
[Federal Register Volume 81, Number 223 (Friday, November 18, 2016)]
[Notices]
[Pages 81837-81842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27738]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79295; File No. SR-MSRB-2016-15]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change To Extend the MSRB's 
Customer Complaint and Related Recordkeeping Rules to Municipal 
Advisors and To Modernize Those Rules

November 14, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on November 1, 2016, the Municipal 
Securities Rulemaking Board (the ``MSRB'' or ``Board'') filed with the 
Securities and Exchange Commission (the ``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the MSRB. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(i).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change 
consisting of (i) proposed amendments to Rule G-10, on delivery of 
investor brochure, Rule G-8, on books and records to be made by 
brokers, dealers, and municipal securities dealers and municipal 
advisors, and Rule G-9, on preservation of records, and (ii) a proposed 
Board notice regarding electronic delivery and receipt of information 
by municipal advisors under Rule G-32, on disclosures in connection 
with primary offerings (collectively, the ``proposed rule change''). 
The MSRB requests that the proposed rule change be approved with an 
implementation date of six months after the Commission approval date 
for all changes.
    The text of the proposed rule change is available on the MSRB's Web 
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2016-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

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

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

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

1. Purpose
Background
    Following the financial crisis of 2008, Congress enacted the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank 
Act'').\3\ The Dodd-Frank Act amended Section 15B of the Exchange Act 
to establish a new federal regulatory regime requiring municipal 
advisors to register with the Commission, deeming them to owe a 
fiduciary duty to their municipal entity clients and granting the MSRB 
rulemaking authority over them. The MSRB, in the exercise of that 
rulemaking authority, has been developing a comprehensive regulatory 
framework for municipal advisors and their associated persons.\4\
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    \3\ Public Law 111-203, 124 Stat. 1376 (2010).
    \4\ MSRB Rule D-11 defines ``associated persons'' as follows:
    Unless the context otherwise requires or a rule of the Board 
otherwise specifically provides, the terms ``broker,'' ``dealer,'' 
``municipal securities broker,'' ``municipal securities dealer,'' 
``bank dealer,'' and ``municipal advisor'' shall refer to and 
include their respective associated persons. Unless otherwise 
specified, persons whose functions are solely clerical or 
ministerial shall not be considered associated persons for purposes 
of the Board's rules.
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    Further, and concurrent with its efforts to develop a comprehensive 
regulatory framework for municipal advisors and their associated 
persons, the MSRB initiated a review of its rules and related 
interpretive guidance for brokers, dealers and municipal securities 
dealers (collectively, ``dealers'') and municipal advisors (municipal 
advisors, together with dealers, ``regulated entities''). The MSRB 
initiated that review in the context of the Board's obligation to 
protect investors, municipal entities, obligated persons, and the 
public interest. As part of that review, the MSRB solicited comments 
from market participants.\5\ In response, market participants 
recommended that the Board update Rule G-10.\6\ The proposed rule 
change, consisting of amendments to Rule G-10 and its related 
recordkeeping rules, Rules G-8 and G-9, and guidance under Rule G-32, 
is an important element of both MSRB regulatory initiatives.
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    \5\ MSRB Notice 2012-63, Request for Comment on MSRB Rules and 
Interpretive Guidance (Dec. 18, 2012).
    \6\ See, e.g., Letter from David L. Cohen, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association, dated February 19, 2013, to Ronald W. Smith, Corporate 
Secretary, Municipal Securities Rulemaking Board (commenting that 
(i) the requirement to deliver an investor brochure under Rule G-10 
should be eliminated, (ii) the investor brochure is of limited 
value, if any, to institutional investors as well as investors in 
municipal fund securities, and (iii) alternatively, the MSRB could 
accomplish the objective of Rule G-10 by posting the investor 
brochure on its Web site); Letter from Gerald K. Mayfield, Senior 
Counsel, Wells Fargo & Company Law Department, dated February 19, 
2013, to Ronald W. Smith, Corporate Secretary, Municipal Securities 
Rulemaking Board (commenting that (i) the requirement to deliver an 
investor brochure under Rule G-10 should be eliminated, (ii) the 
investor brochure is of limited value, if any, to institutional 
investors as well as investors in municipal fund securities, and 
(iii) alternatively, the MSRB could accomplish the objective of Rule 
G-10 by posting the investor brochure on its Web site).
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Proposed Rule Change
    To extend its customer complaint and recordkeeping rules to 
municipal advisors and to modernize those rules, the Board is filing 
this proposed rule change with the Commission. Specifically, the 
proposed rule change would (i) extend the Board's customer complaint 
recordkeeping requirements to all municipal advisors (i.e., non-
solicitor and solicitor municipal advisors) as well as align those 
recordkeeping requirements more closely with the customer complaint 
recordkeeping requirements of other financial regulators, (ii) require 
that all regulated entities retain their customer or municipal advisory 
client \7\ complaint records for six years, (iii) overhaul Rule G-10 so 
that the rule would more closely focus on customer and municipal 
advisory client education and protection as well as align that rule 
with customer education and protection rules of other financial 
regulators, and (iv)

