because that is under 
the domain of the municipal advisor, and noted that pending litigation 
and expert departures do not rise to the level of conflicts, but could 
be required by issuers as the issuers deem appropriate.
---------------------------------------------------------------------------

    \38\ See GFOA Letter I. See also GFOA Letter II.
---------------------------------------------------------------------------

    One commenter stated its belief that the Notice should require 
underwriters to educate issuers to better understand underwriting 
pricing and fees.\39\ In Response Letter I, the MSRB noted it is in the 
process of developing education materials for issuers as suggested by 
the commenter.
---------------------------------------------------------------------------

    \39\ See GFOA Letter I.
---------------------------------------------------------------------------

    Another commenter stated that underwriters should not be required 
to provide generalized role and compensation disclosures or written 
risk disclosures to large and frequent issuers unless requested by such 
issuers.\40\ In Response Letter II, the MSRB noted its disagreement and 
stated its belief that additional disclosure would empower, rather than 
confuse, issuers and, therefore, no further modifications to these 
provisions are warranted.
---------------------------------------------------------------------------

    \40\ See SIFMA Letter II.
---------------------------------------------------------------------------

2. Disclosure Concerning the Underwriter's Compensation
    One commenter requested additional conflicts of interest 
disclosures regarding underwriter compensation, such as how the 
underwriter is compensated.\41\ In Response Letter I, the MSRB stated 
that it believes that the Notice, as modified by Amendment No. 2, would 
incorporate the commenter's recommendation, such as disclosure 
regarding contingent fee compensation as a conflict of interest.
---------------------------------------------------------------------------

    \41\ See GFOA Letter I.
---------------------------------------------------------------------------

    Another commenter stated its belief that the underwriter should be 
required to disclose to an issuer, and obtain its informed consent in 
writing, that the form of the underwriter's compensation creates a 
conflict of interest, because underwriter compensation is based 
primarily on the size and type of issuance.\42\ The commenter later 
stated that contingent fees should be disclosed.\43\ Another commenter 
objected to the characterization of contingent fee arrangements as 
resulting in a conflict of interest with issuers.\44\ The commenter 
stated that such arrangements do not necessarily result in a conflict, 
and recommended that disclosure should state that such disclosure 
``may'' present a conflict or ``may have'' the potential for a 
conflict.\45\
---------------------------------------------------------------------------

    \42\ See NAIPFA Letter I.
    \43\ See NAIPFA Letter II.
    \44\ See BDA Letter II.
    \45\ See id.
---------------------------------------------------------------------------

    In Response Letter II, the MSRB stated that it believes that it has 
accurately characterized compensation arrangements contingent on 
closing or on the size of the transactions as creating a conflict of 
interest--it may be that other factors on which an underwriter and the 
issuer have a coincidence of interests may outweigh the conflicting 
interests resulting from the contingent arrangement, but that does not 
change the fact that such arrangement itself represents a conflict. 
Further, given the transaction-based nature of the typical relationship 
between underwriters and issuers, the MSRB stated that it believes that 
the proposal's requirements regarding disclosure of compensation 
conflicts, together with the other conflicts disclosures included in 
the proposal, adequately address concerns that may arise in cases where 
potential conflicts may arise under less typical compensation 
scenarios.
    One commenter stated that it would be more beneficial to issuers to 
require underwriters to disclose the amount of compensation at the 
outset and conclusion of the transaction.\46\ In Response Letter II, 
the MSRB stated that the provisions relating to these disclosures are 
appropriate given the transaction-based nature of the typical 
relationship between underwriters and issuers. The MSRB stated its 
belief that the proposal's requirements regarding disclosure of 
compensation conflicts, together with the other conflicts disclosures 
included in the proposal, adequately address concerns that may arise in 
cases where potential conflicts may arise under less typical 
compensation scenarios.
---------------------------------------------------------------------------

    \46\ See NAIPFA Letter II.
---------------------------------------------------------------------------

3. Other Conflicts Disclosures
    One commenter requested additional conflicts of interest 
disclosures such as the duty the underwriter has to investors.\47\ In 
Response Letter I, the MSRB stated that it believes that the Notice, as 
modified by Amendment No. 2, would incorporate the commenter's 
recommendation, such as by requiring disclosure of an underwriter's 
other actual or potential material conflicts of interest.
---------------------------------------------------------------------------

    \47\ See GFOA Letter I.
---------------------------------------------------------------------------

