[Federal Register Volume 83, Number 91 (Thursday, May 10, 2018)]
[Notices]
[Pages 21794-21808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09933]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83177; File No. SR-MSRB-2018-01]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change, Consisting to 
Amendments to Rule G-21, on Advertising, Proposed New Rule G-40, on 
Advertising by Municipal Advisors, and a Technical Amendment to Rule G-
42, on Duties of Non-Solicitor Municipal Advisors

May 7, 2018.

I. Introduction

    On January 24, 2018, 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 consisting of amendments to MSRB 
Rule G-21, on advertising (``proposed amended Rule G-21''), proposed 
new MSRB Rule G-40, on advertising by municipal advisors (``proposed 
Rule G-40''), and a technical amendment to MSRB Rule G-42, on duties of 
non-solicitor municipal advisors (``proposed amended Rule G-42,'' 
together with proposed amended Rule G-21 and proposed Rule G-40, the 
``proposed rule change''). The proposed rule change was published for 
comment in the Federal Register on February 7, 2018.\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. 82616 (February 1, 2018) 
(the ``Notice of Filing''), 83 FR 5474 (February 7, 2017).
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    The Commission received four comment letters on the proposed rule 
change.\4\ On March 16, 2018, the MSRB granted an extension of time for 
the Commission to act on the filing until May 7, 2018. On April 30, 
2018, the

[[Page 21795]]

MSRB responded to the comment letters.\5\ This order approves the 
proposed rule change.
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    \4\ See Letter to Secretary, Commission, from Leslie M. Norwood, 
Managing Director and Associate General Counsel, Securities Industry 
and Financial Markets Association (``SIFMA''), dated February 28, 
2018 (the ``SIFMA Letter''); Letter to Secretary, Commission, from 
Susan Gaffney, Executive Director, National Association of Municipal 
Advisors (``NAMA''), dated February 28, 2018 (the ``NAMA Letter''); 
Letter to Secretary, Commission, from Michael Nicholas, Chief 
Executive Officer, Bond Dealers of America (``BDA''), dated February 
28, 2018 (the ``BDA Letter''); Letter to Secretary, Commission, from 
Catherine Humphrey-Bennett, Municipal Advisory Compliance Officer, 
PFM Financial Advisors LLC and PFM Asset Management LLC 
(collectively, ``PFM''), dated February 28, 2018 (the ``PFM 
Letter''). Staff from the Office of Municipal Securities discussed 
the proposed rule change with representatives from BDA on April 10, 
2018.
    \5\ See Letter to Secretary, Commission, from Pamela K. Ellis, 
Associate General Counsel, MSRB, dated April 30, 2018 (the 
``Response Letter''), available at https://www.sec.gov/comments/sr-msrb-2018-01/msrb201801-3551215-162309.pdf.
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II. Description of Proposed Rule Change

    As described more fully in the Notice of Filing, the MSRB stated 
that the purpose of proposed amended Rule G-21 is to, among other 
things: enhance the MSRB's fair-dealing provisions by promoting 
regulatory consistency among Rule G-21 and the advertising rules of 
other financial regulators; and promote regulatory consistency between 
Rule G-21(a)(ii), the definition of ``form letter,'' and the Financial 
Industry Regulatory Authority, Inc. (``FINRA'') Rule 2210's definition 
of ``correspondence.'' \6\ Proposed amended Rule G-21 also would make a 
technical amendment in paragraph (e), which the MSRB stated would 
streamline the rule.\7\
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    \6\ See Notice of Filing.
    \7\ Id.
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    The MSRB stated that concurrent with its efforts to enhance Rule G-
21 and promote regulatory consistency among Rule G-21 and the 
advertising rules of other financial regulators through proposed 
amended Rule G-21, it prepared proposed Rule G-40 to address 
advertising by municipal advisors.\8\ The MSRB added that, similar to 
proposed amended Rule G-21, proposed Rule G-40 would: provide general 
provisions that define the terms ``advertisement'' and ``form letter,'' 
and would set forth the general standards and content standards for 
advertisements; provide the definition of professional advertisements, 
and would define the standard for those advertisements; and would 
require the approval by a principal, in writing, before the first use 
of an advertisement.\9\ Also, proposed Rule G-40, similar to proposed 
amended Rule G-21, would apply to all advertisements by a municipal 
advisor, as defined in proposed Rule G-40(a)(i).\10\ However, the MSRB 
noted, unlike proposed amended Rule G-21, proposed Rule G-40 would 
contain certain substituted terms that are more relevant to municipal 
advisors, and proposed Rule G-40 would omit the three provisions in 
Rule G-21 that concern product advertisements (i.e., product 
advertisements, new issue product advertisements, and municipal fund 
securities product advertisements).\11\
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    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ Id.
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    The proposed rule change also would make technical and non-
substantive amendments to Rule G-42. Specifically, Rule G-42(f)(iv) 
defines municipal advisory activities as ``those activities that would 
cause a person to be a municipal advisor as defined in subsection 
(f)(iv) of this rule.'' \12\ The proposed rule change would provide a 
technical amendment to Rule G-42(f)(iv) to correct the cross-reference. 
Proposed amended Rule G-42 would replace the reference to subsection 
(f)(iv) in Rule G-42(f)(iv) with the intended reference to subsection 
(f)(iii). Rule G-42(f)(iii) defines the term ``municipal advisor'' for 
purposes of Rule G-42.\13\
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    \12\ Id.
    \13\ Id.
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    The MSRB requested that the proposed rule change be effective nine 
months from the date of Commission approval.\14\
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    \14\ Id.
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A. Proposed Amended Rule G-21

