
[Federal Register Volume 81, Number 56 (Wednesday, March 23, 2016)]
[Notices]
[Pages 15582-15585]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06452]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77390; File No. SR-MSRB-2016-01]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change Consisting of 
Proposed Amendments to Rule A-3, on Membership on the Board

March 17, 2016.

I. Introduction

    On January 15, 2016, the Municipal Securities Rulemaking Board (the 
``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ a proposed rule change consisting of proposed 
amendments to the MSRB Rule A-3, on membership on the Board (the 
``proposed rule change'').
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The proposed rule change was published for comment in the Federal 
Register on February 4, 2016.\3\ The Commission received two comment 
letters on the proposed rule change.\4\ This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 76999 (Jan. 29, 2016), 
81 FR 6088 (Feb. 4, 2016) (the ``Proposing Release'').
    \4\ See Letters from Lisa S. Good, Executive Director, National 
Federation of Municipal Analysts (``NFMA''), dated February 25, 2016 
(``NFMA Letter''); and Michael Nicholas, Chief Executive Officer, 
Bond Dealers of America (``BDA''), dated February 25, 2016 (``BDA 
Letter'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Board is comprised of 21 members \5\ who, collectively, govern 
the MSRB to carry out its mission primarily by regulating dealers and 
municipal advisors, providing market transparency through its 
Electronic Municipal Market Access (EMMA) Web site, and conducting 
market leadership, outreach and education. Many general and some more 
detailed aspects of the Board's composition are set forth in the 
Act.\6\ It categorizes the members of the Board into two broad groups: 
Individuals who must be associated with a broker, dealer or municipal 
securities dealer (``dealer'') or municipal advisor (collectively, 
``Regulated Representatives''), and individuals who must be independent 
of any dealer or municipal advisor (``Public Representatives'').\7\ The 
Act then specifies that the number of Public Representatives must at 
all times exceed the number of Regulated Representatives,\8\ and sets 
minimum requirements for certain types of individuals to serve in the 
two groups.\9\
---------------------------------------------------------------------------

    \5\ See MSRB Rule A-3(a).
    \6\ See 15 U.S.C. 78o-4(b)(1). MSRB Rule A-3 further establishes 
the Board's composition.
    \7\ See 15 U.S.C. 78o-4(b)(1); MSRB Rule A-3(a)(i)-(ii).
    \8\ See 15 U.S.C. 78o-4(b)(2)(B)(i).
    \9\ See 15 U.S.C. 78o-4(b)(1); MSRB Rule A-3(a).
---------------------------------------------------------------------------

    Congress also delegated authority to the MSRB to determine many 
aspects of Board composition by rule, including the size of the Board 
and the length of the term of Board member service.\10\ Currently, the 
Board is divided into three seven-member classes that serve staggered, 
three-year terms.\11\ The MSRB stated that under this framework, total

[[Page 15583]]

Board tenure typically is no more than three years because Board 
members may only serve consecutive terms under two limited scenarios: 
(1) By invitation from, and due to special circumstances as determined 
by, the Board; or (2) having filled a vacancy and, therefore, having 
served only a partial term.\12\
---------------------------------------------------------------------------

    \10\ The Act provides that ``[t]he members of the Board shall 
serve as members for a term of 3 years or for such other terms as 
specified by rules of the Board,'' and that the rules of the Board 
``specify the length or lengths of terms members shall serve.'' 15 
U.S.C. 78o-4 (b)(1), (b)(2)(B)(ii).
    \11\ See MSRB Rule A-3(b)(i).
    \12\ Id.
---------------------------------------------------------------------------