    One commenter stated that when there is a syndicate of 
underwriters, an underwriter whose participation level is below 10% 
should be exempted from the disclosure requirements.\48\ Another 
commenter stated that, with respect to underwriter syndicates, 
underwriters who do not have a role in the development or 
implementation of the financing structure or other aspects of the issue 
should not be subject to the disclosures.\49\ In Response Letter II, 
the MSRB declined to create any such exemption since not all conflicts 
or other concerns that arise in the context of an underwriting are 
necessarily proportionate to the size of participation of an 
underwriter. The MSRB noted, however, that with respect to disclosures 
about the material financial characteristics and risks of an 
underwriting transaction recommended by underwriters, where such 
recommendation is made by the syndicate manager on behalf of the 
underwriting syndicate, the Notice does not prohibit syndicate members 
from delegating to the syndicate manager (through, for example, the 
agreement among underwriters) the task of delivering such disclosure in 
a full and timely manner on behalf of the syndicate members, although 
each syndicate member would remain responsible for providing 
disclosures with respect to conflicts specific to such member.
---------------------------------------------------------------------------

    \48\ See SIFMA Letter II.
    \49\ See BDA Letter II.
---------------------------------------------------------------------------

4. Timing and Manner of Disclosures
    With respect to the disclosure process, one commenter stated its 
belief that underwriters should be subject to a process similar to the 
proposed municipal advisors' more rigorous process under the municipal 
advisor portion of proposed MSRB Rules G-17 and G-36.\50\ The commenter 
stated its

[[Page 77872]]

belief that providing disclosures is inadequate; rather, underwriters 
should be required to obtain informed consent from issuers. Moreover, 
the commenter stated its belief that disclosures should be made to 
officials of the municipal entity with the power to bind the 
issuer.\51\ The commenter also stated that the Notice should be amended 
to prohibit the giving of disclosures based on a reasonable belief 
standard and instead require underwriters to have actual knowledge 
whether an official has the power to bind the issuer by contract.
---------------------------------------------------------------------------

    \50\ See NAIPFA Letter I. The Commission notes that these 
proposals were subsequently withdrawn by the MSRB. See Securities 
Exchange Act Release Nos. 65397 (September 26, 2011), 76 FR 60955 
(September 30, 2011) (withdrawing proposed MSRB Rule G-36 and 
interpretive guidance concerning MSRB Rule G-36); and 65398 
(September 26, 2011), 76 FR 60958 (September 30, 2011) (withdrawing 
proposed interpretive notice concerning MSRB Rule G-17).
    \51\ See NAIPFA Letter I and NAIPFA Letter II.
---------------------------------------------------------------------------

    In Response Letter I, the MSRB stated that it believes that it is 
not necessary for underwriters to obtain consent from the issuer's 
governing body when the issuer finance officials have been delegated 
the ability to contract with the underwriter. The MSRB stated that it 
is not necessary for a contract to have been executed in order for an 
underwriter to have a reasonable belief that an issuer official has the 
requisite power to bind the issuer.
    Another commenter stated its belief that disclosure should be made 
to an official that the underwriter reasonably believes ``has or will 
have'' the requisite authority, instead of the standard that the 
underwriter believes ``has'' the authority to bind the issuer by 
contract.\52\ The commenter stated that due to the nature of these 
transactions, at the time of disclosures, there may not be an official 
with such authority as the authority may not be granted until later. In 
Response Letter II, the MSRB noted that an official, such as a finance 
director, who is expected to receive the delegation of authority from 
the governing body to bind the issuer could reasonably be viewed as an 
acceptable recipient of disclosures for purposes of the proposal so 
long as such expectation remains reasonable.
---------------------------------------------------------------------------

    \52\ See BDA Letter II.
---------------------------------------------------------------------------

    Another commenter stated that the Notice should state that the 
disclosure must be made in a response to a request for proposals or in 
promotional materials provided to an issuer, rather than the proposed 
``at the earliest stages'' standard, because the commenter believes 
that the proposed standard is vague and ambiguous.\53\ Another 
commenter requested clarification regarding the meaning of ``execution 
of a contract'' with respect to the timing of the required risk 
disclosures.\54\ The commenter stated that execution of the purchase 
agreement should be the appropriate measurement. In Response Letter II, 
the MSRB clarified that, other than the disclosure with regard to the 
arm's-length nature of the relationship, the remaining disclosures 
regarding the underwriter's role, underwriter's compensation and other 
conflicts of interest all must be provided when the underwriter is 
engaged to perform underwriting services (such as in an engagement 
letter), not solely in the bond purchase agreement.
---------------------------------------------------------------------------

    \53\ See id.
    \54\ See SIFMA Letter II. The same commenter also requested 
clarification in situations where the financing terms are determined 
in a short period of time, such as within a 24-hour window, and how 
underwriters would satisfy the disclosure requirements. In Response 
Letter II, the MSRB stated that the timeframe set out in the 
proposal, which matches the timeframe for this same disclosure under 
guidance provided in connection with recent amendments to MSRB Rule 
G-23, on activities of financial advisors, is appropriate and should 
not be changed.
---------------------------------------------------------------------------