    The MSRB stated that to enhance Rule G-21's fair dealing 
requirements, as well as to promote regulatory consistency among Rule 
G-21 and the advertising rules of other financial regulators, proposed 
amended Rule G-21 would provide more specific content standards than 
current Rule G-21.\15\ The MSRB also stated that proposed amended Rule 
G-21 also would include revisions to the rule's general standards for 
advertisements.\16\
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    \15\ Id.
    \16\ Id.
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a. Content Standards of Proposed Amended Rule G-21
    In the Notice of Filing, the MSRB stated that proposed amended Rule 
G-21(a)(iii) would add content standards to make explicit many of the 
MSRB's fair dealing obligations that follow from the MSRB's 
requirements set forth in Rule G-21 and Rule G-17, on conduct of 
municipal securities and municipal advisory activities, and the 
interpretive guidance the MSRB has provided under those rules, and to 
specifically address them to advertising.\17\ The MSRB stated that the 
proposed rule change would not supplant the MSRB's regulatory guidance 
provided under Rule G-17.\18\ The MSRB also stated that proposed 
amended Rule G-21 would enhance Rule G-21's fair dealing provisions by 
requiring that:
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    \17\ Id.
    \18\ Id.
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     An advertisement be based on principles of fair dealing 
and good faith, be fair and balanced and provide a sound basis for 
evaluating the facts about any particular municipal security or type of 
municipal security, industry, or service, and that a dealer not omit 
any material fact or qualification if such omission, in light of the 
context presented, would cause the advertisement to be misleading;
     an advertisement not contain any false, exaggerated, 
unwarranted, promissory or misleading statement or claim;
     a dealer limit the types of information placed in a legend 
or footnote of an advertisement so as to not inhibit a customer's or 
potential customer's understanding of the advertisement;
     an advertisement provide statements that are clear and not 
misleading within the context that they are made, that the 
advertisement provide a balanced treatment of the benefits and risks, 
and that the advertisement is consistent with the risks inherent to the 
investment;
     a dealer consider the audience to which the advertisement 
will be directed and that the advertisement provide details and 
explanations appropriate to that audience;
     an advertisement not predict or project performance, imply 
that past performance will recur or make any exaggerated or unwarranted 
claim, opinion or forecast; and
     an advertisement not include a testimonial unless it 
satisfies certain conditions.\19\
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    \19\ Id.
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    The MSRB stated that, by so doing, proposed amended Rule G-
21(a)(iii) would promote regulatory consistency with FINRA Rule 
2210(d)(1)'s and FINRA Rule 2210(d)(6)'s content standards for 
advertisements.\20\ The MSRB stated that the other topics and standards 
addressed by other provisions of FINRA Rule 2210(d) have not been 
historically addressed by Rule G-21 and/or may not be relevant to the 
municipal securities market, and the MSRB did not include those topics 
in the MSRB's request for comment on draft amendments to Rule G-21.\21\
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    \20\ Id.
    \21\ Id.
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    Proposed amended Rule G-21 also would expand upon the guidance 
provided by Rule A-12, on registration. Rule A-12(e) permits a dealer 
to state that it is MSRB registered in its advertising, including on 
its website.\22\

[[Page 21796]]

Proposed amended Rule G-21(a)(iii)(H) would continue to permit a dealer 
to state that it is MSRB registered.\23\ However, the MSRB noted that 
proposed amended Rule G-21(a)(iii)(H) would provide that a dealer shall 
only state in an advertisement that it is MSRB registered as long as, 
among other things, the advertisement complies with the applicable 
standards of all other MSRB rules and neither states nor implies that 
the MSRB endorses, indemnifies, or guarantees the dealer's business 
practices, selling methods, the type of security offered, or the 
security offered.\24\ The MSRB stated that, by so doing, the proposed 
rule change would promote regulatory consistency with FINRA Rule 
2210(e)'s analogous limitations on the use of FINRA's name and any 
other corporate name owned by FINRA.\25\
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    \22\ Id.
    \23\ Id.
    \24\ Id.
    \25\ Id.
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b. General Standards of Proposed Rule G-21
    The MSRB stated that proposed amended Rule G-21(a)(iv), (b)(ii), 
and (c)(ii) would promote regulatory consistency among Rule G-21's 
general standard for advertisements, standard for professional 
advertisements, and standard for product advertisements (collectively, 
the ``general standards'') and the content standards of FINRA Rule 
2210(d). Currently, the MSRB stated, Rule G-21's general standards 
prohibit a dealer, in part, from publishing or disseminating material 
that is ``materially false or misleading.'' \26\ Proposed amended Rule 
G-21 would replace the phrase ``materially false or misleading'' with 
``any untrue statement of material fact'' as well as add ``or is 
otherwise false or misleading.'' The MSRB stated that it believes that 
this harmonization with FINRA Rule 2210(d) would be consistent with 
Rule G-21's current general standards and would ensure consistent 
regulation between similar regulated entities.\27\
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    \26\ Id.
    \27\ Id.
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c. Reconcile MSRB Rule G-21 Definition of ``Form Letter'' With FINRA 
Rule 2210 Definition of ``Correspondence''
    Currently, the MSRB stated, Rule G-21(a)(ii) defines a ``form 
letter,'' in part, as a written letter distributed to 25 or more 
persons.\28\ The MSRB stated that the analogous provision in FINRA's 
communications with the public rule to Rule G-21(a)(ii) is FINRA Rule 
2210's definition of correspondence.\29\ The MSRB noted that FINRA Rule 
2210(a)(2)'s definition of correspondence, however, defines 
``correspondence,'' in part, as written communications distributed to 
25 or fewer retail investors.\30\ The MSRB stated that it understands 
that the one-person difference between Rule G-21 and FINRA Rule 2210 
has created confusion and compliance challenges for dealers.\31\ The 
MSRB stated that, to respond to this concern, proposed amended Rule G-
21(a)(ii) would eliminate that one-person difference, and, therefore, 
under proposed amended Rule G-21, a form letter, in part, would be 
defined as a written letter distributed to more than 25 persons.\32\
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    \28\ Id.
    \29\ Id.
    \30\ Id.
    \31\ Id.
    \32\ Id.
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    Supplementary Material .03 to proposed amended Rule G-21 would 
explain the term ``person'' when used in the context of a form letter 
under Rule G-21(a)(ii).\33\ Specifically, the MSRB noted, Supplementary 
Material .03 would explain that the number of ``persons'' is determined 
for the purposes of a response to a request for proposal (``RFP''), 
request for qualifications (``RFQ'') or similar request at the entity 
level.\34\
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    \33\ Id.
    \34\ Id.
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d. Technical Amendment to Rule G-21
    In the Notice of Filing, the MSRB stated that proposed amended Rule 
G-21 would contain a technical amendment to Rule G-21(e).\35\ The MSRB 
also stated that, to streamline and clarify the MSRB's rules, the 
proposed rule change would delete references to the Financial Industry 
Regulatory Authority, Inc. in Rule G-21(e)(ii)(F) and Rule G-21(e)(vi) 
because, for example, reference to any applicable regulatory body is 
sufficient and no limitation to any more narrow subset is intended.\36\
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    \35\ Id.
    \36\ Id.
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B. Proposed Rule G-40

