
[Federal Register Volume 82, Number 13 (Monday, January 23, 2017)]
[Notices]
[Pages 7898-7904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01300]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79801; File No. SR-MSRB-2016-15]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Extend the MSRB's Customer Complaint and Related 
Recordkeeping Rules to Municipal Advisors and To Modernize Those Rules

January 13, 2017.

I. Introduction

    On November 1, 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 (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 proposed rule change 
was published for comment in the Federal Register on November 18, 
2016.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 79295 (November 14, 
2016) (the ``Notice of Filing''), 81 FR 81837 (November 18, 2016).
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    The Commission received five comment letters on the proposed rule 
change.\4\ On January 10, 2017, the MSRB responded to the comments 
received by the Commission \5\ and filed Amendment No. 1 to the 
proposed rule change (``Amendment No. 1'').\6\ The Commission is 
publishing this notice to solicit comments on Amendment No. 1 to the 
proposed rule change from interested persons and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \4\ See Letters to Secretary, Commission, from Mike Nicholas, 
Chief Executive Officer, Bond Dealers of America (``BDA''), dated 
December 9, 2016 (the ``BDA Letter''); Matthew J. Gavaghan, 
Associate General Counsel, Janney Montgomery Scott LLC (``Janney''), 
dated December 9, 2016 (the ``Janney Letter''); Marnie Lambert, 
President, Public Investors Arbitration Bar Association (``PIABA''), 
dated December 9, 2016 (the ``PIABA Letter''); Susan Gaffney, 
Executive Director, National Association of Municipal Advisors 
(``NAMA''), dated December 12, 2016 (the ``NAMA Letter''); and Leo 
Karwejna, Chief Compliance Officer and Cheryl Maddox, General 
Counsel, Public Financial Management, Inc. and PFM Financial 
Advisors LLC (collectively, ``PFM''), dated December 13, 2016 (the 
``PFM Letter'').
    \5\ See Letter to Secretary, Commission, from Pamela K. Ellis, 
Associate General Counsel, MSRB, dated January 10, 2017 (the ``MSRB 
Response Letter''), available at https://www.sec.gov/comments/sr-msrb-2016-15/msrb201615-1473509-130471.pdf.
    \6\ See Letter to Secretary, Commission, from Pamela K. Ellis, 
Associate General Counsel, MSRB, dated January 10, 2017, available 
at https://www.sec.gov/comments/sr-msrb-2016-15/msrb201615-1473522-130450.pdf. In Amendment No. 1, the MSRB partially amended the text 
of the proposed rule change to provide certain clarifications 
relating to the notifications that would be provided by municipal 
advisors to their municipal advisory clients and to the terms used 
with the recordkeeping of municipal advisory client complaints, to 
extend the proposed effective date, and to make other technical 
changes to clarify or simplify rule text.
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II. Description of Proposed Rule Change

    The proposed rule change, as modified by Amendment No. 1, consists 
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 MSRB notice 
regarding electronic delivery and receipt of information by municipal 
advisors under Rule G-32, on disclosures in connection with primary 
offerings.\7\
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    \7\ See Notice of Filing.
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    Following the financial crisis of 2008, Congress enacted the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank 
Act'').\8\ 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.\9\
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    \8\ Public Law No. 111-203, 124 Stat. 1376 (2010).
    \9\ 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.\10\ In response, market participants 
recommended that the Board update Rule G-10.\11\ The MSRB has stated 
that the proposed rule change, as modified by Amendment No. 1, 
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.\12\
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    \10\ MSRB Notice 2012-63, Request for Comment on MSRB Rules and 
Interpretive Guidance (Dec. 18, 2012).
    \11\ 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).
    \12\ See Notice of Filing.
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    To extend its customer complaint and recordkeeping rules to 
municipal advisors and to modernize those rules, the Board filed the 
proposed rule change, as modified by Amendment No. 1, with the 
Commission. Specifically,

[[Page 7899]]