    One commenter suggested that the underwriter make its disclosures 
to the issuer, in plain English, to ensure that the issuer understands 
such disclosures.\55\ In Response Letter II, the MSRB stated that it 
agrees that reasonable efforts must be made to make the disclosures 
understandable, that disclosures must be made in a fair and balanced 
manner and, if the underwriter does not reasonably believe that the 
official to whom the disclosures are addressed is capable of 
independently evaluating the disclosures, the underwriter must make 
additional efforts reasonably designed to inform the issuer or its 
employees or agent.
---------------------------------------------------------------------------

    \55\ See GFOA Letter II.
---------------------------------------------------------------------------

    One commenter stated that it remains concerned that to provide 
disclosure to an official of the issuer that the underwriter reasonably 
believes has authority to bind the issuer would not provide the issuer 
with sufficient knowledge of any existing conflicts.\56\ The commenter 
recommended that underwriters make disclosure to the issuer's governing 
body and require underwriters to have actual knowledge, instead of a 
reasonable belief knowledge standard, as to whether the official being 
presented with disclosures has the power to bind the issuer by 
contract. In Response Letter II, the MSRB responded that underwriters 
must document the failure to receive acknowledgement, as well as what 
actions were taken to attempt to obtain the acknowledgement, in order 
for the underwriter to fulfill its obligation to document why it was 
unable to obtain the acknowledgement.
---------------------------------------------------------------------------

    \56\ See NAIPFA Letter II.
---------------------------------------------------------------------------

5. Acknowledgement of Disclosures
    One commenter stated its belief that the provision of the Notice 
requiring issuer written acknowledgement of disclosures would be 
helpful, but in situations where written acknowledgement is not 
received from the issuer, the commenter urged the MSRB to require 
underwriters to put forth some level of effort to obtain the written 
acknowledgement of the issuer.\57\ Another commenter stated that it 
believes that an underwriter should not be required to document why an 
official of the issuer does not acknowledge in writing that disclosures 
were received.\58\ Instead, the commenter recommended that the Notice 
require the underwriter to document that disclosures were made and 
whether acknowledgement was received.
---------------------------------------------------------------------------

    \57\ See NAIPFA Letter I.
    \58\ See BDA Letter II.
---------------------------------------------------------------------------

    In Response Letter II, the MSRB clarified that if an issuer does 
not provide the underwriter with a written acknowledgement of receipt 
of disclosures, the failure to receive such acknowledgement must be 
documented, as well as what actions were taken to attempt to obtain the 
acknowledgement, in order for the underwriter to fulfill its obligation 
to document why it was unable to obtain the acknowledgement.

C. Representations to Issuers

    Under the Notice, an underwriter would be required to have a 
reasonable basis for providing representations and material information 
in a certificate that will be relied upon by the municipal entity 
issuer or other relevant parties to an underwriting. One commenter 
stated that one example of such a certificate used by the MSRB in the 
Notice is already regulated by tax laws and does not need additional 
regulation by the MSRB.\59\ In Response Letter I, the MSRB stated that 
it does not believe the disclosure requirement imposes an additional 
regulatory burden on underwriters.
---------------------------------------------------------------------------

    \59\ See SIFMA Letter I.
---------------------------------------------------------------------------

D. Required Disclosures to Issuers

    One commenter stated that the disclosure requirements, especially 
for routine transactions, should only be imposed when the underwriter 
has reason to believe that the issuer does not have the knowledge or 
experience available to understand the transaction.\60\ Moreover, the 
commenter

[[Page 77873]]

stated that the proposal should be clarified as to when the underwriter 
is required to provide disclosures on the material aspects of the 
financing structures. The commenter also noted that ``issuer personnel 
responsible for the issuance of municipal securities'' and ``an 
official of the issuer whom the underwriter reasonably believes has the 
authority to bind the issuer by contract with the underwriter'' are not 
the same.\61\ Thus, the commenter stated its belief that clarification 
should be provided that these regulatory requirements are imposed on 
the underwriter only if the underwriter has reason to believe that 
issuer personnel do not have the requisite knowledge or experience, 
regardless of whether the particular official that the underwriter 
reasonably believes to have the legal authority to contractually bind 
the issuer can be reasonably thought to have the requisite knowledge 
and experience. Another commenter stated that the Notice should be 
amended to take into consideration the needs of unsophisticated 
municipal issuers, and underwriters should be required to assess the 
knowledge and understanding of municipal issuers on a case-by-case 
basis.\62\ In Response Letter I, the MSRB stated that it does not 
consider it unreasonable to require that an underwriter evaluate the 
level of knowledge and sophistication of the issuer, particularly 
considering that under the Notice, as amended by Amendment No. 2, the 
underwriter need only have a reasonable basis for its evaluation.
---------------------------------------------------------------------------