    The MSRB stated that proposed Rule G-40, similar to Rule G-21, 
would set forth general provisions, address professional advertisements 
and require principal approval in writing for advertisements by 
municipal advisors before their first use.\37\ However, the MSRB noted 
that proposed Rule G-40 would not address product advertisements, as 
that term is defined in Rule G-21.\38\ The MSRB also noted that 
proposed Rule G-40(a) would define the terms advertisement, form letter 
and municipal advisory client, and would provide content and general 
standards for advertisements by a non-solicitor or a solicitor 
municipal advisor.\39\
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    \37\ Id.
    \38\ Id.
    \39\ Id.
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a. Definitions
    According to the MSRB, the term ``advertisement'' in proposed Rule 
G-40(a)(i) would parallel the term ``advertisement'' in proposed 
amended Rule G-21(a)(i), but would be tailored for municipal 
advisors.\40\ The MSRB stated that an advertisement would refer, in 
part, to any promotional literature distributed or made generally 
available to municipal entities, obligated persons, municipal advisory 
clients, or the public by a municipal advisor.\41\ Further, the MSRB 
stated that an advertisement would include the promotional literature 
used by a solicitor municipal advisor to solicit a municipal entity or 
obligated person on behalf of the solicitor municipal advisor's 
municipal advisory client.\42\
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    \40\ Id.
    \41\ Id.
    \42\ Id.
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    In addition, the MSRB stated that, similar to proposed amended Rule 
G-21(a)(i), proposed Rule G-40(a)(i) would exclude certain types of 
documents from the definition of advertisement.\43\ Under proposed Rule 
G-40, the documents that would be excluded would be preliminary 
official statements, official statements, preliminary prospectuses, 
prospectuses, summary prospectuses or registration statements.\44\ 
According to the MSRB, these exclusions recognize the differences 
between the role of a dealer under Rule G-21 and the role of a 
solicitor municipal advisor under proposed Rule G-40.\45\ The MSRB also 
stated that, as with Rule G-21, an abstract or summary of those 
documents or other such similar documents prepared by the municipal 
advisor would be considered an advertisement.\46\ As an example, the 
MSRB stated that a municipal advisor may assist with the preparation of 
an official statement.\47\ The MSRB also stated that an official 
statement would be excluded from the definition of an

[[Page 21797]]