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 \13\ 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) 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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    \13\ The proposed rule change, as amended by Amendment No. 1, in 
Rule G-8(e)(ii), would define a municipal advisory client as either 
a municipal entity or obligated person for whom the municipal 
advisor engages in municipal advisory activities as defined in MSRB 
Rule G-42(f)(iv), or a broker, dealer, municipal securities dealer, 
municipal advisor, or investment adviser (as defined in section 202 
of the Investment Advisers Act of 1940) on behalf of whom the 
municipal advisor undertakes a solicitation of a municipal entity or 
obligated person, as defined in Rule 15Ba1-1(n), 17 CFR 240.15Ba1-
1(n), under the Act.
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    In summary, by regulated entity, the proposed rule change, as 
modified by Amendment No. 1, would do the following:

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 is contained in the Notice of Filing.
    The MSRB requested in the Notice of Filing that the proposed rule 
change be approved with an implementation date of six months after the 
Commission approval date for all changes.\14\ Pursuant to Amendment No. 
1, the MSRB now requests that the proposed rule change be approved with 
an implementation date of nine months after the Commission approval 
date for all changes.\15\
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    \14\ See Notice of Filing.
    \15\ See Amendment No. 1.
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III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received five comment letters 
on the proposed rule change, and the MSRB Response Letter. Commenters 
generally expressed support for the principles behind the proposed rule 
change, but also expressed various concerns or suggested revisions.
1. Effective Date
    BDA urged that the MSRB provide at least 12 months, rather than the 
six months proposed in the Notice of Filing, to provide dealers with 
adequate time for implementation, especially given the resources 
required to implement other ongoing regulatory initiatives.\16\ The 
MSRB acknowledged that those other regulatory initiatives require 
significant attention by compliance and technology staff. In response, 
the MSRB, pursuant to Amendment No. 1, proposes an effective date of 
nine months after the Commission's approval date of all changes.\17\
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    \16\ See BDA Letter.
    \17\ See MSRB Response Letter.
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2. Municipal Advisor Terms
    NAMA suggested that certain terms used in the proposed amendments 
to Rule G-8 be revised to more closely reflect terms more commonly used 
by municipal advisors. In particular, NAMA noted that the proposed 
rulemaking refers to a municipal advisory client's ``account.'' \18\ 
NAMA stated that such a phrase does not ``translate'' to municipal 
advisors. In response, the MSRB, pursuant to Amendment No. 1, proposes 
to replace ``account'' when used with a municipal advisory client with 
the phrase ``number or code, if any.'' \19\
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    \18\ See NAMA Letter.
    \19\ See MSRB Response Letter.
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3. Customer and Municipal Advisory Client Brochures
    PIABA supported giving investors information about the protections 
provided by the MSRB and about how to file a complaint with a 
regulator, noting that the proposed amendments to Rule G-10 would 
provide for the education of customers or municipal advisory clients 
before they encounter a problem.\20\ PFM submitted that the ``proposed 
Rules . . . unnecessarily impose undue encumbrances of additional 
brochure delivery.'' \21\ BDA also requested clarity about when a 
municipal advisor should send the investor brochure to a municipal 
advisory client, and suggested that it was not necessary to send the 
investor brochure to an institutional investor. BDA suggested that the 
Board should develop a brochure that focuses on municipal advisory 
clients.\22\ NAMA and PFM commented that they needed

[[Page 7900]]