[[Page 81838]]

extend the Board's guidance under Rule G-32, Notice Regarding 
Electronic Delivery and Receipt of Information by Brokers, Dealers and 
Municipal Securities Dealers (Nov. 20, 1998) (the ``1998 Notice''), to 
municipal advisors.
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    \7\ The proposed rule change, in Rule G-8(e)(ii), would define a 
municipal advisory client as a municipal entity or an obligated 
person for whom the municipal advisor engages in activities that 
would cause the municipal advisor to be a municipal advisor, as 
defined in Section 15B(e)(4) of the Exchange Act, 15 U.S.C. 78o-
4(e)(4).
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    In summary, by regulated entity, the proposed rule change would:
Municipal Advisors
     Amend Rule G-8 to exclude municipal advisors from the 
definition of ``customers;''
     amend Rule G-8 to include the definition of ``municipal 
advisory client;''
     amend Rule G-8 to extend the requirements that are similar 
to the rule's customer complaint recordkeeping requirements to 
municipal advisory client complaint recordkeeping;
     amend Rule G-8 to provide guidance in supplementary 
material that would define electronic recordkeeping;
     amend Rule G-8 to provide guidance in supplementary 
material that would remind a municipal advisor that it may be required 
to promptly report certain municipal advisory client complaints to 
other regulatory authorities;
     amend Rule G-9 to require that the records of municipal 
advisory client complaints be kept for at least six years;
     amend Rule G-10 to extend requirements that are similar to 
the rule's dealer customer protection and education requirements to 
municipal advisory client protection and education; and
     extend to municipal advisors, under Rule G-32, the 
guidance provided by the 1998 Notice, as relevant.
Dealers
     Amend Rule G-8 to require that dealers keep a standardized 
complaint log electronically, using product and problem codes tailored 
for municipal securities, to document the written complaints of 
customers;
     amend Rule G-8 to define written customer complaints to 
include complaints received electronically by the dealer;
     amend Rule G-8 to provide guidance in supplementary 
material that would define electronic recordkeeping;
     amend Rule G-8 to provide guidance in supplementary 
material that would remind a dealer that it may be required to promptly 
report certain written customer complaints to other regulatory 
authorities; and
     amend Rule G-10 in its entirety so that the rule would 
more clearly focus on customer protection and education.
    A detailed rule discussion of the proposed rule change's 
recordkeeping requirements, customer and municipal advisory client 
education and protection requirements, and electronic delivery guidance 
to municipal advisors follows.