advertisement.\48\ According to the MSRB, under proposed Rule G-
40(a)(i), the municipal advisor that assists with the preparation of an 
official statement generally would not be assisting with an 
advertisement and the municipal advisor's work on the official 
statement generally would not be subject to the requirements of 
proposed Rule G-40.\49\
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    \43\ Id.
    \44\ Id.
    \45\ Id.
    \46\ Id.
    \47\ Id.
    \48\ Id.
    \49\ Id.
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    The term ``form letter'' in proposed Rule G-40 would be identical 
to the definition of that term set forth in proposed amended Rule G-
21(a)(ii).\50\ A form letter would be defined as any written letter or 
electronic mail message distributed to more than 25 persons within any 
period of 90 consecutive days.\51\
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    \50\ Id.
    \51\ Id.
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    Proposed Rule G-40, similar to proposed amended Rule G-21, would 
include Supplementary Material .01 to clarify the number of ``persons'' 
for a response to an RFP, RFQ or similar request, when used in the 
context of a form letter under proposed Rule G-40(a)(ii), is determined 
at the entity level.\52\
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    \52\ Id.
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    Proposed Rule G-40(a)(iii), unlike Rule G-21, includes the 
definition of the term ``municipal advisory client.'' \53\ The MSRB 
stated that the definition of municipal advisory client would be 
substantially similar in all material respects to the definition of 
that term as set forth in the recent amendments to Rule G-8, effective 
October 13, 2017, to address municipal advisory client complaint 
recordkeeping.\54\ The MSRB stated that the definition of municipal 
advisory client would account for differences in the activities of non-
solicitor and solicitor municipal advisors.\55\
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    \53\ Id.
    \54\ Id.
    \55\ Id.
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b. Proposed Rule G-40--Content Standards
    The MSRB stated that proposed Rule G-40(a)(iv) sets forth content 
standards for advertisements.\56\ According to the MSRB, those content 
standards would be substantially similar in all material respects to 
the content standards set forth in proposed amended Rule G-21.\57\ The 
MSRB noted that proposed Rule G-40 would replace certain terms used in 
proposed amended Rule G-21 with terms more applicable to municipal 
advisors.\58\ The MSRB stated that it believes that incorporating 
content standards for advertisements into proposed Rule G-40 would 
ensure consistent regulation between regulated entities in the 
municipal securities market, as well as promote regulatory consistency 
between dealer municipal advisors and non-dealer municipal 
advisors.\59\
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    \56\ Id.
    \57\ Id.
    \58\ Id.
    \59\ Id.
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    As further described by the MSRB in the Notice of Filing, proposed 
Rule G-40 would require that:
     An advertisement be based on the principles of fair 
dealing and good faith, be fair and balanced and provide a sound basis 
for evaluating the municipal security or type of municipal security, 
municipal financial product, industry, or service and that a municipal 
advisor not omit any material fact or qualification if such omission, 
in light of the context presented, would cause the advertisement to be 
misleading;
     an advertisement not contain any false, exaggerated, 
unwarranted, promissory or misleading statement or claim;
     a municipal advisor limit the types of information placed 
in a legend or footnote of an advertisement so as to not inhibit a 
municipal advisory client's or potential municipal advisory client's 
understanding of the advertisement;
     an advertisement provide statements that are clear and not 
misleading within the context that they are made, that the 
advertisement provides a balanced treatment of risks and potential 
benefits, and that the advertisement is consistent with the risks 
inherent to the municipal financial product or the issuance of the 
municipal security;
     a municipal advisor consider the audience to which the 
advertisement will be directed and that the advertisement provide 
details and explanations appropriate to that audience;
     an advertisement not predict or project performance, imply 
that past performance will recur or make any exaggerated or unwarranted 
claim, opinion or forecast; and
     an advertisement not refer, directly or indirectly, to any 
testimonial of any kind concerning the municipal advisor or concerning 
the advice, analysis, report or other service of the municipal 
advisor.\60\
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    \60\ Id.
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    The MSRB also stated in the Notice of filing that, by so doing, 
proposed Rule G-40's content generally would promote regulatory 
consistency with proposed amended Rule G-21.\61\
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    \61\ Id.
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    However, unlike proposed amended Rule G-21, proposed Rule G-40 
would prohibit a municipal advisor from using a testimonial in an 
advertisement.\62\ The MSRB stated that this prohibition is based in 
part on the fiduciary duty that a non-solicitor municipal advisor (as 
opposed to a dealer) owes its municipal entity clients.\63\ The MSRB 
noted that investment advisers also are subject to fiduciary duty 
standards.\64\
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    \62\ Id.
    \63\ Id.
    \64\ Id.
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    The MSRB stated that it believes that a testimonial in an 
advertisement by a municipal advisor would present significant issues, 
including the ability to be misleading.\65\ The MSRB noted that in 
adopting Rule 206(4)-1 under the Investment Advisers Act of 1940, as 
amended (the ``Advisers Act''), the rule that applies to advertisements 
by registered investment advisers, the SEC found that the use of 
testimonials in advertisements by an investment adviser was 
misleading.\66\ The MSRB stated that Rule 206(4)-1 provides that the 
use of a testimonial by an investment adviser would constitute a 
fraudulent, deceptive, or manipulative act, practice, or course of 
action.\67\ The MSRB stated that it believes prohibiting the use of 
testimonials by municipal advisors under proposed Rule G-40 would 
protect municipal entities and obligated persons, help ensure 
consistent regulation between analogous regulated entities, and help 
ensure a level playing field between municipal advisors/investment 
advisers and other municipal advisors.\68\
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    \65\ Id.
    \66\ Id.
    \67\ Id.
    \68\ Id.
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    The MSRB stated that, apart from the content standards discussed 
above, proposed Rule G-40(a)(iv)(H), similar to proposed amended Rule 
G-21(a)(iii)(H), also would expand upon the guidance provided by Rule 
A-12, on registration.\69\ Rule A-12(e) permits a municipal advisor to 
state that it is MSRB registered in its advertising, including on its 
website. Proposed Rule G-40(a)(iv)(H) would continue to permit a 
municipal advisor to state that it is MSRB registered, but it would 
also provide that a municipal advisor shall only state in an 
advertisement that it is MSRB registered as long as, among other 
things, the advertisement complies with the applicable standards of all 
other MSRB rules and neither states nor