to review the brochure to provide sufficient comment.\23\
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    \20\ See PIABA Letter.
    \21\ See PFM Letter.
    \22\ BDA states that it ``requests clarity with when a municipal 
advisor should send the G-10 brochure to a municipal advisory 
client.'' BDA also stated that ``[i]f the MSRB is committed to 
requiring dealers to send the investor brochure to institutional 
investors, BDA recommends that MSRB provide clarity on `customer' 
for the purposes of G-10.'' See BDA Letter.
    \23\ See NAMA Letter, PFM Letter.
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    The MSRB responded by stating that, unlike the current requirements 
of Rule G-10, the proposed amendments to Rule G-10 would not require 
that a regulated entity deliver a Rule G-10 brochure to its customer or 
municipal advisory client, but would require that a regulated entity 
provide only annual notifications to its customer or municipal advisory 
client about the availability of the brochure on the MSRB's Web 
site.\24\ Further, after carefully considering BDA's request for 
clarity regarding the use of the term ``promptly'' relating to when a 
municipal advisor must send the annual notifications required by the 
amendments to Rule G-10 to its municipal advisory client, the MSRB 
provided a technical change in Amendment No. 1 to clarify that 
``promptly'' means ``promptly, after the establishment of a municipal 
advisory relationship.'' \25\ Although municipal advisors may elect to 
provide the first notification earlier, the MSRB believes this standard 
is consistent with the flexibility provided by the proposed rule change 
to include the proposed annual notifications with other materials 
required to be given by municipal advisors.\26\
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    \24\ See MSRB Response Letter.
    \25\ Id.
    \26\ Id.
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    The MSRB further states that it believes that all customers and 
municipal advisory clients should be aware of the important protections 
provided by the MSRB's rules, the reminder that regulated entities are 
registered with the Commission, and the information about how to file a 
complaint with a regulator. Rule G-10 currently provides no exception 
from its requirements for institutional investors, and the MSRB 
believes that there is no reason why institutional investors should 
receive less of this information about the protections provided by MSRB 
rules and education than other investors.\27\ As discussed in the 
Notice of Filing, the MSRB believes that the annual notifications 
required by Rule G-10 present only a slight burden to regulated 
entities, but could represent a significant enhancement to customer or 
municipal advisory client protection and education.\28\
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    \27\ Id.
    \28\ See Notice of Filing.
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    The MSRB agrees with BDA's view that the Board should use a 
separate brochure focused on municipal advisory activities. The Notice 
of Filing contemplated a separate brochure focused on municipal 
advisory activities, and the MSRB has stated that it will develop such 
a brochure.\29\ However, the MSRB notes that the content of the current 
investor brochure was not made part of Rule G-10. Likewise, the content 
of the future brochures has not been made part of the proposed 
amendment text.
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    \29\ See MSRB Response Letter.
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4. Product and Problem Codes
    BDA, Janney, NAMA and PFM commented on the problem and product 
codes that would be required by the proposed amendments to Rule G-8 for 
the electronic customer or municipal advisory client complaint 
logs.\30\ BDA and Janney commented that such codes should harmonize 
with the problem and product codes required by FINRA Rule 4530. BDA 
also commented that it believed that the MSRB and the Commission have 
existing independent reporting systems that allow municipal entities or 
obligated persons to file complaints directly to a regulator, which are 
more appropriate systems to monitor complaints than the MSRB developing 
an ``expansive set of problem codes.'' BDA, NAMA, and PFM urged that 
the Board publish the product and problem codes for comment.\31\
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    \30\ See BDA Letter, NAMA Letter, Janney Letter, PFM Letter.
    \31\ See BDA Letter, NAMA Letter, PFM Letter.
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    The MSRB notes that it coordinates its rule interpretations and 
requirements with those of other financial regulators, including FINRA. 
This coordination has been and is occurring on an ongoing basis with 
respect to the product and problem codes. The MSRB is aware that having 
two different sets of compliance codes for dually registered regulated 
entities would impose significant compliance and cost burdens, and to 
lessen such burdens, the MSRB states that it would coordinate and 
harmonize the product and problem codes, and the methods for 
determining the appropriate codes, required by the proposed amendments 
to Rule G-8 with FINRA.\32\
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    \32\ See MSRB Response Letter.
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    In response to BDA's comment that the MSRB and the SEC have 
existing independent reporting systems that allow municipal entities or 
obligated persons to file complaints directly with a regulator, the 
MSRB states that its complaint referral system is quite different than, 
for example, the Commission's well-established and comprehensive 
independent reporting system through its Office of Investor Education 
and Advocacy. The MSRB notes that its role has been to provide 
information about how an individual or firm may make a complaint to a 
regulator. If an individual or a regulated entity is unsure about which 
regulator the individual or firm should file the complaint with, that 
individual or firm may submit the complaint with the MSRB, and the MSRB 
then will forward the complaint to the appropriate regulator. The MSRB 
states that, unlike the Commission, the MSRB neither enforces its own 
rules nor surveils regulated entities; rather, other financial 
regulators enforce MSRB rules and perform market surveillance 
functions.\33\ The MSRB further notes that other financial regulators 
subject to the Commission's jurisdiction, such as FINRA, currently 
require that written customer complaints be tracked using an electronic 
log. In approving FINRA Rule 4530, the Commission found that the FINRA 
Rule 4530 was consistent with the requirements of the Act and the rules 
and regulations thereunder that are applicable to a national securities 
association.\34\
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    \33\ Id.
    \34\ Securities Exchange Act Release No. 63260 (Nov. 5, 2010), 
75 FR 69508 (Nov. 12, 2010).
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    As to the assertion that the electronic complaint log represents 
overregulation by the MSRB, the MSRB notes that dealers that are 
registered with FINRA are currently using electronic logs to track and 
code written customer complaints. The MSRB believes that the electronic 
complaint log requirement not only would assist regulators in enforcing 
MSRB rules and performing market surveillance, but also that the 
electronic complaint log would be used as a tool by regulated entities 
as part of their risk management programs. The MSRB believes that 
FINRA, the Commission, and numerous FINRA members, including members 
that are also registered with the MSRB, have found such electronic 
complaint logs to be valuable.\35\
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    \35\ See MSRB Response Letter.
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    The MSRB states that federal securities laws do not require that 
the Board solicit public comment on the product and problem codes to be 
used under the proposed amendments to Rule G-8. The MSRB notes that 
FINRA recently revised its product and problem codes used for reporting 
customer complaints under FINRA Rule 4530.\36\ FINRA did not seek 
public comment on the revisions to those product and problem codes; the 
Board