A. Recordkeeping Requirements

    Rule G-8 currently requires that a dealer keep a record of all 
written complaints from customers and what action, if any, has been 
taken by the dealer in connection with those complaints. Under the 
proposed rule change, the Board would amend Rule G-8 to enhance its 
current recordkeeping requirements and then would extend those enhanced 
recordkeeping requirements to municipal advisors. More specifically, 
the proposed rule change would require regulated entities to retain 
additional detailed information about complaints electronically using a 
standard set of complaint product and problem codes. Supplementary 
Material would define electronic recordkeeping, and would remind 
regulated entities of their complaint reporting obligations to other 
regulatory authorities.
    The three major components of the proposed rule change relating to 
complaint recordkeeping enhancements--namely, the application of those 
requirements to municipal advisors, the electronic complaint log, and 
supplementary material--are discussed below.
(i) Application of Customer Complaint Recordkeeping Requirements to 
Municipal Advisors
    Under the proposed rule change, the Board would amend Rule G-8 to 
extend its complaint recordkeeping requirements to all municipal 
advisors. To accomplish this, the Board would (i) define municipal 
advisory client and (ii) require that a municipal advisor keep a record 
of written municipal advisory client complaints similar to the record 
that would be required for dealers to keep of customer complaints (see 
discussion under ``Electronic Complaint Log'' below).\8\ The Board also 
would extend the record retention period applicable to customer 
complaints under Rule G-9(a)(v) to municipal advisory client complaints 
under the proposed amendment to Rule G-9(h)(iii).
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    \8\ ``Written'' would include electronic correspondence. 
``Complaint'' would mean any written statement alleging a grievance 
involving the activities of the dealer or municipal advisor or any 
of their associated persons with respect to any matter involving a 
customer's or the municipal entity client's account. See the 
proposed amendments to Rule G-8(a)(x)(ii) and (h).
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    A municipal advisory client, as previously noted, would include a 
municipal entity or obligated person for whom the municipal advisor 
engages in activities that cause the municipal advisor to be within the 
definition of a municipal advisor set forth in Section 15B(e)(4) of the 
Exchange Act.\9\ Consistent with the Board's mandate under the Dodd-
Frank Act to protect investors, municipal entities, and obligated 
persons,\10\ the proposed rule change's definition of municipal 
advisory client would include clients of non-solicitor and solicitor 
municipal advisors.
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    \9\ 15 U.S.C. 78o(e)(4).
    \10\ See supra note 3.
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    The definition of a municipal advisor set forth in Section 
15B(e)(4)(A) \11\ is broad and includes non-solicitor and solicitor 
municipal advisors. Section 15B(e)(4)(A)(ii),\12\ in turn, references 
the definition of ``solicitation of a municipal entity or obligated 
person'' set forth in Section 15B(e)(9) of the Exchange Act.\13\ 
Section 15B(e)(9),\14\ in part, defines a solicitation of a municipal 
entity or obligated person to mean ``a direct or indirect communication 
with a municipal entity or obligated person made by a person, for 
direct or indirect compensation, on behalf of a broker, dealer, 
municipal securities dealer, municipal advisor, or investment adviser . 
. . that does not control . . . the person undertaking such 
solicitation . . . .'' As such, the potential pool of written 
complaints could, for example, include a written complaint made by a 
municipal advisory client relating to an advertisement of the solicitor 
municipal advisor. Nonetheless, to protect municipal entity clients and 
obligated persons, the Board believes that it is important to capture 
the written complaints made by the full spectrum of municipal advisory 
clients of a solicitor municipal advisor.
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    \11\ Section 15B(e)(4), 15 U.S.C. 78o-4(e), provides, in part, 
that the term municipal advisor:
    (A) Means a person (who is not a municipal entity or an employee 
of a municipal entity) that--
    (i) provides advice to or on behalf of a municipal entity or 
obligated person with respect to municipal financial products or the 
issuance of municipal securities, including advice with respect to 
the structure, timing, terms, and other similar matters concerning 
such financial products or issues; or
    (ii) undertakes a solicitation of a municipal entity . . .
    \12\ 15 U.S.C. 78o(e)(4)(A)(ii).
    \13\ 15 U.S.C. 78o(e)(9).
    \14\ Id.
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    Further, under the proposed rule change, the Board would amend Rule 
G-9 to extend the record retention period for municipal advisory client 
complaints to six years. Without such an extension, records of customer 
complaints would be kept for six years, while records of municipal 
advisory