    \60\ See BDA Letter I. One commenter suggested factors to 
determine routine financings when disclosures would not be 
necessary. See NAIPFA Letter I. In Response Letter I, the MSRB 
stated that while the factors are helpful, they do not address the 
particular issuer personnel's experience and knowledge, which are 
more relevant to the Notice. The MSRB stated that it would take the 
comment under advisement. Another commenter stated that in a routine 
financing, the Notice should require an underwriter to disclose, in 
writing, information regarding the transaction, should the issuer 
make such a request. See GFOA Letter II. The commenter stated that 
additional information on routine financings would be helpful. In 
Response Letter II, the MSRB stated its belief that the provisions 
relating to this disclosure are appropriate for the reasons 
described in Response Letter I and, therefore, no further 
modification is warranted.
    \61\ Another commenter noted that to require an underwriter to 
determine who should be considered ``issuer personnel'' is an issue 
worth more consideration and discussion. See GFOA Letter II. In 
Response Letter II, the MSRB noted that it would monitor disclosure 
practices and would engage in a dialogue with industry participants 
and the Commission to determine whether sufficient improvements have 
occurred in the flow of disclosures to decision-making personnel of 
issuers or whether additional steps should be taken.
    \62\ See NAIPFA Letter I and NAIPFA Letter II. The commenter 
reiterated that the proposal requires additional changes in order to 
protect over 50,000 infrequent and/or small, unsophisticated issuers 
of municipal bonds. See NAIPFA Letter II. Another commenter stated 
that there are many unsophisticated issuers who will benefit from 
the disclosures. See AGFS Letter. The commenter stated that issuers 
should rely upon advice from advisors who owe the issuers a 
fiduciary duty, instead of underwriters who may be in an adversarial 
position.
---------------------------------------------------------------------------

    One commenter stated its belief that the written risk disclosures 
imposed on underwriters related to the financings (including complex 
financings) are too broad and vague and do not take into account the 
role of the issuer's municipal advisor, if any.\63\ Other commenters 
stated that the underwriter should not have disclosure requirements 
when the issuer has engaged a financial advisor.\64\ Another commenter 
stated that the underwriter should not be required to evaluate issuer 
personnel when the issuer has retained a municipal advisor.\65\ In 
Response Letter I, the MSRB stated that underwriters are in the best 
position to understand the material terms and risks associated with 
recommended financings, and the burden should not be solely on 
municipal advisors to ascertain such terms and risks.
---------------------------------------------------------------------------

    \63\ See SIFMA Letter I.
    \64\ See BDA Letter I and WM Letter I.
    \65\ See SIFMA Letter I.
---------------------------------------------------------------------------

    One commenter noted that if written risk disclosures are to be 
required, then additional guidance and clarity is needed on the 
following: (1) References to ``atypical or complex'' financings; \66\ 
(2) references to ``all material risks and characteristics of the 
complex municipal securities financing''; \67\ (3) which issuer 
personnel must have the requisite level of knowledge and 
sophistication; \68\ (4) if the issuer does not have a financial 
advisor or internal personnel acting in a similar role, then the 
issuer's finance staff's knowledge and experience should be assessed by 
underwriters; and (5) only material risks that are known to the 
underwriter and reasonably foreseeable at the time of the disclosure 
should be required.\69\
---------------------------------------------------------------------------

    \66\ The commenter stated that these additional written 
disclosures may require detailed review by counsel, which would be 
costly. The commenter urged the Commission to carefully consider the 
costs relative to the potential benefits.
    \67\ The commenter stated that this reference should be limited 
to financial risks and characteristics since the underwriter should 
not have to provide disclosures on legal issues.
    \68\ The commenter stated that if the issuer has a financial 
advisor or internal personnel serving the same role then no 
underwriter written disclosures should be required. The commenter 
further stated that underwriters may satisfy their disclosure 
requirements by communicating the disclosures to the financial 
advisor or issuer internal personnel.
    \69\ See SIFMA Letter I.
---------------------------------------------------------------------------