[[Page 21798]]

implies that the MSRB endorses, indemnifies, or guarantees the 
municipal advisor's business practices, services, skills, or any 
specific municipal security or municipal financial product.\70\
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    \69\ Id.
    \70\ Id.
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c. Proposed Rule G-40--General Standard for Advertisements
    In the Notice of Filing, the MSRB stated that proposed Rule G-
40(a)(v) would set forth a general standard with which a municipal 
advisor must comply for advertisements.\71\ The MSRB stated that that 
standard would require, in part, that a municipal advisor not publish 
or disseminate, or cause to be published or disseminated, any 
advertisement relating to municipal securities or municipal financial 
products that the municipal advisor knows or has reason to know 
contains any untrue statement of material fact or is otherwise false or 
misleading.\72\ The MSRB believes that the knowledge standard as the 
general standard for advertisements is appropriate.\73\ According to 
the MSRB, proposed Rule G-40 is similar to proposed amended Rule G-
21(a)(iv) in all material respects, except proposed Rule G-40 
substitutes ``municipal advisor'' for the term ``dealer'' and, 
consistent with Section 15B(e)(4) of the Act, applies with regard to 
municipal financial products in addition to municipal securities.\74\
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    \71\ Id.
    \72\ Id.
    \73\ Id.
    \74\ Id.
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d. Proposed Rule G-40--Professional Advertisements
    Proposed Rule G-40(b) would define the term ``professional 
advertisement,'' and would provide the standard for such 
advertisements. As defined in proposed Rule G-40(b)(i), a professional 
advertisement would be an advertisement ``concerning the facilities, 
services or skills with respect to the municipal advisory activities of 
the municipal advisor or of another municipal advisor.'' Proposed Rule 
G-40(b)(ii) would provide, in part, that a municipal advisor shall not 
publish or disseminate any professional advertisement that contains any 
untrue statement of material fact or is otherwise false or misleading.
    In the Notice of Filing, the MSRB stated that the strict liability 
standard for professional advertisements in proposed Rule G-40(b)(ii) 
is consistent with the MSRB's long-standing belief that a regulated 
entity should be strictly liable for an advertisement about its 
facilities, skills, or services, and that a knowledge standard is not 
appropriate.\75\ The MSRB also stated that it has held this belief 
since it developed its advertising rules for dealers over 40 years ago. 
According to the MSRB, proposed Rule G-40(b) would be substantially 
similar in all material respects to proposed amended Rule G-21(b).\76\
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    \75\ Id.
    \76\ Id.
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e. Proposed Rule G-40--Principal Approval
    Proposed Rule G-40(c) would require that each advertisement that is 
subject to proposed Rule G-40 be approved in writing by a municipal 
advisor principal--as defined under MSRB Rule G-3(e)(i)--before its 
first use. Proposed Rule G-40(c) also would require that the municipal 
advisor keep a record of all such advertisements. The MSRB stated that 
proposed Rule G-40(c) is similar in all material respects to proposed 
amended Rule G-21(f).\77\ The MSRB also stated that if the SEC approves 
the proposed rule change, municipal advisors should update their 
supervisory and compliance procedures required by Rule G-44, on 
supervisory and compliance obligations of municipal advisors, to 
address compliance with proposed Rule G-40(c).\78\
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    \77\ Id.
    \78\ Id.
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f. Proposed Rule G-40--Product Advertisements
    Proposed Rule G-40 would omit the provisions set forth in Rule G-21 
regarding product advertisements, new issue product advertisements, and 
municipal fund security product advertisements. The MSRB stated that it 
understands, at this juncture, that municipal advisors most likely do 
not prepare such advertisements, as municipal advisors generally 
advertise their municipal advisory services and not products.\79\
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    \79\ Id.
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III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received four comment letters 
in response to the Notice of Filing. The MSRB responded to the comment 
letters on the Notice of Filing in its Response Letter.\80\
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    \80\ See Response Letter.
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A. Comments Received Regarding Proposed Amended Rule G-21

    In response to the Notice of Filing, two commenters primarily 
addressed proposed Rule G-21.\81\ Specifically, these commenters 
focused on (i) proposed amended Rule G-21's consistency with FINRA Rule 
2210, (ii) the provision of additional exclusions from the definition 
of an ``advertisement,'' (iii) the allowance of hypothetical 
illustrations in advertisements, (iv) the provision of jurisdictional 
guidance under Rule G-21 relating to dealer/municipal advisors, and (v) 
the economic analysis the MSRB provided regarding proposed amended Rule 
G-21.\82\ Both commenters recommended that the Commission disapprove 
the proposed rule change.\83\
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    \81\ See BDA Letter and SIFMA Letter.
    \82\ Id.
    \83\ Id.
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a. Request for Additional Amendments to Proposed Amended Rule G-21 To 
Promote Consistency With FINRA Rule 2210
    Commenters supported proposed amended Rule G-21's promotion of 
regulatory consistency with FINRA Rule 2210, but believed that the 
amendments should be further harmonized with FINRA Rule 2210 by 
adopting that rule's (i) definition of ``communications'' and the 
distinctions in FINRA Rule 2210 that follow from that definition\84\ 
and (ii) provisions on the use of testimonials,\85\ or by incorporating 
FINRA Rule 2210 by reference into Rule G-21.\86\ Further, to promote 
regulatory consistency among proposed amended Rule G-21 and proposed 
Rule G-40 and FINRA Rule 2210, commenters suggested that the 
definitions and product advertisement and professional advertisement 
sections could be deleted from proposed amended Rule G-21 and proposed 
Rule G-40.\87\
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    \84\ Id.
    \85\ Id.
    \86\ See BDA Letter.
    \87\ See BDA Letter and SIFMA Letter.
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i. Proposed Amended Rule G-21 Definition of ``Communication''
    BDA and SIFMA suggested that the MSRB go beyond the MSRB's stated 
purpose of the proposed amendments, i.e., to promote, in part, 
regulatory consistency among proposed amended Rule G-21 and the 
advertising rules of other financial regulators. Instead, BDA and SIFMA 
suggested that the MSRB ``harmonize'' Rule G-21 with FINRA Rule 2210 by 
adopting FINRA Rule 2210's definition of ``communications'' and the 
distinctions in the rule that follow from that definition. BDA stated 
that ``[i]n order for harmonization of MSRB rules with FINRA rules to 
be successful, MSRB must follow this general framework for MSRB Rule G-