[[Page 81839]]

client complaints would be kept for five years. Because of the 
potential importance of municipal advisory client complaints to 
informing other regulators on inspections of regulated entities and on 
the potential enforcement of MSRB rules (see discussion under 
``Electronic Complaint Log'' below), the MSRB believes that the 
retention period for such municipal advisory client complaint records 
should correspond to that of customer complaint records.\15\
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    \15\ The Board notes, however, that there are instances where 
the record retention requirements between dealers and municipal 
advisors differ. For example, dealers are required to retain records 
of gifts and gratuities under Rule G-20 for six years, while 
municipal advisors only are required to retain such records for five 
years.
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(ii) Electronic Complaint Log
    Under the proposed rule change, the Board would amend Rule G-8 to 
require that all regulated entities keep an electronic complaint log of 
all written complaints of customers or municipal advisory clients and 
persons acting on behalf of such customers or municipal advisory 
clients. There would be no option to keep the complaint log in a paper 
format. The electronic complaint log would include identifying 
information about the customer or municipal advisory client (i.e., his, 
her or its name, address, and account number), the date the complaint 
was received, the date of the activity that gave rise to the complaint, 
and the person whom the customer or municipal advisory client names in 
his or her complaint. The record also would include a description of 
the nature of complaint, and the action, if any, the dealer or 
municipal advisor has taken concerning the complaint. The log would 
require that the regulated entity code the complaint using a standard 
set of product and problem codes.
    By enhancing the information about customer and municipal advisory 
client complaints that a regulated entity would be required to keep, as 
well as by requiring that the regulated entity keep those records 
electronically using standard codes, the Board would align Rule G-8 
with the recordkeeping requirements of other financial regulators. For 
example, Rule 17a-3(18) under the Exchange Act \16\ and FINRA Rule 4513 
\17\ each require information about customer complaints similar to what 
would be required under the proposed rule change. Those rules require 
identifying information about the customer, the date the complaint was 
received, the name of any associated person named in the complaint, a 
description of the nature of the complaint and the disposition of the 
complaint.\18\ Further, FINRA Rule 4530 requires that dealers use 
product and problem codes to code their electronic logs of customer 
complaints.\19\
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    \16\ Rule 17a-3(a)(18), 17 CFR 240.17a-3(a)(18), provides, in 
part, that every member of a national securities exchange who 
transacts a business in securities directly with others than members 
of a national securities exchange, and every broker or dealer who 
transacts a business in securities through the medium of any such 
member, and every broker or dealer registered pursuant to section 15 
of the Securities Exchange Act of 1934, as amended, shall make and 
keep current the following books and records relating to its 
business:
    A record:
    (i) As to each associated person of each written customer 
complaint received by the member, broker or dealer concerning that 
associated person. The record shall include the complainant's name, 
address, and account number; the date the complaint was received; 
the name of any other associated person identified in the complaint; 
a description of the nature of the complaint; and the disposition of 
the complaint . . .
    (ii) Indicating that each customer of the member, broker or 
dealer has been provided with a notice containing the address and 
telephone number of the department of the member, broker or dealer 
to which any complaints as to the account may be directed.
    \17\ FINRA Rule 4513(a) provides, in part, that:
    [e]ach member shall keep and preserve in each office of 
supervisory jurisdiction either a separate file of all written 
customer complaints that relate to that office (including complaints 