[[Page 7901]]

would not expect to seek public comment on the product and problem 
codes to be used with the proposed amendments to Rule G-8.\37\
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    \36\ In 2014, FINRA updated FINRA Rule 4530's problem and 
product codes and provided a six-month implementation date. See 
Regulatory Notice 14-20 (May 7, 2014).
    \37\ See MSRB Response Letter.
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5. Recordkeeping
    BDA, NAMA, PIABA, and PFM provided comments and suggestions about 
the Board's proposed amendments to Rule G-8.\38\ Those comments and 
suggestions related to the regulatory burden caused by the proposed 
amendments to Rule G-8, guidance as to certain of the terms used in the 
electronic complaint log, and guidance as to the development of the 
electronic complaint log itself.
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    \38\ See BDA Letter, NAMA Letter, PIABA Letter, PFM letter.
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    PFM asserted that the proposed rule change ``unnecessarily 
impose[s] undue encumbrances of additional brochure delivery and 
recordkeeping requirements.'' \39\ BDA submitted that it did not think 
that this type of ``complaint and recordkeeping system is valuable for 
municipal advisory clients,'' \40\ and NAMA asserted that the recording 
of ``actions'' in the electronic complaint log required by the proposed 
amendments to Rule G-8 is not necessary because of the supervisory 
requirements set forth in MSRB Rule G-44.\41\
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    \39\ See PFM Letter.
    \40\ See BDA Letter.
    \41\ See NAMA Letter.
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    The MSRB states that it believes that the burden on regulated 
entities from the proposed rule change would not be significant.\42\ 
The proposed rule change would align Rule G-8 with the customer 
complaint recordkeeping requirements of other financial regulators. 
Rule 17a-3(a)(18) under the Act \43\ and FINRA Rules 4513 and 4530 
require information about customer complaints that is similar to what 
is required by the proposed rule change. The MSRB has stated that it 
would harmonize its product and problem codes with those required by 
FINRA Rule 4530.\44\
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    \42\ See MSRB Response Letter.
    \43\ 17 CFR 240.19b-4.
    \44\ See MSRB Response Letter.
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    Although the proposed rule change would represent a new 
recordkeeping burden on municipal advisors, the MSRB believes that it 
would not be a significant burden. The MSRB states that it is generally 
a good business practice, especially for the development of a regulated 
entity's risk management systems, to track written complaints using 
standard codes in an electronic complaint log. Any regulatory burden 
imposed by the proposed rulemaking is, in part, dependent upon the 
municipal advisor and the number of municipal advisory client 
complaints that the municipal advisor receives. The MSRB anticipates 
that smaller municipal advisors would have fewer clients and 
accordingly may be likely to receive fewer complaints than larger 
municipal advisors. Further, the MSRB states that it mitigates that 
regulatory burden by providing flexibility as to how those electronic 
records may be kept.\45\
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    \45\ Id.
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    The MSRB believes that an electronic log of complaints is 
necessary, and that such need is not lessened by the supervisory and 
compliance obligations of municipal advisors set forth in MSRB Rule G-
44. The standard electronic format required by the proposed amendments 
would enhance the ability of financial regulators to conduct more cost-
effective and efficient inspections and surveillance of regulated 
entities. MSRB Rule G-44 does not require that records of complaints be 
kept in a standard electronic format across all regulated entities. 
Further, the MSRB notes that many dealers that have been subject to 
MSRB Rule G-27, on supervision, a rule that is similar to MSRB Rule G-