    In Response Letter I, the MSRB stated that it does not consider it 
appropriate to provide a more precise definition of ``complex municipal 
securities financing'' since the Notice already provides examples of 
complex financings, such as those involving variable rate demand 
obligations and swaps. The MSRB stated that it does not consider it 
appropriate to require an issuer to inform the underwriter that the 
issuer lacks knowledge or experience with a financing. The MSRB stated 
its belief that it is reasonable to require the underwriter to evaluate 
the level of knowledge and sophistication of the issuer. The Notice, as 
modified by Amendment No. 2, would only require the underwriter to have 
a reasonable basis for its evaluation. Further, the MSRB stated that it 
agrees with the commenter that disclosure on complex financings should 
be limited to material financial risks that are known to the 
underwriter and reasonably foreseeable. The MSRB stated that the 
Notice, as modified by Amendment No. 2, shows such change. The Notice, 
as modified by Amendment No. 2, would also require disclosures of the 
characteristics of a financing that are limited to the material 
financial characteristics and would provide examples in the case of 
swaps.
    One commenter disagreed with the MSRB that the level of disclosure 
should vary based on the issuer's financial ability to bear the risks 
of the recommended financing.\70\ The commenter stated its belief that 
a municipal entity with taxing power, who would be able to bear more 
risks of a financing, should not be ineligible for advice that is 
competent and unimpaired by the broker's own interests simply because 
the government can tax the citizens to restore any loss. In Response 
Letter II, the MSRB conceded that the financial ability to bear the 
risks of a recommended financing would not normally be a sufficient 
basis, by itself, for determining the level of disclosure to provide. 
The MSRB noted, however, the proposal states three distinct factors 
that should be considered together in coming to this determination.
---------------------------------------------------------------------------

    \70\ See PFM Letter.
---------------------------------------------------------------------------

    Other commenters noted that disclosure regarding derivatives is 
premature since there are pending rulemakings with the Commodity 
Futures Trading Commission (``CFTC'') and the Commission that will 
apply to dealers recommending swaps or security-based swaps to 
municipal entities.\71\ One commenter urged the MSRB to work together 
with SEC and CFTC to ensure that one set of

[[Page 77874]]

definitions and rules apply to the municipal securities market.\72\
---------------------------------------------------------------------------

    \71\ See SIFMA Letter I; BDA Letter I; GFOA, Letter I.
    \72\ See GFOA Letter I.
---------------------------------------------------------------------------

    In Response Letter I, the MSRB noted that it is aware of the 
ongoing rulemaking by the Commission and CFTC and has taken care to 
ensure that any requirements of the Notice are consistent with such 
rulemaking. In Response Letter II, the MSRB disagreed with the 
commenter that the proposal is premature for the reasons described in 
Response Letter I.

E. Underwriter Duties in Connection With Issuer Disclosure Documents

    Under the Notice, the underwriter must have a reasonable basis for 
its representations and information provided to issuers in connection 
with the preparation by the issuer of its disclosure documents. One 
commenter stated its belief that the reasonable basis requirement is 
unreasonably broad.\73\ The commenter stated that the Notice should be 
revised to clarify that an underwriter may limit its responsibility for 
information provided by disclosing to the issuer any limitations on the 
scope of the underwriter's analysis and factual verification it 
performed. The commenter further stated that such duty should extend 
only to material information. In Response Letter I, the MSRB stated 
that it disagrees with the commenter and believes that an underwriter 
should have a reasonable basis for its own representations set forth in 
the official statement, as well as a reasonable basis for the material 
information it provides to the issuer in connection with the 
preparation of the official statement.
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    \73\ See id.
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    One commenter also stated its belief that when an underwriter 
intends to assist in the preparation of an official statement, that a 
disclosure should be made to the issuer stating that the underwriter 
can only be held liable where it can be shown that it did not act with 
a reasonable belief that the information presented was truthful and 
complete.\74\ In Response Letter I, the MSRB noted that the Notice 
would provide that an underwriter must have ``a reasonable basis for 
the representations it makes, and other material information it 
provides, to an issuer and to ensure that such representations and 
information are accurate and not misleading.''
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    \74\ See NAIPFA Letter I.
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F. Underwriter Compensation and New Issue Pricing