that relate to activities supervised from that office) and action 
taken by the member, if any, or a separate record of such complaints 
and a clear reference to the files in that office containing the 
correspondence connected with such complaints.
    \18\ See supra notes 16 and 17.
    \19\ See FINRA Rule 4530(d). The product and problem codes used 
under Rule 4530 as of August 29, 2016 are available at http://www.finra.org/sites/default/files/Web%20-%20Complaints%20%20Problem%20and%20Product%20Codes_0.pdf.
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    In addition, by requiring that customer and municipal advisory 
client complaint records be kept electronically using standard codes, 
the Board believes that the proposed rule change would enhance the 
ability of other financial regulators to conduct more cost-effective 
and efficient inspections and surveillance of regulated entities. The 
Board understands that other financial regulators conduct certain 
portions of their inspections and monitoring of dealers electronically. 
Under the proposed rule change, the Board would ensure that inspections 
of certain dealers and municipal advisors that are not members of FINRA 
also could be accomplished in a more cost-effective and efficient 
manner.
    As noted above, under the proposed rule change, the Board would 
develop codes for the electronic complaint log that would be based on 
the product and problem codes required by FINRA Rule 4530, but would be 
tailored to address municipal securities and municipal advisory 
activities.\20\ The Board would make such codes available in a manual 
that would be posted on its Web site. A regulated entity, similar to 
FINRA Rule 4530, would be required to select the most prominent product 
and the most egregious problem discussed in the complaint. In the 
future, however, the Board may require that all products and problems 
be coded in the electronic customer or municipal advisory client 
complaint log.
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    \20\ Id.
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    While the electronic complaint log requirement would impose a 
burden on dealers and municipal advisors, the Board anticipates that 
the electronic complaint log requirement would impose little additional 
burden on dealers that are FINRA members. The proposed rule change's 
complaint log recordkeeping requirements are similar to the 
requirements relating to customer complaints set forth in Rule 17a-3 
under the Exchange Act.\21\ Under Rule G-8(f), dealers in compliance 
with Rule 17a-3 will be deemed to be in compliance with Rule G-8 as 
long as certain information is maintained, including information 
relating to customer complaints.\22\ In addition, dealers that are 
FINRA members currently must comply with FINRA Rule 4530, the rule, in 
part, with which the Board is seeking to align the proposed rule 
change. Further, as discussed under ``Self-Regulatory Organization's 
Statement on Burden on Competition'' below, the recordkeeping burden 
imposed on dealers and municipal advisors would be necessary to help 
protect customers and municipal advisory clients.
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    \21\ See supra note 16.
    \22\ Specifically, Rule G-8(f) provides that:
    Brokers, dealers and municipal securities dealers other than 
bank dealers which are in compliance with rule 17a-3 of the 
Commission will be deemed to be in compliance with the requirements 
of this rule, provided that the information required by subparagraph 
(a)(iv)(D) of this rule as it relates to uncompleted transactions 
involving customers; paragraph (a)(viii); and paragraphs (a)(xi) 
through (a)(xxvi) shall in any event be maintained.
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(iii) Supplementary Material
    The proposed rule change would include supplementary material under 
Rule G-8 that would (i) provide guidance as to the term ``electronic 
format'' used in the proposed amendments to Rules G-8(a) and (h) and 
(ii) remind regulated entities of their reporting obligations to other 
regulatory authorities. The supplementary material, in .01, would make 
clear that a regulated entity could use any electronic format, i.e., 
computer software that allows for the storing, organization and 
manipulation of data, as long as the software would allow for the 
electronic complaint log to be