44, also have been subject to FINRA's electronic customer complaint 
recordkeeping requirements. The MSRB believes that the FINRA electronic 
customer complaint log requirements have proven useful in addition to 
general supervisory obligations.\46\
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    \46\ Id.
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    NAMA requested guidance about the meaning of certain terms to be 
used in the electronic complaint log.\47\ The MSRB believes that the 
titles of the codes, as well as the brief description of those codes 
published by the Board, as appropriate, will provide guidance as to the 
terms used with the electronic complaint log. Further, as discussed 
above under ``Product and Problem Codes,'' the MSRB would harmonize the 
product and problem terms used for the electronic log of customer and 
municipal advisory client complaints with the codes required by FINRA 
Rule 4530.\48\
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    \47\ See NAMA Letter.
    \48\ See MSRB Response Letter.
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    NAMA requested guidance as to how a municipal advisor should create 
an electronic complaint log. The MSRB notes that Proposed Supplementary 
Material .01 broadly defines electronic format to include ``any 
computer software program that is used for storing, organizing and/or 
manipulating data that can be provided promptly upon request to a 
regulatory authority.'' \49\ The MSRB states that it has determined 
that the degree of flexibility the MSRB is providing with the proposed 
rule change about the format of the electronic complaint log is 
preferable at this juncture.\50\
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    \49\ See Notice of Filing and Amendment No. 1.
    \50\ See MSRB Response Letter.
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    NAMA and PFM commented about the municipal advisor record retention 
requirements set forth in the proposed amendments to Rule G-9. NAMA 
commented that municipal advisor records should be kept for five years 
and not six years.\51\ PFM commented that the Board lacked statutory 
authority to extend the record retention period for municipal advisors 
for one year and expressed ``genuine concern regarding the misalignment 
regarding the proposed MSRB Rule changes and current Exchange Act 
requirements.'' \52\
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    \51\ See NAMA Letter.
    \52\ See PFM Letter.
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    After carefully considering the comments, the MSRB states that it 
has determined that the important reasons for retaining records of 
municipal advisory client complaints for six years remain valid. As 
discussed in the Notice of Filing, such retention period would assist 
other financial regulators with their inspections of municipal advisors 
(those inspections may not occur for several years after the municipal 
advisory client submitted the complaint) and with their surveillance of 
municipal advisors. Further, by requiring that municipal advisors 
retain records of municipal advisory client complaints for six years, 
the MSRB states that it would be ``leveling the playing field'' between 
dealers and municipal advisors and between dealer municipal advisors 
and non-dealer municipal advisors.\53\ Dealers, including dealer 
municipal advisors, are required to retain records of customer 
complaints for six years under current Board rules.
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    \53\ See MSRB Response Letter.
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    The MSRB states that it disagrees with PFM's assertions that the 
Board lacks statutory authority to develop a record retention period 
under the Act for municipal advisor records. The MSRB notes that 
Section 15B(b)(2)(g) of the Act \54\ specifically requires that the 
MSRB prescribe the records that are to be made and kept by dealers and 
municipal advisors and to prescribe the length of time the records are 
to be kept. The MSRB further notes that the Commission has approved as 
consistent with the Exchange Act the MSRB's several previous municipal 
advisor

[[Page 7902]]

