
[Federal Register Volume 79, Number 49 (Thursday, March 13, 2014)]
[Notices]
[Pages 14321-14325]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05456]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71665; File No. SR-MSRB-2013-07]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change Consisting of 
Proposed MSRB Rule G-47, on Time of Trade Disclosure Obligations, 
Proposed Revisions to MSRB Rule G-19, on Suitability of Recommendations 
and Transactions, Proposed MSRB Rules D-15 and G-48, on Sophisticated 
Municipal Market Professionals, and the Proposed Deletion of 
Interpretive Guidance

March 7, 2014.

I. Introduction

    On September 17, 2013, the Municipal Securities Rulemaking Board 
(the ``MSRB'') filed with the Securities and Exchange Commission (the 
``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change consisting of new MSRB Rule G-47 
(time of trade disclosures), new MSRB Rules D-15 and G-48 
(sophisticated municipal market professionals or ``SMMPs''), and 
amendments to MSRB Rule G-19 (suitability). The proposed rule change 
was published for comment in the Federal Register on October 22, 
2013.\3\ The Commission received two (2) comment letters in response to 
the proposed rule change.\4\ On January 14, 2014, the MSRB responded to 
the comments.\5\ On January 16, 2014, the Commission published an order 
to solicit comments from interested persons and to institute 
proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to determine 
whether to approve or disapprove the proposed rule change 
(``Proceedings Order.'').\7\ The Commission received no comment letters 
in response to the Proceedings Order. The Commission is approving the 
proposed rule change.\8\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 70593 (October 1, 2013), 78 FR 
62867 (October 22, 2013) (Notice of Filing of a Proposed Rule Change 
Consisting of Proposed MSRB Rule G-47, on Time of Trade Disclosure 
Obligations, Proposed Revisions to MSRB Rule G-19, on Suitability of 
Recommendations and Transactions, Proposed MSRB Rules D-15 and G-48, 
on Sophisticated Municipal Market Professionals, and the Proposed 
Deletion of Interpretive Guidance) (``Proposing Release''). The 
comment period closed on November 12, 2013.
    \4\ Letters from Tamara K. Salmon, Senior Associate Counsel, 
Investment Company Institute to Elizabeth M. Murphy, Secretary, SEC, 
dated November 1, 2013 (``ICI Letter'') and David L. Cohen, Managing 
Director/Associate General Counsel, Securities Industry and 
Financial Markets Association, to Elizabeth M. Murphy, Secretary, 
SEC, dated November 12, 2013 (``SIFMA Letter'').
    \5\ See Letter from Michael L. Post, Deputy General Counsel, 
MSRB, to Elizabeth M. Murphy, Secretary, SEC dated January 14, 2014 
(``Response'').
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Exchange Act Release No. 71326 (January 16, 2014), 79 FR 
3909 (January 23, 2014) (Order Instituting Proceedings 2013-SR-MSRB-
07). The comment period closed on February 13, 2014.
    \8\ The text of the proposed rule change is available on the 
MSRB's Web site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2013-Filings.aspx, at the MSRB's principal office, and at 
the Commission's Public Reference Room.
---------------------------------------------------------------------------

II. Description of Proposal

    As further described in the Proposing Release, the MSRB states that 
it has examined its interpretive guidance related to time of trade 
disclosures, suitability, and SMMPs and proposes to consolidate this 
guidance and codify it into several rules: a new time of trade 
disclosure rule (proposed Rule G-47), a revised suitability rule (Rule 
G-19), and two new SMMP rules (proposed Rules D-15 and G-48). 
Additionally, the proposed revisions to Rule G-19 are designed to 
harmonize the MSRB's suitability rule with the Financial Industry 
Regulatory Authority's (``FINRA'') suitability rule.\9\
---------------------------------------------------------------------------

    \9\ See FINRA Rule 2111.
---------------------------------------------------------------------------

    In connection with the rule changes described above, the MSRB 
proposed to delete certain interpretive guidance affected by these rule 
changes from the MSRB's Rule Book. Additionally, in the Proposing 
Release, the MSRB indicated that it did not intend to preserve the 
relevant guidance, because doing so ``would not advance the MSRB's goal 
to streamline its rulebook.'' \10\ In its Response, the MSRB 
articulated a different approach. Specifically, to address a commenter 
concern, the MSRB stated that it will archive on its Web site the 
existing guidance that is to be deleted from the Rule Book in 
connection with the proposed rule change.\11\ Moreover, the MSRB states 
that ``[t]o the extent that past interpretive guidance does not 
conflict with any MSRB rules or interpretations thereof, it remains 
potentially applicable, depending on the facts and circumstances of a 
particular case.'' \12\
---------------------------------------------------------------------------