1. Excessive Compensation
    One commenter requested that, in the absence of disclosure and 
informed consent, underwriters be prohibited from seeking 
reimbursements from bond proceeds for expenditures made on behalf of 
the issuer for any expenses incurred by the underwriter.\75\ In 
Response Letter I, the MSRB noted that it disagrees with the commenter 
and that MSRB Rule G-20 already precludes underwriters from seeking 
reimbursement for lavish expenditures, especially from bond proceeds. 
Further, in Response Letter I, the MSRB noted that state law would 
govern whether such reimbursements are permissible.
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    \75\ See id.
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2. Fair Pricing
    With respect to the representation that the price an underwriter 
pays in a negotiated sale be fair and reasonable, one commenter stated 
its belief that such representation should be altered so that the price 
the underwriter pays is ``not unreasonable.'' \76\ In Response Letter 
I, the MSRB stated that the fair and reasonable pricing standard is no 
different in many cases than the duties already imposed on underwriters 
by MSRB rules with respect to underwriters' customers and that it 
believes the approach in the Notice would require more robust 
disclosures by underwriters to issuers. In the alternative, the 
commenter recommended that the disclosure should be changed to state 
that the pricing is not necessarily the best pricing.\77\ In Response 
Letter II, the MSRB stated that it believes that the provisions 
relating to these disclosures are appropriate for the reasons described 
in Response Letter I and, therefore, no further modifications to these 
provisions are warranted.
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    \76\ See NAIPFA Letter I and NAIPFA Letter II.
    \77\ See NAIPFA Letter II.
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    One commenter urged the Commission to require underwriters to 
expressly represent in writing to the issuer that the price paid for 
the issuer's debt is fair, and specify the facts that support the 
representation.\78\ In Response Letter II, the MSRB stated that its 
view is that, even if an underwriter provides a fair price to an issuer 
for its new issue offering, its fair practice duties under Rule G-17 
are not thereby discharged because, among other things, the many 
principles laid out in the proposal also must be addressed. Conversely, 
an underwriter cannot justify under Rule G-17 an unfair price to an 
issuer by balancing that unfair price with the fact that it may 
otherwise have been fair to the issuer under the other fairness 
principles enunciated in the proposal.
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    \78\ See PFM Letter.
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G. Conflicts of Interest

1. Payments To or From Third Parties
    One commenter stated that disclosures with respect to third-party 
arrangements for the marketing of the issuer's securities should be 
clarified as to the level of details.\79\ Further, the commenter stated 
its belief that payments to and from affiliates of the underwriters are 
not third-party payments since those payments would not cloud a party's 
judgment when the parties are related to each other, unlike third 
parties. In Response Letter I, the MSRB noted that the Notice, as 
modified by Amendment No. 2, would require only the disclosure of 
third-party marketing arrangements, not the particular terms. Moreover, 
while the MSRB disagreed with the commenter that payments from 
affiliates do not raise risks, the MSRB noted that the Notice, as 
modified by Amendment No. 2, would not require the disclosure of the 
amounts of such payments.
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    \79\ See SIFMA Letter I. See also IA Letter. The commenter cited 
examples where an underwriter would outsource certain routine tasks 
related to the financing transactions, and sought clarification 
whether the Notice would encompass such payments for services 
rendered. The Commission received the IA Letter after the MSRB filed 
Response Letter II, and thus, the MSRB has not specifically 
responded to the commenter.
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    Another commenter stated that the payment amount is an important 
variable for the issuer to consider and would encourage its members to 
further question the underwriter about any relevant third-party 
relationships and payments, which provides better transparency for the 
transaction.\80\ In Response Letter II, the MSRB stated its agreement 
that such further inquiries can be made. In addition, the MSRB 
clarified that the third-party payments to which the disclosure 
requirement under the Notice would apply are those that give rise to 
actual or potential conflicts of interest and typically would not apply 
to third-party arrangements for products and services of the type that 
are routinely entered into in the normal course of business, so long as 
any specific routine arrangement does not give rise to an actual or 
potential conflict of interest.
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    \80\ See GFOA Letter II.
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2. Profit-Sharing With Investors
    One commenter sought clarification that legitimate trading, such as 
when an

[[Page 77875]]

underwriter sells a bond and later repurchases the bond from a 
purchaser, is not included in the disclosure for profit sharing 
arrangements.\81\ In Response Letter II, the MSRB stated its belief 
that the language of the proposal appropriately reflects that the 
disclosure applies in cases where there exists an arrangement to split 
or share profits realized by an investor upon resale.
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    \81\ See BDA Letter II.
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3. Credit Default Swaps
    One commenter stated that it believes that underwriters should not 
be required to disclose hedging and risk management strategies and 
activities when the underwriter, in its role as a dealer, issues or 
purchases credit default swaps that reference the obligations of the 
municipal issuer.\82\ The commenter noted that should these disclosures 
be required, a general disclosure to the issuers that the underwriters 
may engage in such activities should be sufficient. The commenter 
objected to any provisions that would require underwriters to provide 
specific disclosures that may reveal identities of counterparties and 
the underwriters' hedging and risk management strategies. In Response 
Letter I, the MSRB stated that it does not believe that the disclosure 
requirement would compromise counterparty relationships or deter the 
use of credit default swaps for legitimate risk management purposes. In 
addition, the MSRB noted that the Notice would only require that a 
dealer that engages in the issuance or purchase of a credit default 
swap for which the underlying reference is an issuer for which the 
dealer is serving as underwriter, or an obligation of that issuer, must 
disclose the fact that it does so to the issuer, not the terms of the 
particular trades.\83\
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    \82\ See SIFMA Letter I.
    \83\ One commenter noted that the Notice provides that if a 
dealer issues or purchases credit default swaps for which the 
reference obligor is the issuer to which the dealer is serving as an 
underwriter, the underwriter must disclose that fact to the issuer. 
See SIFMA Letter II. The commenter requested clarification that, in 
the case of a conduit issuer that issues bonds for multiple obligors 
or on a specific project, whether disclosures need to be made to the 
obligor(s) to satisfy the disclosure requirements. See SIFMA Letter 
II. In Response Letter II, the MSRB stated that the proposal only 
requires that credit default swap disclosures be made to the issuers 
of the municipal securities and not to any conduit borrowers or 
other obligors. However, the MSRB stated that it would take under 
advisement the question of whether such disclosure should be 
extended to any applicable obligors other than the issuer.
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H. Retail Order Periods