recordkeeping proposals, including select six-year retention 
periods.\55\
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    \54\ 15 U.S.C. 78o-4(b)(2)(g).
    \55\ See, e.g., Exchange Act Release No. 76753 (Dec. 23, 2015), 
80 FR 81614 (Dec. 30, 2015) (approving Rule G-42 and amendments to 
Rule G-8); Exchange Act Release No. 73415 (Oct. 23, 2014), 79 FR 
64423 (Oct. 29, 2014) (approving Rule G-44 and amendments to Rules 
G-8 and G-9).
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6. Annual Notifications
    The Commission received several comments about the annual 
notifications concerning the municipal advisor's registration, the 
MSRB's Web site address, and availability of a municipal advisory 
client brochure about the protections provided by the MSRB's rules and 
information about filing a complaint with a financial regulator 
required by the proposed amendments to Rule G-10 (the ``annual 
notifications''). Those comments concerned the location of those annual 
notifications and the ability to include the annual notifications with 
other materials. NAMA suggested that in lieu of providing the written 
annual notifications to their municipal advisory clients, municipal 
advisors should have the option to post the annual notifications on 
their Web sites.\56\ NAMA and PFM \57\ suggested that the annual 
notifications be included with the written disclosure of all material 
conflicts of interest and other information required to be made by a 
municipal advisor by Rule G-42(b).\58\
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    \56\ See NAMA Letter.
    \57\ See NAMA Letter, PFM Letter.
    \58\ Rule G-42(b) provides, in part: ``Disclosure of Conflicts 
of Interest and Other Information. A municipal advisor must, prior 
to or upon engaging in municipal advisory activities, provide to the 
municipal entity or obligated person client full and fair disclosure 
in writing of:
    (i) all material conflicts of interest . . . [and]
    (ii) any legal or disciplinary event that is material to the 
client's evaluation of the municipal advisor or the integrity of its 
management or advisory personnel. . . .''
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    The MSRB states that it has carefully considered commenters' 
suggestions, and has determined that a municipal advisor should not 
have the option to post the annual notifications on its Web site in 
lieu of sending those notifications to its municipal advisory client. 
The Board believes that the purpose of the proposed amendments is best 
achieved by individual annual notifications to a customer or municipal 
advisor client. Nonetheless, if a regulated entity would like to post 
the annual notifications on its Web site, in addition to sending the 
written annual notifications to its customers or municipal advisory 
clients, the regulated entity may do so as long as the information on 
the regulated entity's Web site complies with Board and any other 
applicable laws, rules and regulations.\59\
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    \59\ See MSRB Response Letter.
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    As proposed, the amendments to Rule G-10 would provide a regulated 
entity with the flexibility to include the written annual notifications 
with other materials. The MSRB notes that those other materials may 
include the written disclosure of material conflicts of interest and 
other information required to be provided by a municipal advisor under 
MSRB Rule G-42(b). Because the proposed rule change would provide 
municipal advisors with the option to include the annual notifications 
with the written disclosure of material conflicts of interest and other 
information required by MSRB Rule G-42(b), the MSRB believes that the 
rule language, as proposed, provides sufficient flexibility to address 
NAMA's and PFM's suggestion that the annual notifications be included 
with the written disclosures required under Rule G-42(b).\60\
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    \60\ Id.
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7. Sufficiency of Comment Period
    BDA, NAMA, and PFM commented that the Board did not solicit public 
comment on the proposed rule change before the Board filed the proposed 
rule change with the Commission.\61\ BDA submitted that the MSRB is 
proceeding with ``unnecessary haste'' and that if the MSRB issued a 
request for comment on the proposed rule change, it could have 
``received feedback and tailored these rule amendments to the 
activities of municipal advisors.'' \62\ NAMA commented that the 
municipal advisor community should be afforded the same opportunity to 
comment prior to a proposal being sent to the Commission that the 
dealer community is afforded and submitted that municipal advisors 
would have flagged some of the vague and duplicative provisions of the 
proposed rulemaking as well as use of clearly inapplicable 
terminology.\63\ PFM stated that it was ``a bit dismayed'' that the 
MSRB did not publish a request for comment before filing the proposed 
rule change with the Commission, and suggested that without such a 
prior comment opportunity, PFM did not have ``adequate opportunity for 
review and written comment.'' \64\
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    \61\ See BDA Letter, NAMA Letter, PFM Letter.
    \62\ See BDA Letter.
    \63\ See NAMA Letter.
    \64\ See PFM Letter.
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    The MSRB responds that the Commission provided market participants 
with the fulsome comment period generally required under the federal 
securities laws, which do not require the Board to seek public comment 
before submitting a rulemaking proposal to the Commission.\65\ Market 
participants provided comment on the proposed rule change, and as noted 
earlier, in response to those comments, the Board is filing Amendment 
No. 1.
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    \65\ See MSRB Response Letter.
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    Further, the MSRB notes that, in this case, not only did market 
participants request the proposed rule change, but every commenter 
supported the purposes of the proposed rule change. The proposed rule 
change would enhance the MSRB's ability to protect and educate 
customers and municipal advisory clients, which protections are vital 
to the Board's mission. The proposed rule change also would harmonize 
the Board's customer complaint rule with that of other financial 
regulators--a goal that is important both to the Board and to market 
participants.\66\
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    \66\ Id.
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8. Electronic Guidance
    BDA commented that the MSRB's Notice Regarding Electronic Delivery 
and Receipt of Information by Brokers, Dealers and Municipal Securities 
Dealers--November 20, 1998 (the ``1998 Notice'') should not apply to 
municipal advisory relationships. BDA stated that ``[a]s with attorney-
client relationships . . ., municipal entities and obligated persons 
know exactly how they prefer to communicate and there is no need for a 
Federal regulator to regulate electronic communications in those 
relationships.'' \67\
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    \67\ See BDA Letter.
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    The MSRB stated that the 1998 Notice provides dealers with the 
MSRB's interpretation about the use of electronic media to deliver and 
receive information under Board rules. The proposed rule change would 
extend that interpretation to municipal advisors. Without that 
extension, some vagueness might exist regarding municipal advisors' 
ability to use electronic media to deliver and receive information 
required under Board rules.\68\
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    \68\ See MSRB Response Letter.
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9. Other Comments
    The other suggestions that the Commission received about the 
proposed rule change related to (i) expansion of the proposed rule 
change, (ii) concerns about the complaint process, and (iii) concerns 
about the economic impact of the proposed rule change on small 
municipal advisors. PIABA supported the proposed rule change, but also 
suggested that the