[[Page 21799]]

21.'' Further, SIFMA commented that the ``MSRB has not justified the 
need for differences from the FINRA advertising rule.'' In particular, 
commenters favored the harmonization with FINRA Rule 2210's 
communications definition because institutional communications would no 
longer be subject to pre-approval by a principal. BDA and SIFMA 
submitted that, if the MSRB were to do so, dealers then could apply 
common approval processes for institutional communications across all 
asset classes. Alternatively, SIFMA suggested that, to provide even 
greater clarity, the MSRB revise proposed amended Rule G-21(a)(i) and 
proposed Rule G-40(a)(i) to add the term ``otherwise'' before the 
phrase ``made generally available to municipal entities, obligated 
persons, municipal advisory clients or the public . . .'' \88\ BDA 
stated that principal pre-approval of advertisements imposes 
``completely unnecessary burdens on dealers'' and that ``[i]f MSRB has 
a rule that applies different definitions and different sets of 
responsibilities to municipal securities and does not differentiate 
between communications sent to retail and institutional customers, it 
will have created a new and unnecessarily increased regulatory burden 
along with considerable confusion for broker-dealers.'' \89\
---------------------------------------------------------------------------

    \88\ See SIFMA Letter.
    \89\ See BDA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that it believes that BDA's and 
SIFMA's comments fail to recognize the statutory principles set forth 
in the Act that underlie the differences between FINRA's communications 
rule and the MSRB's advertising rule.\90\ To explain the differences 
between the MSRB's advertising rule and FINRA's communication rule, the 
MSRB provided a description of the statutory authority granted by the 
Act to the MSRB and FINRA to promulgate rules to regulate its 
registrants and members, respectively, and provided a recitation of 
differences between the corporate and municipal securities market that, 
the MSRB stated, necessitate differences between FINRA's communication 
rule and the MSRB's advertising rules.\91\ The MSRB noted that, unlike 
FINRA members, MSRB registrants are not ``members'' of the MSRB.\92\ 
Rather, the MSRB stated, a dealer or municipal advisor becomes subject 
to MSRB rules based on the dealer's or municipal advisor's activities; 
those activities may require the dealer or municipal advisor to 
register with the SEC and the MSRB.\93\ The MSRB further stated that 
the corporate securities markets and municipal securities markets are 
different--if only because, unlike with a corporate bond, interest on a 
municipal security may not be subject to federal income tax.\94\
---------------------------------------------------------------------------

    \90\ See Response Letter.
    \91\ Id.
    \92\ Id.
    \93\ Id.
    \94\ Id.
---------------------------------------------------------------------------

    The MSRB also stated that because the Act limits the MSRB's 
jurisdiction to the municipal securities market, the MSRB's rulemaking 
authority also is limited, in part, to dealers effecting transactions 
in municipal securities and advice provided to or on behalf of 
municipal entities by such dealers, and by municipal advisors with 
respect to municipal financial products, the issuance of municipal 
securities, and solicitations of municipal entities or obligated 
persons undertaken by dealers and municipal advisors.\95\ The MSRB also 
noted that, similar to FINRA's rules, the MSRB's rules are designed to 
protect investors and the public interest.\96\ However, the MSRB noted 
that, unlike FINRA's rules, Section 15B of the Act requires that the 
MSRB's rules also be designed to protect municipal entities and 
obligated persons.\97\ The MSRB further stated that Section 15B of the 
Act does not provide the MSRB with the authority to enforce its own 
rules.\98\ Rather, the MSRB noted, the MSRB's rules are enforced by 
other financial regulators, including FINRA and the SEC.\99\
---------------------------------------------------------------------------

    \95\ Id.
    \96\ Id.
    \97\ Id.
    \98\ Id.
    \99\ Id.
---------------------------------------------------------------------------

    The MSRB stated that, in furtherance of the intent of Congress that 
the MSRB develop a prophylactic framework of regulation for the 
municipal securities industry, the MSRB developed its fair practice 
rules, including its advertising rules, to codify basic standards of 
fair and ethical business conduct for municipal securities 
professionals.\100\ The MSRB stated that its advertising rules serve an 
important function to help prevent fraud from entering the marketplace 
and to protect investors, particularly retail investors, consistent 
with the MSRB's mission to protect municipal securities investors.\101\ 
The MSRB further stated that, since 1978, when the MSRB first adopted 
its advertising rules, the MSRB has based its advertising regulation on 
the MSRB's fair practice principles and the important supervisory 
function of principal pre-approval along with liability provisions and 
document retention requirements to regulate advertisements by 
dealers.\102\ By so doing, the MSRB stated, the MSRB's regulatory 
regime in general relied on the firm and its policies and procedures 
related to the supervision of an advertisement, with the degree of 
liability for the advertisement based on advertisement type.\103\ The 
MSRB added that, consistent with the MSRB's reliance on other financial 
regulators to enforce MSRB rules, a dealer neither files any of its 
advertisements with, nor receives a substantive review of any of those 
advertisements, by the MSRB.\104\ Rather, according to the MSRB, the 
dealer must retain records relating to the advertisement, and those 
records must be available for inspection by other financial 
regulators.\105\ Thus, the MSRB stated, MSRB's advertising regulations 
in general draw a sharp distinction from FINRA Rule 2210.\106\
---------------------------------------------------------------------------