    \10\ See Proposing Release at 21 (responding to a SIFMA comment 
regarding proposed Rule G-47). See also Proposing Release at 4, 
describing the MSRB's streamlining goals (``The structure of 
Proposed G-47 (rule language followed by supplementary material) is 
the same structure used by FINRA and other selfregulatory 
organizations (``SROs''). The MSRB intends generally to transition 
to this structure for all of its rules going forward in order to 
streamline the rules, harmonize the format with that of other SROs, 
and make the rules easier for dealers and municipal advisors to 
understand and follow.'')
    \11\ See Response at 2. See also discussion of comments, below.
    \12\ Response at 2.
---------------------------------------------------------------------------

A. Rule G-47 on Time of Trade Disclosures

    MSRB Rule G-17 provides that, in the conduct of its municipal 
securities or municipal advisory activities, each broker, dealer, 
municipal securities dealer (``dealer''), and municipal advisor must 
deal fairly with all persons and may not engage in any deceptive, 
dishonest or unfair practice. The MSRB has interpreted Rule G-17 to 
require a dealer, in connection with a municipal securities 
transaction, to disclose to its customer, at or prior to the time of 
trade, all material information about the transaction known by the 
dealer, as well as material information about the security that is 
reasonably accessible to the market.\13\ The MSRB stated in the 
Proposing Release that it has issued extensive interpretive guidance 
discussing this time of trade disclosure obligation in general, as well 
as in specific scenarios. Proposed Rule G-47 is designed to consolidate 
most of the previously issued guidance into rule language which the 
MSRB believes would ease the burden on dealers and other market 
participants who endeavor to understand, comply with and enforce these 
obligations. The MSRB asserted that the proposed codification of the 
interpretive guidance on time of trade disclosure obligations is not 
intended to, and will not, substantively change the current 
obligations. Rather, the MSRB maintained that the codification is an 
effort to consolidate the current obligations into streamlined rule 
language.
---------------------------------------------------------------------------

    \13\ See, e.g., MSRB Answers Frequently Asked Questions 
Regarding Dealer Disclosure Obligations Under MSRB Rule G-17 
(November 30, 2011).
---------------------------------------------------------------------------

    A summary of proposed Rule G-47 is as follows:
1. General Disclosure Obligation
    Proposed Rule G-47(a) states that dealers cannot sell municipal 
securities to a customer, or purchase municipal securities from a 
customer, without disclosing to the customer, at or prior to the time 
of trade, all material information known about the

[[Page 14322]]

transaction and material information about the security that is 
reasonably accessible to the market. The rule applies regardless of 
whether the transaction is unsolicited or recommended or whether it 
occurs in a primary offering or the secondary market. The proposed rule 
provides that the disclosure can be made orally or in writing.
    Proposed Rule G-47(b) states that information is considered to be 
``material information'' if there is a substantial likelihood that the 
information would be considered important or significant by a 
reasonable investor in making an investment decision. The proposed rule 
defines ``reasonably accessible to the market'' as information that is 
made available publicly through ``established industry sources.'' 
Finally, the proposed rule defines ``established industry sources'' as 
including the MSRB's Electronic Municipal Market Access 
(``EMMA''[supreg]) \14\ system, rating agency reports, and other 
sources of information generally used by dealers that effect 
transactions in the type of municipal securities at issue.
---------------------------------------------------------------------------

    \14\ EMMA is a registered trademark of the MSRB.
---------------------------------------------------------------------------