    According to the MSRB, the proposed rule change would lengthen the 
term of Board member service from three years to four years, and 
facilitate the new, longer term length by increasing the number of 
Board classes and adjusting their sizes.\13\ Additionally, the MSRB has 
stated that the proposed rule change would limit the number of 
consecutive terms a Board member can serve to two, and eliminate the 
requirement that there be at least one non-dealer municipal advisor per 
Board class.\14\ Finally, the MSRB has stated that the proposed 
amendments would delete an obsolete provision from the rule and provide 
a technical update to the name of a Board committee.\15\ The MSRB 
believes that the proposed rule change would ensure greater continuity 
and institutional knowledge from year to year, particularly through the 
rulemaking process, and increase overall efficiency, while maintaining 
the benefits of having a significant number of new Board members join 
the organization each year.\16\ A full description of the proposed rule 
change is contained in the Proposing Release.
---------------------------------------------------------------------------

    \13\ See supra note 3.
    \14\ Id.
    \15\ Id.
    \16\ Id.
---------------------------------------------------------------------------

1. Lengthening the Term of Board Member Service and Increasing the 
Number of Board Classes

    The MSRB has proposed increasing both the Board member term length 
from three years to four years and the number of Board classes from 
three to four.\17\ The MSRB has proposed that one class would be 
comprised of six members and three classes comprised of five 
members.\18\ The MSRB has stated that it believes that having members 
serve on the Board for a fourth year would improve the continuity and 
institutional knowledge of the Board from year to year which is 
important for the MSRB rulemaking process which can often span multiple 
years from conception to full implementation.\19\ The MSRB has further 
stated that the proposed changes would ensure that the MSRB nominates 
and elects new members every year, maintains classes that are as evenly 
distributed in size as possible, and has a Board composition that 
always satisfies the statutorily-required position allocations.\20\ 
According to the MSRB, such changes would result in a consistent and 
manageable turnover from year to year.\21\ The MSRB has further 
represented that the classes would continue to be as evenly divided in 
number as possible between Public Representatives and Regulated 
Representatives, while also remaining majority public as is required by 
the Act and Rule A-3(a) and (b)(i).\22\
---------------------------------------------------------------------------

    \17\ Id.
    \18\ Id.
    \19\ Id.
    \20\ Id.
    \21\ Id.
    \22\ Id.
---------------------------------------------------------------------------

2. Establishing a Limit on Consecutive Terms

    The MSRB has proposed that a Board member could serve no more than 
two consecutive terms, eight years in total, which could only occur 
under the a special circumstances exception.\23\ The MSRB has stated 
that this added provision would ensure that the special circumstances 
exception is not overused, mitigate some commenters' concerns of Board 
members becoming too dominant and unduly influential, assure 
appropriate turnover of Board membership, and help maintain a robust 
pool of applicants for Board service.\24\ The MSRB believes this 
modification reflects good corporate governance practices as applied to 
the particular characteristics of the MSRB.\25\
---------------------------------------------------------------------------

    \23\ See Rule A-3(b)(i).
    \24\ See supra note 3.
    \25\ Id.
---------------------------------------------------------------------------

3. Eliminating Requirement of One Non-Dealer Municipal Advisor

    The MSRB has proposed eliminating the requirement that there be at 
least one non-dealer municipal advisor per class.\26\ The MSRB has 
stated that it is proposing this change because the proposed amendments 
would result in the creation of four classes which would create an 
obligation that the Board always includes four non-dealer municipal 
advisors, which could potentially diminish representation of other 
regulated entities.\27\ The MSRB has represented that the proposed rule 
change would not affect the existing requirement in Rule A-3(a)(ii)(3) 
that for the Board as a whole ``at least one, and not less than 30 
percent of the total number of [R]egulated [R]epresentatives, shall be 
associated with and representative of municipal advisors and shall not 
be associated with a broker, dealer or municipal securities dealer.'' 
\28\ The MSRB has stated that nothing in this proposed change would 
reduce the minimum required representation of municipal advisors and 
such proposed change would not prohibit the MSRB from deciding to 
include more than three non-dealer municipal advisors on the Board.\29\ 
The MSRB has represented that all other provisions in Rule A-3(b)(i) 
would remain unchanged.\30\
---------------------------------------------------------------------------