    \100\ Id.
    \101\ Id.
    \102\ Id.
    \103\ Id.
    \104\ Id.
    \105\ Id.
    \106\ Id.
---------------------------------------------------------------------------

    In response to BDA's comment that having different definitions and 
different sets of responsibilities imposed by proposed amended Rule G-
21 and FINRA Rule 2210 would result in ``new and unnecessarily 
increased regulatory burden along with considerable confusion for 
broker-dealers. . . .'', the MSRB stated that the requirements in 
proposed amended Rule G-21, however, are not newly proposed and that 
they have been, and continue to be, core principles on which the MSRB's 
advertising regulation is based.\107\ The MSRB added that Rule G-21 
currently requires that a municipal securities principal or general 
securities principal approve each advertisement in writing prior to 
first use.\108\ The MSRB stated that it continues to believe that it is 
an important supervisory function to have a principal pre-approve an 
advertisement regardless of the intended recipient of the advertisement 
along with the liability provisions associated with the advertisement 
type.\109\ The MSRB also stated that supervisory pre-approval, as 
opposed to submission of an advertisement and substantive review of an 
advertisement by MSRB staff, serves as an important investor protection 
in what has been recognized as a municipal bond market that ``embraces 
a multi-faceted, complex array of state and local public debt.'' \110\

[[Page 21800]]

The MSRB stated that it has determined not to depart from the 
longstanding principles on which the MSRB has based its advertising 
regulations.\111\
---------------------------------------------------------------------------

    \107\ Id.
    \108\ Id.
    \109\ Id.
    \110\ Id.
    \111\ Id.
---------------------------------------------------------------------------

ii. Use of Testimonials Under Proposed Amended Rule G-21
    BDA urged the MSRB to permit testimonials in dealer advertising to 
better harmonize Rule G-21 with FINRA Rule 2210.\112\ BDA stated that 
to do otherwise would result in confusion and an inconsistent 
``patchwork'' approach to make portions of FINRA rules applicable to 
dealers under MSRB rules.\113\ The MSRB stated that proposed amended 
Rule G-21, in fact, would permit dealer advertisements to contain 
testimonials under the same conditions as are currently set forth in 
FINRA Rule 2210(d)(6).\114\
---------------------------------------------------------------------------

    \112\ See BDA Letter.
    \113\ Id.
    \114\ See Response Letter.
---------------------------------------------------------------------------

iii. Incorporation of FINRA Rule 2210 by Reference Into Proposed 
Amended Rule G-21
    SIFMA commented that, while it supported the MSRB's efforts to 
level the playing field between dealers and municipal advisors, the 
better way to level that playing field, as well as to promote 
harmonization with FINRA's rules, is for the MSRB to incorporate FINRA 
Rule 2210 by reference into the MSRB's rules.\115\ Nevertheless, SIFMA 
did not propose that the MSRB incorporate FINRA Rule 2210 in its 
entirety by reference into Rule G-21.\116\ Rather, SIFMA submitted that 
certain provisions of FINRA Rule 2210(c) relating to the filing of 
advertisements with FINRA and the review procedures for those 
advertisements were unnecessary and burdensome and should not be 
included.\117\ Further, SIFMA recognized that there may be a need for 
certain MSRB regulation of dealer and municipal advisor 
advertising.\118\ SIFMA stated that ``[w]ith respect to advertising or 
public communications for most municipal securities products (except 
for municipal advisory business and municipal fund securities), we feel 
there is no compelling reason to establish a different rule set than 
that which exists under FINRA Rule 2210.'' \119\
---------------------------------------------------------------------------

    \115\ See SIFMA Letter.
    \116\ Id.
    \117\ Id.
    \118\ Id.
    \119\ Id.
---------------------------------------------------------------------------

    The MSRB responded to SIFMA's comments by stating that the 
differences between FINRA's and the MSRB's statutory mandates account 
for certain of the differences between FINRA's communications rules and 
the MSRB's advertising rule, and that commenters' suggestions fail to 
recognize the importance of those differences.\120\ The MSRB stated 
that FINRA's communications rules regulate the activities of its 
members in the broader corporate securities markets, where the 
securities ``are relatively homogenous within major categories.'' \121\ 
Further, the MSRB stated, FINRA enforces its own rules.\122\ By 
contrast, the MSRB stated, the MSRB's statutory mandate is limited to 
the regulation of dealers and municipal advisors in the municipal 
securities market, a market that embraces a multi-faceted, complex 
array of state and local public debt as well as municipal fund 
securities, such as interests in 529 savings plans.\123\ Moreover, the 
MSRB reiterated that it does not enforce its rules; other financial 
regulators enforce MSRB rules.\124\
---------------------------------------------------------------------------

    \120\ See Response Letter.
    \121\ Id.
    \122\ Id.
    \123\ Id.
    \124\ Id.
---------------------------------------------------------------------------

    The MSRB further noted that, as it had previously discussed in the 
Notice of Filing, Rule G-21 is one of the MSRB's core fair practice 
rules that has been in effect since 1978.\125\ In proposing those 
rules, the MSRB stated the purpose of the fair practice rules is to 
codify basic standards of fair and ethical business conduct for 
municipal securities professionals.\126\ The MSRB stated that it has 
based its advertising rules on the MSRB's fair practice principles and 
the important supervisory function of principal pre-approval along with 
liability provisions to regulate advertisements by dealers.\127\ The 
MSRB stated that it believes that it would not fully meet its 
responsibilities under the Act to promote a fair and efficient 
municipal market with appropriately tailored regulation if it were to 
simply incorporate an advertising rule designed for other markets, as 
suggested by SIFMA, particularly when advertising regulation has been 
the subject of a long-standing MSRB fair practice rule to help prevent 
fraud from entering the municipal securities market.\128\
---------------------------------------------------------------------------