2. Supplementary Material
    In addition to stating the general disclosure obligation, proposed 
Rule G-47 includes supplementary material describing the disclosure 
obligation in more detail. Proposed supplementary material .01 provides 
that dealers have a duty to give customers a complete description of 
the security, which includes a description of the features that would 
likely be considered significant by a reasonable investor, and facts 
that are material to assessing potential risks of the investment. This 
section of the proposed supplementary material further provides that 
the public availability of material information through EMMA, or other 
established industry sources, does not relieve dealers of their 
disclosure obligations. Section .01 of the proposed supplementary 
material also provides that dealers may not satisfy the disclosure 
obligation by directing customers to established industry sources or 
through disclosure in general advertising materials. Finally, section 
.01 of the proposed supplementary material states that whether the 
customer is purchasing or selling the municipal securities may be a 
consideration in determining what information is material.
    Proposed supplementary material .02 provides that dealers operating 
electronic trading or brokerage systems have the same time of trade 
disclosure obligations as other dealers. Proposed supplementary 
material .03 provides a list of examples describing information that 
may be material for certain types of securities and in specific 
scenarios and, therefore, would require disclosures to a customer.
    Finally, proposed supplementary material .04 provides that dealers 
must implement processes and procedures reasonably designed to ensure 
that material information regarding municipal securities is 
disseminated to registered representatives who are engaged in sales to 
and purchases from a customer.

B. Rule G-19, on Suitability of Recommendations and Transactions

    The amendments described below are designed to more closely 
harmonize Rule G-19 with FINRA's suitability rule,\15\ and to 
incorporate elements of the MSRB's current interpretive guidance on 
suitability into Rule G-19. Proposed Rule G-19 includes Supplementary 
Material .01 through .06, which generally tracks Supplementary Material 
.01 through .06 in FINRA Rule 2111.\16\
---------------------------------------------------------------------------

    \15\ See FINRA Rule 2111.
    \16\ The Proposing Release states that ``. . . Rule G-19 will be 
interpreted in a manner consistent with FINRA's interpretations of 
Rule 2111. If the MSRB believes an interpretation should not be 
applicable to Rule G-19, it will affirmatively state that specific 
provisions of FINRA's interpretation do not apply.''
---------------------------------------------------------------------------

    A summary of the proposed revisions to Rule G-19 is as follows:
1. Account Information
    Current MSRB Rule G-19(a) requires dealers to obtain a record of 
certain customer information at or before completion of a transaction 
in municipal securities. The MSRB did not include a provision 
equivalent to current Rule G-19(a) in proposed Rule G-19, because MSRB 
Rule G-8 already independently requires dealers to make and keep a 
record of this information for each customer. Additionally, by deleting 
this provision, the MSRB intends to streamline the rule and more 
closely align it with FINRA's suitability rule, which does not contain 
this specific requirement.\17\
---------------------------------------------------------------------------

    \17\ See FINRA Rule 2111.
---------------------------------------------------------------------------

2. Information Required for Suitability Determinations
    The current MSRB suitability rule contains a list of customer 
information that dealers must obtain prior to recommending a 
transaction to a non-institutional account.\18\ The proposed revisions 
to Rule G-19 would expand this list to include additional items from 
FINRA's suitability rule \19\ such as: age, investment time horizon, 
liquidity needs, investment experience and risk tolerance. The proposed 
revision also would delete Rule G-19(b) and replace it with rule 
language corresponding to FINRA's suitability rule. The list of 
customer information that dealers must assess in the proposed rule 
would also include ``any other information the customer may disclose to 
the broker, dealer or municipal securities dealer in connection with 
such recommendation,'' which corresponds to language in the FINRA 
rule.\20\ Therefore, the proposed rule would delete the similar 
requirement in current MSRB Rule G-19(c)(ii) which states that, in 
recommending a transaction, a dealer shall have reasonable grounds 
``based upon the facts disclosed by such customer or otherwise known 
about such customer for believing that the recommendation is 
suitable.''
---------------------------------------------------------------------------

    \18\ See MSRB Rule G-19(b).
    \19\ See FINRA Rule 2111(a).
    \20\ Id.
---------------------------------------------------------------------------

    Further, the proposed revisions to Rule G-19 incorporate the 
reasonable-basis suitability terminology from FINRA Rule 2111 in 
supplementary material .05(a) and delete section (c)(i) of Rule G-
19.\21\
---------------------------------------------------------------------------

    \21\ As noted in the Proposing Release, although this change 
deletes the explicit requirement in MSRB Rule G-19(c)(i) for dealers 
to consider information available from the issuer of the security or 
otherwise in making suitability determinations, the MSRB asserts 
that in order to perform a reasonable-basis suitability analysis, 
dealers must necessarily consider information available from the 
issuer of the security.
---------------------------------------------------------------------------