[[Page 81840]]

provided promptly upon request to a financial regulatory authority. The 
supplementary material, in .02, also would remind a regulated entity 
that it may have the duty to report certain complaints, such as 
complaints involving theft, to other regulatory authorities, such as to 
FINRA or to the SEC.

B. Customer and Municipal Advisory Client Education and Protection

    Under the proposed rule change, the Board would amend and overhaul 
Rule G-10 to replace the current Rule G-10 with a more modern customer 
and municipal advisory client education and protection rule. The 
proposed rule change's amendments to Rule G-10 would apply to dealers 
and municipal advisors.
    At its core, the Board designed Rule G-10 to protect investors by 
providing investors with the information necessary through the investor 
brochure to file a complaint about their dealers with the appropriate 
regulatory authority. That information also includes an overview of the 
investor protections provided by MSRB rules. However, investors 
currently do not receive this information until after they have made a 
complaint to or about the dealer; at that point, the information in the 
investor brochure may arrive at a point in time that would impede the 
investor from making the best use of the information provided in the 
investor brochure. The proposed rule change solves that problem through 
modernization of the rule.
    Under the proposed rule change, Rule G-10 would remain a rule that 
is focused on investor education and protection. However, instead of an 
investor receiving the educational material and information about 
filing a complaint only after he or she has made a complaint, the 
customer or municipal advisory client would receive more regular 
notifications from its regulated entity about the availability of such 
materials. Specifically, a dealer would be required to notify a 
customer about its registration status and the availability of the 
educational material annually, and a municipal advisor would be 
required to notify a municipal advisory client \23\ about its 
registration and the availability of educational material promptly but 
no less than once each calendar year during the course of a municipal 
advisory relationship. The notifications would require that the 
regulated entity disclose (i) that the regulated entity is registered 
with the MSRB and the SEC, (ii) the MSRB's Web site address, and (iii) 
that there is a brochure available on the MSRB Web site that describes 
the protections available under MSRB rules and how to file a complaint 
with financial regulatory authorities.
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    \23\ The term ``municipal advisory client'' under the proposed 
amendments to Rule G-10 would be more narrow than how the term would 
be defined under the proposed amendments to Rule G-8. Under the 
proposed rule change, the Board would define solicitation of a 
municipal entity or obligated person under Rule G-10 by reference to 
Rule 15Ba1-1(n), 17 CFR 240.15Ba1-1(n), under the Exchange Act. For 
purposes of that rule, solicitation does not include:
    (1) Advertising by a broker, dealer, municipal securities 
dealer, municipal advisor, or investment adviser; or
    (2) Solicitation of an obligated person, if such person is not 
acting in the capacity of an obligated person or the solicitation of 
the obligated person is not in connection with the issuance of 
municipal securities or with respect to municipal financial 
products.
    By using the narrower definition of solicitation of a municipal 
entity or obligated person, the Board would be able to better ensure 
that the notifications are sent to actual solicitor municipal 
advisory clients and not just to an entity that reviewed an 
advertisement. For purposes of the proposed amendments to Rule G-10, 
the set of non-solicitor municipal advisory clients would remain the 
same as it is for the proposed amendments to Rule G-8.
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    By requiring these notifications, the Board believes that a 
customer or municipal advisory client would be able to receive detailed 
and relevant information about its regulated entity, the protections 
provided by MSRB rules, and how to make a complaint in a more timely 
and consistent fashion.\24\ Further, by reminding the customer or 
municipal advisory client about the regulated entity's registration 
with the SEC, the Board believes that a customer or municipal advisory 
client might be more likely to access the information and educational 
materials that are available from the SEC, the regulatory authority 
that may examine the regulated entity and/or enforce the MSRB's rules. 
The notifications would address concerns raised by market participants 
that the investor brochure may be of limited, if any, use to certain 
investors, such as institutional investors and investors in municipal 
fund securities, by directing investors to the most complete range of 
relevant information about the regulated entity, including the 
regulation of that regulated entity.\25\
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    \24\ The Board would increase the visibility of the brochure, 
and other relevant information, on the MSRB's Web site.
    \25\ See supra note 6.
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    Under the proposed rule change, the Board would not specify, other 
than in writing, how the customer or municipal advisory client would 
receive the notifications. The proposed rule change assumes that the 
regulated entity could include the notifications with other materials. 
Further, as suggested by commenters to Regulatory Notice 2012-63, 
unlike with the current Rule G-10, a regulated entity would not be 
required to deliver an investor brochure to the customer. The 
notifications would replace that requirement.\26\
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    \26\ The Board believes that by no longer requiring that the 
investor brochure be sent after the investor has made a complaint, 
the investor may have an improved ``complaint'' experience. The 
Board understands that investors may have been frustrated by the 
timing of their receipt of the investor brochure. Some investors may 
have believed that the brochure was not germane and helpful to the 
complaint, particularly when they would have preferred information 
about resolving the issue and/or the actual resolution of the issue. 
Those investors, in turn, may have complained to their dealers about 
the investor brochure, and their dealers, in response, may have sent 
yet another investor brochure to be in compliance with Rule G-10. 
See id.
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    The proposed amendments to Rule G-10 would align Rule G-10 with 
FINRA Rule 2267, Investor Education and Protection. That rule contains 
similar notification requirements, but the notifications under FINRA 
Rule 2267 refer the investor to the BrokerCheck Hotline Number and to 
FINRA's Web site address.\27\ Because dealers that are FINRA members 
are required to provide annual notifications to investors, the Board 
anticipates that it would not be a significant burden for most dealers 
to provide the annual notifications that would be required under the 
proposed amendments to Rule G-10. In addition, the Board believes that 
it would be a reasonable requirement for a municipal advisor to provide 
such notifications promptly but no less than once each calendar year 
during the course of a municipal advisory relationship.
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    \27\ FINRA Rule 2267(a) provides, in part, that:
    Except as otherwise provided in this Rule, each member shall 
once every calendar year provide in writing (which may be 
electronic) to each customer the following items of information:
    (1) FINRA BrokerCheck Hotline Number;
    (2) FINRA Web site address; and
    (3) A statement as to the availability to the customer of an 
investor brochure that includes information describing FINRA 
BrokerCheck.
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C. Electronic Delivery Guidance for Municipal Advisors