    \26\ Id.
    \27\ Id.
    \28\ Id.
    \29\ Id.
    \30\ Id.
---------------------------------------------------------------------------

Clarifying and Technical Amendments
    The MSRB has proposed two amendments to delete an obsolete 
provision and make a technical update. The MSRB believes that these 
changes will improve the clarity and readability of MSRB Rule A-3.
    The MSRB has stated that MSRB Rule A-3(h) currently describes the 
transition process the MSRB used to increase its Board size from 15 to 
21 members during its fiscal years 2013 and 2014.\31\ The MSRB has 
stated that the proposed rule change would delete this provision from 
MSRB Rule A-3 because that process has been completed and the provision 
is therefore obsolete.\32\
---------------------------------------------------------------------------

    \31\ Id.
    \32\ Id.
---------------------------------------------------------------------------

    Additionally, MSRB Rule A-3(g)(ii) makes reference to the 
``Nominating Committee,'' which is now called the ``Nominating and 
Governance Committee.'' \33\ The MSRB has stated that the proposed rule 
change would provide a technical update to the reference of the current 
name of the committee which would promote the accuracy of the rule.\34\
---------------------------------------------------------------------------

    \33\ Id.
    \34\ Id.
---------------------------------------------------------------------------

Transition Plan
    In order to effectuate the changes in term length and the number 
and size of classes, the MSRB has proposed a transition plan (the 
``Transition Plan''), under which each Board member, who was elected 
prior to, and whose term ends on or after the end of, the MSRB's fiscal 
year 2016,\35\ could be considered for a term extension not exceeding 
one year.\36\ The MSRB has represented that this process would occur 
over fiscal years 2017, 2018 and 2019 and that the transition would 
proceed as follows: (1) For fiscal year 2017, one Public Representative 
from the Board class of 2016 (i.e., members who began a three-year term 
on October 1, 2013) would

[[Page 15584]]

receive a one-year extension and six new members would join the Board; 
(2) for fiscal year 2018, one Public and two Regulated Representatives 
from the Board class of 2017 (i.e., members who began a three-year term 
on October 1, 2014) each would receive a one-year extension and five 
new members would join the Board; and (3) for fiscal year 2019, three 
Public and two Regulated Representatives from the Board class of 2018 
(i.e., members who began a three-year term on October 1, 2015) each 
would receive a one-year extension and five new members would join the 
Board.\37\ The MSRB has stated that the full Board would vote by ballot 
on all members eligible for term extensions to determine who receives 
them.\38\ Further, the MSRB has noted that the selection of Board 
members whose terms would be extended would be in compliance with the 
statutorily-required compositional requirements of the Board, and the 
Board would continue to consist of 21 members with a majority of Public 
Representatives.\39\ The MSRB has represented that in fiscal year 2020, 
no further extensions would be required and five new members would join 
the Board, completing the transition to four classes and from that 
point forward, the Board would repeatedly nominate and elect classes in 
the sequence of six, five, five, and five members.\40\ The MSRB has 
further stated that while there are numerous possible combinations of 
the number of Board classes and the number of members in each class, 
they believe this specific combination would achieve the transition 
expeditiously and efficiently while minimizing any disruption from the 
changes.\41\
---------------------------------------------------------------------------

    \35\ The MSRB's fiscal year commences on October 1 of a given 
year and ends on September 30 of the following year.
    \36\ See supra note 3.
    \37\ Id.
    \38\ Id.
    \39\ See supra notes 3, 5 and 7-9.
    \40\ See supra note 3.
    \41\ Id.
---------------------------------------------------------------------------