3. Discretionary Accounts
    Current MSRB Rule G-19(d)(i) provides that dealers cannot effect 
transactions in municipal securities with or for a discretionary 
account unless permitted by the customer's prior written authorization 
that has been accepted in writing by a municipal securities principal. 
The MSRB proposed to delete this provision, because there is a 
substantially similar provision already included in MSRB Rule G-
8(a)(xi)(I) which requires that, for customer discretionary accounts, 
dealers must make and keep a record of the customer's written 
authorization to exercise discretionary power over the account, written 
approval of the municipal securities principal who supervises the 
account, and written approval of the municipal securities principal 
with respect to each transaction in the account stating the date and 
time of approval.
    Current MSRB Rule G-19(d)(ii) states that a dealer cannot effect a 
transaction

[[Page 14323]]

in municipal securities with or for a discretionary account unless the 
dealer first determines that the transaction is suitable for the 
customer or the transaction is specifically directed by the customer 
and was not recommended by the dealer. Instead, proposed MSRB Rule G-19 
includes a general requirement, providing that a dealer must have a 
reasonable basis to believe that a recommended transaction or 
investment strategy is suitable for the customer. The MSRB proposed 
deleting current Rule G-19(d)(ii) on the basis that: (1) The 
suitability obligation is the same for discretionary and non-
discretionary accounts, and therefore, there is no reason to restate 
the obligation as it specifically relates to discretionary accounts; 
and (2) there is no corresponding provision in FINRA Rule 2111. The 
MSRB noted in its Response that it plans to consider adopting a 
separate rule addressing discretionary accounts and dealers continue to 
owe their customers a duty of fair dealing under MSRB Rule G-17 
regarding discretionary accounts.
4. Churning
    The proposed revisions to Rule G-19 retain the substance of the 
existing MSRB prohibition on churning,\22\ but recast it using the 
current terminology of ``quantitative suitability'' used in FINRA's 
suitability rule.\23\ The quantitative suitability requirement is 
included in proposed Rule G-19, supplementary material .05(c).
---------------------------------------------------------------------------

    \22\ See MSRB Rule G-19(e).
    \23\ See FINRA Rule 2111, Supplementary Material .05(c).
---------------------------------------------------------------------------

5. Investment Strategies
    The proposed amendments to Rule G-19 incorporate the application of 
suitability to ``investment strategies.'' Specifically, proposed 
supplementary material .03 defines the phrase ``investment strategy 
involving a municipal security or municipal securities'' by stating 
that it is ``to be interpreted broadly and would include, among other 
things, an explicit recommendation to hold a municipal security or 
municipal securities.'' This definition is consistent with the 
definition of ``investment strategy involving a security or 
securities'' in FINRA's suitability rule.\24\ The proposed MSRB 
suitability rule, like the FINRA rule, carves out communications of 
certain types of material as long as such communications do not 
recommend a particular municipal security or municipal securities.\25\ 
The MSRB stated in the Proposing Release that the list of materials in 
proposed Rule G-19, supplementary material .03, differs in minor 
respects from the list of materials in FINRA's suitability rule \26\ to 
account for unique attributes of the municipal securities market.
---------------------------------------------------------------------------

    \24\ See FINRA Rule 2111, Supplementary Material .03.
    \25\ Id.
    \26\ Id.
---------------------------------------------------------------------------

6. Proposed Technical Revisions to Rule G-8, on Books and Records
    MSRB Rule G-8(a)(xi)(F) includes references to MSRB Rule G-
19(c)(ii) and G-19(b). These referenced provisions are not codified as 
such in the proposed revisions to MSRB Rule G-19, but the concepts will 
remain in the proposed rule. Therefore, the MSRB proposed revising MSRB 
Rule G-8(a)(xi)(F) to include a reference to the entire MSRB Rule G-19.