    In 1998, the Board published guidance under Rule G-32 regarding the 
electronic delivery and receipt of information by dealers. The Board, 
in part, based that guidance on guidance that the SEC had provided 
about electronic delivery of information. However, since that time, the 
Dodd-Frank Act has granted the Board with rulemaking authority over 
municipal advisors.\28\ To ensure that municipal advisors could take 
full advantage of the

[[Page 81841]]

Board's electronic delivery guidance, as well as to ensure that the 
proposed amendments to Rule G-10 would work as intended, the proposed 
rule change would extend the Board's guidance provided by the 1998 
Notice to municipal advisors.
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    \28\ See supra note 3.
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2. Statutory Basis
    Section 15B(b)(2) of the Exchange Act \29\ provides that:
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    \29\ 15 U.S.C. 78o-4(b)(2).

[t]he Board shall propose and adopt rules to effect the purposes of 
this title with respect to transactions in municipal securities 
effected by brokers, dealers, and municipal securities dealers and 
advice provided to or on behalf of municipal entities or obligated 
persons by brokers, dealers, municipal securities dealers, and 
municipal advisors with respect to municipal financial products, the 
issuance of municipal securities, and solicitations of municipal 
entities or obligated persons undertaken by brokers, dealers, 
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municipal securities dealers, and municipal advisors.

    Section 15B(b)(2)(C) of the Exchange Act \30\ provides that the 
MSRB's rules shall:
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    \30\ 15 U.S.C. 78o-4(b)(2)(C).

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, 
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municipal entities, obligated persons, and the public interest.

    The MSRB believes that the proposed rule change is consistent with 
Sections 15B(b)(2) \31\ and 15B(b)(2)(C) \32\ of the Exchange Act. The 
proposed rule change would help prevent fraudulent and manipulative 
practices, promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating 
transactions in municipal securities and municipal financial products, 
and protect investors, municipal entities, obligated persons and the 
public interest by developing more comprehensive and modern customer 
and municipal advisory client complaint and recordkeeping rules. The 
proposed rule change would overhaul Rule G-10 so that the rule would 
more clearly focus on customer and municipal advisory client education 
and protection. Further, the proposed rule change would enhance the 
Board's related recordkeeping requirements under Rule G-8 about written 
customer and municipal advisory client complaints to require that 
regulated entities keep more detailed information about written 
customer or municipal advisory client complaints in an electronic 
format.
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    \31\ 15 U.S.C. 78o-4(b)(2).
    \32\ 15 U.S.C. 78o-4(b)(2)(C).
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    The proposed rule change would align the Board's customer and 
municipal advisory client complaint rules and related recordkeeping 
requirements with those of other financial regulators. By so doing, the 
proposed rule change will likely promote compliance with Board rules by 
providing regulated entities with the opportunity to streamline their 
compliance procedures, and thus promote compliance with MSRB rules and 
reduce their compliance costs.
    In addition, the proposed amendments to Rules G-8 and G-9 would 
enhance the ability of other financial regulators to conduct more cost-
effective and efficient inspections and surveillance of regulated 
entities by requiring that all regulated entities keep and maintain 
their electronic records of written customer or municipal advisory 
client complaints for six years. The Board believes that the ability to 
more cost-effectively and efficiently monitor written customer and 
municipal advisory client complaints will promote compliance with Board 
rules. Increased compliance with Board rules will likely reduce the 
frequency and magnitude of compliance issues that could potentially 
result in harm to investors, municipal entities, or obligated persons, 
or undermine the public's confidence in the municipal securities 
market.
    Section 15B(b)(2)(L)(iv) of the Exchange Act \33\ requires that 
rules adopted by the Board:
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    \33\ 15 U.S.C. 78o-4(b)(2)(L)(iv).

not impose a regulatory burden on small municipal advisors that is 
not necessary or appropriate in the public interest and for the 
protection of investors, municipal entities, and obligated persons, 
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provided that there is robust protection of investors against fraud.