    One commenter recommended that the Notice use a single standard of 
requiring that the underwriter not knowingly accept orders that do not 
meet the requirements of the retail order period.\84\ In Response 
Letter II, the MSRB stated that it believes that the commenter has 
misunderstood these provisions. The MSRB stated that the Notice 
provides that an underwriter that knowingly accepts an order that has 
been framed as a retail order when it is not, would violate MSRB Rule 
G-17 if its actions are inconsistent with the issuer's expectations 
regarding retail orders, but also provides that a dealer that places an 
order that is framed as a qualifying retail order but in fact 
represents an order that does not meet the qualification requirements 
to be treated as a retail order, violates its duty of fair dealing. The 
MSRB stated that these two provisions are entirely consistent and 
appropriate, since in the first provision an underwriter is receiving 
an order framed by a third party, whereas in the second provision, a 
dealer (not limited to an underwriter) is itself placing and framing 
the order. Therefore, the MSRB noted that it has not modified these 
provisions.
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    \84\ See BDA Letter II.
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I. Timing and Consistency

    One commenter noted that underwriters that may also be municipal 
advisors will not be able to properly evaluate the Notice until rules 
with respect to municipal advisors have been approved and adopted by 
the Commission and MSRB.\85\ The commenter noted that many underwriters 
may be classified as municipal advisors under these yet-to-be-adopted 
rules and questioned how the underwriters' obligations under the Notice 
may relate to these rules. The commenter stated that many interested 
parties are abstaining from commenting on the proposal due to this 
uncertainty. The commenter stated its belief that, at a minimum, the 
portion of the proposal addressing an underwriter's obligation to 
provide written risk disclosures should be withdrawn and refiled at a 
later time.
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    \85\ See SIFMA Letter I and SIFMA Letter II.
---------------------------------------------------------------------------

    One commenter stated that a 90-day implementation period is too 
short and requested a period no less than six months.\86\ In Response 
Letter I, the MSRB stated that it believes that 90 days is an adequate 
time period for underwriters to develop the required disclosures.
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    \86\ See SIFMA Letter I.
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J. Miscellaneous Comments

    Some commenters raised issues that are outside the scope of the 
proposal. For example, commenters asked the MSRB to provide clarity on 
the definition of ``flipping'' \87\ and the application of the 
suitability standard to transactions proposed by an underwriter to an 
issuer.\88\
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    \87\ See GFOA Letter I; GFOA Letter II and NAIPFA Letter II.
    \88\ See GFOA Letter I and GFOA Letter II.
---------------------------------------------------------------------------

    With respect to ``flipping,'' the MSRB stated in Response Letter II 
that it would reach out to other regulators and the Commission in an 
attempt to develop a shared understanding of what such ``flipping'' 
activities entail and potential concerns regarding the implications of 
these activities. The MSRB noted that, to the extent these activities 
could be characterized as arrangements between the underwriter and an 
investor purchasing new issue securities from the underwriter according 
to which profits realized from the resale by such investor of the 
securities are directly or indirectly split or otherwise shared with 
the underwriter, these activities may already be subject to the 
proposal's disclosure obligation with respect to profit-sharing with 
investors.
    In Response Letter II, the MSRB noted that although the suitability 
comment is outside the scope of the proposal, the MSRB will keep this 
suggestion under advisement.
    Another commenter urged further consideration of the costs of 
disclosures and weighing the costs against the potential benefits.\89\ 
In Response Letter II, the MSRB noted its disagreement that it did not 
weigh the costs and benefits, and that the proposal in fact recognizes 
that many of the disclosures required under the proposal can be 
tailored, and in some cases are not required at all, based on a number 
of relevant factors set out in the proposal and described in greater 
detail in Response Letter I. Most across-the-board disclosure 
provisions in the proposal either require transaction-specific or 
underwriter-specific disclosures of relevant conflicts of interest or 
consist of standardized educational disclosures with respect to which, 
underwriters most likely would realize greater cost-effectiveness and 
reduced regulatory risk by making such disclosures globally rather than 
on a case-by-case basis. The MSRB stated that providing more 
information to issuers would empower and provide considerable benefits 
to issuers. Further, the MSRB stated that it concedes that some 
underwriters may bear up-front costs in creating basic frameworks for 
the required disclosures for the various types of products they may 
offer their issuer clients, but the on-going burden should thereafter 
be considerably