C. Rules D-15 and G-48 on SMMPs

    Proposed Rules D-15 and G-48 on SMMPs (the ``proposed SMMP rules'') 
consist of a new definitional rule, D-15, defining an SMMP and a new 
general rule, G-48, on the regulatory obligations of dealers to SMMPs.
    A summary of proposed Rules D-15 and G-48 is as follows:
    Proposed Rule D-15 defines the term ``sophisticated municipal 
market professional'' or ``SMMP'' as a customer of a dealer that is a 
bank, savings and loan association, insurance company, or registered 
investment company; or an investment adviser registered with the 
Commission under Section 203 of the Investment Advisers Act of 1940 or 
with a state securities commission (or any agency or office performing 
like functions); or any other entity with total assets of at least $50 
million. Proposed Rule D-15 further requires that the dealer have a 
reasonable basis to believe that the customer is capable of evaluating 
investment risks and market value independently, both in general and 
with regard to particular transactions and investment strategies in 
municipal securities, and that the customer affirmatively indicate that 
it is exercising independent judgment in evaluating the recommendations 
of the dealer.
    The supplementary material to proposed Rule D-15 addresses the 
reasonable basis analysis and the customer affirmation. Section .01 
states that as part of the reasonable basis analysis, the dealer should 
consider the amount and type of municipal securities owned or under 
management by the customer. Section .02 states that a customer may 
affirm that it is exercising independent judgment either orally or in 
writing, and such affirmation may be given on a trade-by-trade basis, 
on a type-of-municipal-security basis, or on an account-wide basis.
    Proposed Rule G-48 describes the application of certain obligations 
to SMMPs. More specifically, the proposed rule provides that a dealer's 
obligations to a customer that it reasonably concludes is an SMMP are 
modified as follows: (1) With respect to the time of trade disclosure 
obligation in proposed Rule G-47, the dealer would not have any 
obligation to disclose material information that is reasonably 
accessible to the market; (2) with respect to transaction pricing 
obligations under Rule G-18, the dealer would not have any obligation 
to take action to ensure that transactions meeting certain conditions 
set forth in the proposed rule are effected at fair and reasonable 
prices; (3) with respect to the suitability obligation in Rule G-19, 
the proposed rule provides that the dealer would not have any 
obligation to perform a customer-specific suitability analysis; and (4) 
with respect to the obligation regarding bona fide quotations in Rule 
G-13, the dealer disseminating an SMMP's quotation which is labeled as 
such would be required to apply the same standards described in Rule G-
13(b) for quotations made by another dealer.

III. Summary of Comments Received and the MSRB's Response

    On October 22, 2013, the Commission published the MSRB's proposed 
rule change in the Federal Register.\27\ The comment period ended on 
November 12, 2013, and the Commission received two (2) comment letters 
in response to the proposed rule change.\28\ Both commenters expressed 
general support for the proposed rule change but sought further changes 
or clarification as discussed below.\29\ The MSRB responded to comments 
in a letter dated January 14, 2014.\30\ On January 16, 2014, the 
Commission published the Proceedings Order in the Federal Register to 
provide interested parties an opportunity to consider the MSRB's 
proposed treatment of past interpretive guidance, as set forth in the 
Response.\31\ The Commission received no comment letters in response to 
the Proceedings Order.
---------------------------------------------------------------------------

    \27\ See supra note 3.
    \28\ See supra note 4.
    \29\ See ICI Letter and SIFMA Letter.
    \30\ See supra note 5.
    \31\ See supra note 7.

---------------------------------------------------------------------------

[[Page 14324]]

A. General Support for the Proposed Rule Change

    Both commenters expressed support for harmonizing MSRB Rule G-19 
with FINRA's suitability rule.\32\ One commenter noted that it supports 
the efforts by the MSRB to provide clarity to regulated entities by 
developing new or revised rules that highlight core principles.\33\
---------------------------------------------------------------------------

    \32\ ICI Letter and SIFMA Letter.
    \33\ See SIFMA Letter.
---------------------------------------------------------------------------

B. Suggestions for Changes to Proposal

1. Include Suitability Guidance Regarding 529 Plans
    One commenter recommended that the MSRB incorporate into Rule G-19 
existing interpretive guidance relating to suitability assessments for 
529 college savings plans.\34\ The commenter noted that that inclusion 
would, among other things, ``[e]liminate the confusion that may result 
from MSRB registrants believing that the MSRB's suitability rule 
contains all relevant information relating to their suitability 
obligations. . . .'' \35\
---------------------------------------------------------------------------

    \34\ ICI Letter.
    \35\ Id.
---------------------------------------------------------------------------