[[Page 7903]]

proposed rule change ``go a step further'' to provide investors with 
access to the electronic complaint logs.\69\ NAMA expressed concern 
that the proposed rule change would require that a municipal advisory 
client make its complaint directly with the municipal advisor instead 
of with a regulator. NAMA also suggested that the Board consider the 
economic impact of the proposed rule change, and the cumulative effect 
of all Board rules on small municipal advisors.\70\
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    \69\ See PIABA Letter.
    \70\ See NAMA Letter.
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    The MSRB states that it recognizes that market transparency is 
important for investors. However, the MSRB is concerned that requiring 
electronic complaint logs to be available to customers and municipal 
advisory clients may not only mislead them because certain complaints 
may not be as material as others, but also may have a chilling effect 
on a regulated entity's reporting of written customer or client 
complaints, which could undermine the goals of the rule.\71\
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    \71\ See MSRB Response Letter.
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    In addition, the proposed amendments to Rule G-10 do not set forth 
any requirement that a municipal advisory client make a complaint to 
its municipal advisor nor do those proposed amendments require that a 
municipal advisory client submit any complaint that it may have to a 
particular regulator. A municipal advisory client would continue to be 
able to submit its complaint to any party it considers appropriate, 
based on, among other things, the notifications and educational 
materials it receives.\72\
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    \72\ Id.
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    Further, in connection with concerns about the economic impact of 
the proposed rule change on small municipal advisors, the MSRB states 
that it anticipates that smaller municipal advisors would have fewer 
clients and accordingly may be likely to receive fewer complaints than 
larger municipal advisors.\73\ Further, the MSRB states that it 
mitigates that regulatory burden by providing flexibility as to how 
those electronic records may be kept.\74\
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    \73\ See MSRB Response Letter.
    \74\ Id.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as modified by Amendment No. 1, the comments letters received, and the 
MSRB Response Letter. The Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to the MSRB.
    In particular, the proposed rule change, as modified by Amendment 
No.1, is consistent with Sections 15B(b)(2) and 15B(b)(2)(C) of the 
Act.\75\ Section 15B(b)(2) of the Act provides that the MSRB shall 
propose and adopt rules to effect the purposes of that 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, municipal securities dealers and municipal 
advisors.\76\ Section 15B(b)(2)(C) of the Act, provides that, among 
other things, the rules of the MSRB shall be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons 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.\77\ The Commission believes that the proposed rule 
change is reasonably designed to 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. 
Furthermore, the Commission believes that by focusing on customer and 
municipal advisory client education and protection and enhancing the 
related recordkeeping requirements, the proposed rule change is 
reasonably designed to protect investors, municipal entities, obligated 
persons, and the public interest. Additionally, the proposed rule 
change would align the MSRB's customer and municipal advisory client 
complaint rules and related recordkeeping requirements with those of 
other financial regulators which will, among other things, promote 
compliance with MSRB rules by providing regulated entities with the 
opportunity to streamline their compliance procedures. In addition, the 
proposed rule change, according to the MSRB, would enhance the ability 
of other financial regulators to conduct more cost-effective and 
efficient inspections and surveillance of regulated entities.
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    \75\ 15 U.S.C. 78o-4(b)(2) and (b)(2)(C).
    \76\ 15 U.S.C. 78o-4(b)(2).
    \77\ 15 U.S.C. 78o-4(b)(2)(C).
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    The Commission also finds that the proposed rule change, as 
modified by Amendment No.1, is consistent with Section 15B(b)(2)(L)(iv) 
of the Act in that it does 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.\78\ Although the proposed rule change would 
affect all municipal advisors, including small municipal advisors, the 
proposed rule change is a necessary and appropriate regulatory burden 
in order to protect municipal entities and obligated persons. For 
example, under the proposed rule change, a municipal advisory client 
would be able to receive detailed and relevant information about its 
municipal advisor, the protections provided by MSRB rules, and how to 
make a complaint in a timely and consistent fashion.
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    \78\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
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    The Commission also finds that the proposed rule change, as 
modified by Amendment No.1, is consistent with Section 15B(b)(2)(G) of 
the Act which provides that the MSRB's rules shall prescribe records to 
be made and kept by municipal securities brokers, municipal securities 
dealers, and municipal advisors and the periods for which such records 
shall be preserved.\79\ The proposed rule change would, among other 
things, 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. In addition, the proposed rule change would extend 
the