III. Summary of Comments Received

    As noted previously, the Commission received two comment letters on 
the proposed rule change.\42\ The NFMA Letter expressed general support 
and agreement with the proposed rule change.\43\ The BDA Letter also 
expressed general support and agreement with the proposed rule change, 
but noted interest in seeing the MSRB continue to strengthen its 
training of future Board members and to continue to reevaluate its 
training program to ensure it reflects changes in market practices and 
new regulations.\44\ BDA made a substantially similar comment \45\ in 
response to the MSRB's Request for Comment,\46\, and the MSRB responded 
to such comment in the Proposing Release.\47\ Full descriptions of the 
comments are contained in the comment letters.\48\
---------------------------------------------------------------------------

    \42\ See supra note 4.
    \43\ See NFMA Letter.
    \44\ See BDA Letter.
    \45\ See Letter from Michael Nicholas, Chief Executive Officer, 
BDA, dated November 19, 2015.
    \46\ Request for Comment on Draft Amendments to MSRB Rule A-3 to 
Lengthen the Term of Board Member Service, MSRB Notice 2015-18 (Oct. 
5, 2015) (``MSRB Request for Comment'').
    \47\ See supra note 3.
    \48\ See supra notes 4 and 33.
---------------------------------------------------------------------------

Increase in Term Length--Training
    The MSRB noted that this comment by BDA addresses internal MSRB 
matters and does not suggest any revision to the language of the 
amendments in the proposed rule change.\49\ The MSRB further stated 
that the MSRB already allocates significant resources to educating new 
Board members as part of a robust and dedicated orientation process 
that begins prior to the commencement of their terms and focuses on 
organizational and other substantive matters, including, but not 
limited to, rulemaking and other large initiatives.\50\ Finally, the 
MSRB represented that it already routinely revises and improves this 
process with the benefit of each successive experience orienting new 
Board members.\51\
---------------------------------------------------------------------------

    \49\ Id.
    \50\ Id.
    \51\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change as 
well as the comments received. The Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to the MSRB.
    In particular, the Commission finds that the rule change is 
consistent with Section 15B(b)(2)(B) of the Act, which provides that 
the MSRB's rules shall:

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

    The Commission believes the increase of the term length from three 
to four years, the change in the number and size of Board classes from 
three classes of seven members to one class of six and three classes of 
five, and the elimination of the requirement that there be one non-
dealer municipal advisor per class are consistent with the Act in that 
the composition of the Board would continue to satisfy the requirements 
of the Act. Further, the Commission believes the limitation of 
consecutive terms to two, totaling a maximum of eight years of 
consecutive service, is consistent with the Act in that it specifies 
the length of term that Board members can serve when the MSRB invokes 
the special circumstances exception.
    Further, the Commission finds that the proposed deletion of the 
transition process described in MSRB Rule A-3(h) is consistent with the 
Act because removing the obsolete provision improves the clarity and 
readability of the rule. The Commission also believes the proposed 
update to the reference to the ``Nominating and Governance Committee'' 
in MSRB Rule A-3(g)(ii) is consistent with the Act because it enhances 
the accuracy of the rule in regard to a reference to a component of the 
Board's governance structure.
    In approving the proposed rule change, the Commission has also 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation.\52\ The Commission believes that 
the effect of the proposed rule is beneficial and the proposed changes 
will improve the effectiveness and efficiency of the Board by providing 
the Board with increased continuity and institutional knowledge 
particularly in connection with the rulemaking process. The Commission 
does not believe that the proposed rule change would impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    For the reasons noted above, the Commission believes that the 
proposed rule change is consistent with the Act.
MSRB Execution of the Transition Plan
    In evaluating the proposed rule change, the Commission has 
considered the Transition Plan to effectuate the changes in term length 
and the number

[[Page 15585]]

and size of Board classes proposed by the MSRB in the Proposing 
Release.\53\ The Commission's approval of the proposed rule change is 
premised on the MSRB executing the Transition Plan.
---------------------------------------------------------------------------

    \53\ See supra note 3.
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\54\ that the proposed rule change (SR-MSRB-2016-01) be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78s(b)(2).
    \55\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.\55\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06452 Filed 3-22-16; 8:45 am]
 BILLING CODE 8011-01-P