    The MSRB responded by explaining that the guidance is not proposed 
to be codified in Rule G-19 because the MSRB may propose a separate 
rule addressing 529 plans in the future, and the relevant guidance will 
remain intact until such time as the MSRB may adopt such a rule.
2. Differentiate Disclosure Obligations Between Sales to Customers 
Versus Purchasers From Customers
    One commenter stated that proposed MSRB Rule G-47 should reflect 
that there is a different time of trade disclosure obligation when a 
dealer is selling a bond to a customer as opposed to when a dealer is 
purchasing a bond from a customer arguing that customers should know 
the characteristics of the bonds they own.\36\ The commenter 
acknowledged that in answer to a similar comment it previously made, 
the MSRB clarified in the rule that whether the customer is purchasing 
or selling is a factor in determining what information is material and 
must be disclosed by the dealer.\37\ The commenter stated that the 
modification did ``not go far enough'' and requested that the MSRB 
further modify Rule G-47 to include supplementary material explaining 
the differences in disclosure obligations.\38\ The MSRB responded this 
modification would involve a substantive change to the current 
disclosure obligations beyond the scope of this rulemaking and that the 
MSRB Board may consider substantive changes as part of a future 
initiative.
---------------------------------------------------------------------------

    \36\ SIFMA Letter.
    \37\ Id.
    \38\ Id.
---------------------------------------------------------------------------

3. Extend Implementation Period to One Year
    One commenter advocated for a one year implementation period, 
stating that the period proposed by the MSRB was too brief given the 
scope of the training and system changes required.\39\ The MSRB 
responded that it does not believe such a lengthy implementation period 
is necessary, noting that the revised rule will largely be consistent 
with FINRA's suitability rule, with which many dealers already are 
familiar. Nonetheless, to address this concern, the MSRB extended the 
effective date for the proposed rule change for an additional 60 days, 
to total 120 days following the date of SEC approval.
---------------------------------------------------------------------------

    \39\ Id.
---------------------------------------------------------------------------

4. Reflect Reduced Duties to SMMPs Within Rules Governing non-SMMPs
    One commenter suggested that rules governing non-SMMPs should also 
reflect dealers' reduced duties to SMMPs.\40\ The MSRB responded that 
stand-alone rules are more prominent, and that the proposed stand-alone 
SMMP rule would address dealers' modified duties in multiple areas 
under rules not part of this rulemaking. Additionally, the MSRB noted 
that future modifications to dealer obligations with respect to SMMPs 
could be accomplished more efficiently by having a stand-alone SMMP 
rule. The commenter also suggested that Rule G-19 and proposed Rules G-
47 and G-48 should cross-reference each other stating that cross-
referencing would further the MSRB's objective to provide clarity to 
investors, dealers, and regulators.\41\ The MSRB responded that such 
cross-references are unnecessary.
---------------------------------------------------------------------------

    \40\ Id.
    \41\ Id.
---------------------------------------------------------------------------

5. Retain Existing Interpretive Guidance
    One commenter asked the MSRB to archive and preserve existing time 
of trade disclosure interpretive notices.\42\ As noted previously, the 
MSRB stated that it will archive on its Web site the existing guidance 
that is to be deleted from the MSRB's Rule Book in connection with the 
proposed rule change. The MSRB further responded that to the extent 
that past interpretive guidance does not conflict with any MSRB rules 
or interpretations thereof, it remains potentially applicable, 
depending on the facts and circumstances of a particular case.
---------------------------------------------------------------------------

    \42\ Id.
---------------------------------------------------------------------------

C. Requests for Clarifications

1. Use of a Preliminary Official Statement (``POS'') To Satisfy Time of 
Trade Disclosure Obligations
    One commenter noted that dealers, in reliance on previous guidance 
indicating that a POS can serve as a primary vehicle for providing time 
of trade disclosures, have either delivered or provided access to a POS 
to fulfill time of trade disclosure obligations.\43\ The commenter 
requested that the MSRB affirm that a POS can serve as a primary 
vehicle for providing the required time of trade disclosures under Rule 
G-47.\44\ The MSRB found this comment to be outside the scope of the 
current proposal because it would require a substantive change, which 
the MSRB may consider as part of a future initiative. Nevertheless, in 
response, the MSRB stated that existing guidance does not state that 
providing mere access to a POS would be a sufficient means of 
disclosure, and the adequacy of disclosure depends on facts and 
circumstances. The MSRB noted, however, that existing guidance will 
continue to be potentially applicable.
---------------------------------------------------------------------------

    \43\ Id.
    \44\ Id.
---------------------------------------------------------------------------

2. Additional Clarifications
    One commenter requested that the MSRB affirm (1) that information 
barriers do not need to be dismantled in order to provide time of trade 
disclosures, and (2) that time of trade disclosures need not be given 
to customers that hold discretionary accounts.\45\ The MSRB indicated 
that these requests would require substantive changes to existing 
requirements and are thus outside the scope of the current proposal. 
The MSRB stated that it may consider these requests if the MSRB Board 
undertakes to amend the rule in the future.
---------------------------------------------------------------------------