[[Page 7904]]

six-year record retention period applicable to customer complaints to 
municipal advisory client complaints.
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    \79\ 15 U.S.C. 78o-4(b)(2)(G).
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    In approving the proposed rule change, as modified by Amendment 
No.1, the Commission has also considered the impact of the proposed 
rule change on efficiency, competition, and capital formation.\80\ The 
Commission does not believe that the proposed rule change, as modified 
by Amendment No. 1 would impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Act.
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    \80\ 15 U.S.C. 78c(f).
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    For the reasons noted above, the Commission believes that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the Act.

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether the proposed 
rule change, as modified by Amendment No.1, 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 February 13, 2017.

VI. Accelerated Approval of Proposed Rule Change as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of Amendment No. 1 in the Federal Register. As 
discussed above, Amendment No. 1 partially amends the text of the 
proposed rule change to provide certain clarifications relating to the 
notifications that would be provided by municipal advisors to their 
municipal advisory clients and to the terms used with the recordkeeping 
of municipal advisory client complaints, to extend the proposed 
effective date, and to make other technical changes to clarify or 
simplify rule text.\81\ Specifically, the changes respond to 
commenters' concerns, are technical in nature, and clarify or simplify 
the proposed rule change. The MSRB states that Amendment No. 1 in many 
respects eliminates unnecessary language by relying on terms that are 
defined in the MSRB's rule book, the Act, or Commission rules under the 
Act.\82\ In addition, the MSRB notes that the changes are consistent 
with the purposes of the proposed rule change to advance the 
development of a comprehensive regulatory framework for municipal 
advisors and to update the Board's customer complaint rules. With 
respect to those portions of Amendment No. 1 that modify certain 
definitions, the MSRB notes that the proposed rule change, as described 
in the Notice of Filing, contemplated that the clients of both 
solicitor and non-solicitor municipal advisors would be covered by the 
proposed rule change.\83\ According to the MSRB, the precision added to 
certain definitions by Amendment No. 1 parallels the precision with 
which the MSRB defines a municipal advisory client of a solicitor 
municipal advisor and eliminates unnecessary language.\84\ The MSRB 
believes other technical changes made serve to clarify or simplify the 
proposed rule change.
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    \81\ Supra note 6.
    \82\ See Amendment No. 1.
    \83\ See Notice of Filing.
    \84\ See Amendment No. 1.
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    For the foregoing reasons, the Commission finds good cause for 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis, pursuant to Section 19(b)(2) of the Act.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\85\ that the proposed rule change, as modified by Amendment No. 1 
(SR-MSRB-2016-15) be, and hereby is, approved on an accelerated basis.
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    \85\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\86\
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    \86\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01300 Filed 1-19-17; 8:45 am]
 BILLING CODE 8011-01-P