[[Page 77876]]

reduced and the preparation of written disclosures would become an 
inter-related component of the necessary documentation of the 
transaction.
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    \89\ See SIFMA Letter II.
---------------------------------------------------------------------------

    One commenter sought clarification that the proposal would not 
apply to private placement agents.\90\ In Response Letter II, the MSRB 
responded that while the Notice would not apply to private placement 
agents, parties relying on this exception should be cautious in its 
application because the term ``private placement'' is often used to 
describe transactions that are not recognized as private placements for 
purposes of MSRB rules and other applicable law.
---------------------------------------------------------------------------

    \90\ See SIFMA Letter II.
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Disapprove SR-MSRB-2011-09 and 
Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \91\ to determine whether the proposed rule 
change should be disapproved. Institution of such proceedings appears 
appropriate at this time in view of the legal and policy issues raised 
by the proposal, as discussed below. Institution of disapproval 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described in greater detail below, the Commission seeks and encourages 
interested persons to comment on the proposed rule change to inform the 
Commission's analysis whether to approve or disapprove the proposed 
rule change.
---------------------------------------------------------------------------

    \91\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. In 
particular, Section 15B(b)(2)(C) of the Act \92\ requires, among other 
things, that the rules of the MSRB 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 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.
---------------------------------------------------------------------------

    \92\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The MSRB's proposal would interpret the application of MSRB Rule G-
17 applicable to dealers acting in the capacity of underwriters in 
negotiated underwritings of municipal securities transactions (except 
as specified in the Notice). The Notice would impose disclosures on 
underwriters regarding, among other things, their role, compensation 
arrangements, conflicts of interest, and representations made to 
issuers of municipal securities. Commenters that represent issuers and 
financial advisors generally support the proposal and urge additional 
disclosures, while commenters that represent dealers and underwriters 
believe the proposal should be disapproved or required disclosures be 
modified to ease the requirements for dealers. Based on the comments, 
the Commission believes that the proposal raises concerns, among other 
things, as to whether the disclosures are appropriate and, if so, 
whether the disclosures are sufficiently balanced to protect investors 
and municipal entities by assisting issuers and their advisors in 
evaluating underwriters and the transactions proposed by the 
underwriters without being overly burdensome for underwriters.
    The Commission believes these concerns raise questions as to 
whether the MSRB's proposal is consistent with the requirements of 
Section 15B(b)(2)(C) of the Act, including whether the disclosures 
outlined in the notice would prevent fraudulent and manipulative acts 
and practices, promote just and equitable principles of trade, foster 
cooperation and coordination with persons facilitating transactions in 
municipal securities and municipal financial products, remove 
impediments to and perfect the mechanism of a free and open market in 
municipal securities and municipal financial products, and, in general, 
protect investors, municipal entities, obligated persons, and the 
public interest. The Commission believes the issues raised by the 
proposed rule change can benefit from additional consideration and 
evaluation in light of the requirements of Section 15B(c)(2)(C) of the 
Act.

V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
concerns identified above, as well as any others they may have with the 
proposal. In particular, the Commission invites the written views of 
interested persons concerning whether the proposed rule change is 
inconsistent with Section 15B(b)(2)(C) or any other provision of the 
Act, or the rules and regulation thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval which would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\93\
---------------------------------------------------------------------------

    \93\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be 
disapproved by January 30, 2012. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
February 13, 2012. 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 rule-comments@sec.gov. Please include 
File Number SR-MSRB-2011-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-MSRB-2011-09. 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 Web site (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 Web site 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 
a.m. and 3 p.m. Copies of such filing

[[Page 77877]]

also will be available for inspection and copying at the principal 
office of the Exchange. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submissions should refer to File Number 
SR-MSRB-2011-09 and should be submitted on or before January 30, 2012. 
Rebuttal comments should be submitted by February 13, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\94\
---------------------------------------------------------------------------

    \94\ 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32087 Filed 12-13-11; 8:45 am]
BILLING CODE 8011-01-P