    \45\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as well as the comment letters received and the MSRB's response, and 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to the 
MSRB. In particular, as discussed below, the proposed rule change is 
consistent with Section 15B(b)(2)(C) of the Act, which, among other 
things, provides that the MSRB's

[[Page 14325]]

rules shall be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in municipal securities and municipal 
financial products, to remove impediments to and perfect the mechanism 
of a free and open market in municipal securities and municipal 
financial products, and, in general, to protect investors, municipal 
entities, obligated persons, and the public interest.\46\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The disclosure of material information about a transaction to 
investors and the performance of a meaningful suitability analysis are 
central to the role of a dealer in facilitating municipal securities 
transactions. Proposed Rule G-47, on time of trade disclosures, 
codifies current interpretive guidance and protects investors by 
requiring dealers to make disclosures to customers in connection with 
purchases and sales of municipal securities. These required disclosures 
are designed to prevent fraudulent and manipulative acts and practices 
by dealers, and promote just and equitable principles of trade, by 
requiring dealers to disclose information about a security and 
transaction that would be considered significant or important to a 
reasonable investor in making an investment decision. Similarly, the 
proposed revisions to Rule G-19, on suitability, further these purposes 
by requiring dealers and their associated persons to make only suitable 
recommendations to customers and fosters more efficient regulation by 
harmonizing the rule with FINRA's suitability rule. The proposed 
revisions to Rule G-19 are also aligned with a recommendation of the 
SEC in its 2012 Report on the Municipal Securities Market that the MSRB 
consider ``amending Rule G-19 (suitability) in a manner generally 
consistent with recent amendments by FINRA to its Rule 2111, including 
with respect to the scope of the term `strategy' . . . . .'' \47\ The 
Commission believes that the proposed rule, which would require a 
dealer to have a reasonable basis in recommending an investment 
strategy, enhances investor protection. Specifically, by interpreting 
the term ``investment strategy'' broadly, the MSRB will provide 
important protections to investors who receive this type of 
recommendation. Moreover, the Commission believes that the MSRB, 
through it Response, has addressed commenters' concerns, other than 
those it determined are outside the scope of the current proposal.
---------------------------------------------------------------------------

    \47\ See http://www.sec.gov/news/studies/2012/munireport073112.pdf at 141.
---------------------------------------------------------------------------

    In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation.\48\ The Commission found significant that the 
proposed changes related to time-of-trade disclosure and SMMPs involve 
no substantive change to existing requirements. Additionally, the rule 
changes could ease burdens on dealers and promote competition by 
clarifying certain core dealer obligations and the reduced obligations 
when transacting business with SMMPs.
---------------------------------------------------------------------------

    \48\ See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    Furthermore, harmonizing MSRB Rule G-19 with the FINRA suitability 
rule enhances efficiency in the market by enabling those dealers that 
are dually registered with the MSRB and FINRA to establish and 
implement one suitability standard.\49\ Although one commenter implied 
that further efficiency could be attained by including suitability 
guidance relating to 529 plans within proposed Rule G-19, the commenter 
did not indicate that the proposed rule created inefficiencies. 
Moreover, the Commission notes that the existing guidance relating to 
529 plans continues to apply and understands that the MSRB may 
determine to propose a separate rule for 529 plans in the future.
---------------------------------------------------------------------------

    \49\ See Attachment to ICI Letter.
---------------------------------------------------------------------------

    The Commission also believes that the MSRB's Response includes 
certain accommodations that help promote efficiency and do not impede 
competition. Specifically, the MSRB's retention of its interpretative 
guidance and the continuing applicability of such guidance to the 
extent it does not conflict with any MSRB rules or interpretations 
provides continuity to dealers. Moreover, the MSRB's extension of the 
implementation period from 60 to 120 days gives additional time, if 
needed, for dealers to establish or modify their compliance systems.

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to the MSRB, and in 
particular, Section 15B(b)(2)(C) of the Act. The proposal will become 
effective 120 days following the date of this order.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\50\ that the proposed rule change (SR-MSRB-2013-07) be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
---------------------------------------------------------------------------

    \51\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05456 Filed 3-12-14; 8:45 am]
BILLING CODE 8011-01-P