    The proposed rule change's extension of Rule G-10's customer 
education and protection requirements and the related Rules G-8 and G-9 
recordkeeping requirements to municipal advisors does represent an 
additional burden on municipal advisors, including small municipal 
advisors. However, the Board believes that the regulatory burden will 
be relatively limited and is necessary to protect municipal entity and 
obligated person clients, and the integrity of the municipal securities 
and municipal advisory marketplaces.
    The MSRB also believes that the proposed rule change is consistent 
with Section 15B(b)(2)(G) of the Exchange Act,\34\ which provides that 
the MSRB's rules shall
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    \34\ 15 U.S.C. 78o-4(b)(2)(G).

prescribe records to be made and kept by municipal securities 
brokers, municipal securities dealers, and municipal advisors and 
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the periods for which such records shall be preserved.

    The proposed rule change would enhance the current customer 
complaint recordkeeping requirements under Rule G-8 by requiring that 
dealers keep more detailed information about written customer 
complaints in an electronic format and then would extend those 
recordkeeping requirements to municipal advisors. Further, the proposed 
rule change would extend the six-year record retention period 
applicable to customer complaints to municipal advisory client 
complaints. As noted above, the MSRB believes that the proposed 
amendments to Rule G-8 related to books and records, and Rule G-9 
related to the retention of those records, will promote compliance with 
and facilitate enforcement of MSRB rules, including Rule G-10 and other 
applicable securities laws and regulations.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 15B(b)(2)(C) of the Exchange Act \35\ requires that MSRB 
rules not be designed to impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Exchange Act. In 
addition, Section 15B(b)(2)(L)(iv) of the Exchange Act \36\ provides 
that MSRB rules may not impose a regulatory burden on small municipal 
advisors that is not necessary or appropriate in the public interest 
and for the protection of investors, municipal entities, and obligated 
persons, provided that there is robust protection of investors against 
fraud.
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    \35\ 15 U.S.C. 78o-4(b)(2)(C).
    \36\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
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    In determining whether these standards have been met, the MSRB was 
guided by the Board's Policy on the Use of Economic Analysis in MSRB 
Rulemaking.\37\ In accordance with this policy, the Board has evaluated 
the potential impacts on competition of the proposed rule change, 
including in comparison to reasonable alternative regulatory 
approaches, relative to the

[[Page 81842]]

baseline. The MSRB also considered other economic impacts of the 
proposed rule change and has addressed any comments relevant to these 
impacts in other sections of this document.
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    \37\ Policy on the Use of Economic Analysis in MSRB Rulemaking, 
available at, http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx.
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    The MSRB does not believe that the proposed rule change will impose 
any additional burdens on competition, relative to the baseline, that 
are not necessary or appropriate in furtherance of the purposes of the 
Exchange Act.
    While the MSRB believes that the proposed rule changes represent a 
reduction in burden compared to the existing Rule G-10, the MSRB 
recognizes that the recordkeeping requirements associated with the 
proposed rule change may impose some initial costs on dealers that 
currently comply with FINRA Rule 4530 but need to adopt a new set of 
complaint codes. The MSRB also recognizes that dealers that are not 
currently FINRA members may experience a greater burden as the proposed 
recordkeeping requirements may constitute a new activity that they have 
not previously performed. The MSRB does not believe, however, that the 
potentially greater burden on dealers that are not FINRA members is 
significant enough to constitute a burden on competition.
    The MSRB recognizes that the proposal represents a new requirement 
on municipal advisors and that the recordkeeping requirements in 
particular may disproportionately impact small municipal advisors. 
However, the MSRB does not believe that the overall burden of the 
proposed rule change is significant or that the impact on small 
municipal advisors will materially alter the competitive landscape. To 
the extent the proposed rule changes do lead some firms to exit the 
market or consolidate, based on the SEC's analysis in its order 
adopting the municipal advisor rules, the MSRB believes that the market 
for municipal advisory activities is likely to remain competitive.\38\
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    \38\ Securities Exchange Act Release No. 70462 (Sept. 20, 2013), 
78 FR 67468, 67608 (Nov. 12, 2013).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2016-15 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2016-15. 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the MSRB. 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-2016-15 and should be 
submitted on or before December 9, 2016.
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    \39\ 17 CFR 200.30-3(a)(12).

    For the Commission, pursuant to delegated authority.\39\
Brent J. Fields,
Secretary.
[FR Doc. 2016-27738 Filed 11-17-16; 8:45 am]
 BILLING CODE 8011-01-P