    \125\ Id.
    \126\ See Response Letter and Notice of Filing.
    \127\ See Response Letter.
    \128\ Id.
---------------------------------------------------------------------------

    Further, the MSRB noted that if the MSRB were to incorporate FINRA 
Rule 2210 by reference, and if FINRA or its staff were to provide an 
interpretation of FINRA Rule 2210, the MSRB could appear to be adopting 
that interpretation without considering the interpretation's 
ramifications for the special characteristics of the municipal 
securities market. The MSRB stated that, consistent with its statutory 
mandate, FINRA adopts rules for the broader corporate securities 
markets that include the corporate equity and debt markets.\129\ The 
MSRB further stated that FINRA's rules are not tailored to the unique 
regulatory needs of the municipal securities market.\130\ The MSRB 
stated that, at a minimum, if it were to incorporate FINRA Rule 2210 by 
reference, the MSRB would have to consider the ramifications of any 
future interpretations of FINRA Rule 2210 for the municipal securities 
market.\131\
---------------------------------------------------------------------------

    \129\ Id.
    \130\ Id.
    \131\ Id.
---------------------------------------------------------------------------

    In addition, the MSRB stated that there are municipal securities 
dealers that are not members of FINRA; those municipal securities 
dealers should not necessarily be expected to keep abreast of FINRA 
rule interpretations.\132\ The MSRB stated that after carefully 
considering SIFMA's suggestions, including the recognition of the 
important differences between the municipal securities market and the 
corporate securities market, the MSRB determined not to incorporate 
FINRA Rule 2210 by reference into Rule G-21.\133\
---------------------------------------------------------------------------

    \132\ Id.
    \133\ Id.
---------------------------------------------------------------------------

iv. Definition of Standards for Product and Professional Advertisements
    BDA commented that the definitions of standards for product 
advertisements and professional advertisements were ``made redundant by 
the inclusion of the proposed general and content standards of proposed 
G-21 and G-40[,]'' and that ``these provisions should be deleted to 
signify that these types of communications are covered by the general 
and content standards of the proposed rule.'' \134\
---------------------------------------------------------------------------

    \134\ See BDA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that although the provisions in 
proposed amended Rule G-21 and proposed Rule G-40 are analogous to the 
current provisions in Rule G-21, there are differences in those 
provisions.\135\ For example, the MSRB noted, Rule G-21(b) contains a 
strict liability standard relating to the publication or dissemination 
of professional advertisements.\136\ The MSRB stated that since it 
first proposed Rule G-21, the MSRB has believed that ``a strict 
standard of responsibility for securities

[[Page 21801]]

professionals [is necessary] to assure that their advertisements are 
accurate.'' \137\ The MSRB stated that it has based its advertising 
regulation on the MSRB's long-standing fair practice principles and the 
important supervisory function of principal pre-approval along with 
liability and document retention provisions to regulate advertisements 
by dealers.\138\ The MSRB stated that, after careful consideration, it 
determined at this time not to delete the standards for product and 
professional advertisements.\139\
---------------------------------------------------------------------------

    \135\ See Response Letter.
    \136\ Id.
    \137\ See Response Letter and Notice of Filing.
    \138\ See Response Letter.
    \139\ Id.
---------------------------------------------------------------------------

b. Potential Additional Exclusions From the Definition of 
``Advertisement''
    Commenters suggested additional exclusions from the definition of 
an advertisement related to private placement memoranda \140\ and 
responses to RFPs or RFQs.\141\
---------------------------------------------------------------------------

    \140\ See BDA Letter and SIFMA Letter.
    \141\ Id.
---------------------------------------------------------------------------

i. Private Placement Memoranda and Limited Offering Memoranda
    BDA and SIFMA commented that, as part of its harmonization effort, 
the MSRB should exclude private placement memoranda and limited 
offering memoranda from the definition of advertisement in proposed 
amended Rule G-21.\142\ SIFMA suggested that such harmonization would 
be consistent with the exception from FINRA's content standards found 
in FINRA Rule 2210(d)(9).\143\ SIFMA also suggested that private 
placement memoranda and limited offering memoranda be excluded from the 
definition of an ``advertisement'' in proposed Rule G-40.\144\ BDA 
noted that ``private placement memoranda and limited offering memoranda 
are frequently used as offering memoranda and thus should be excluded 
alongside preliminary offering statements [from the definition of an 
``advertisement''].'' \145\
---------------------------------------------------------------------------

    \142\ Id.
    \143\ See SIFMA Letter.
    \144\ Id.
    \145\ See BDA Letter.
---------------------------------------------------------------------------

    The MSRB stated that it understands BDA's comment as follows: 
because private placement memoranda and limited offering memoranda are 
used as a preliminary offering statement would be used, a private 
placement memorandum and a limited offering memorandum should be 
excluded from the definition of an ``advertisement'' on the same basis 
that a preliminary offering statement is excluded from that 
definition.\146\ The MSRB, however, stated that after careful 
consideration it determined not to exclude private placement memoranda 
and limited offering memoranda from the definition of an 
advertisement.\147\ The MSRB stated that the purpose of the proposed 
rule change, in part, was not to fully harmonize Rule G-21 with FINRA 
Rule 2210, as suggested by commenters.\148\ Rather, the purpose of the 
proposed rule change, in part, was to promote regulatory consistency 
among the advertising rules of other financial regulators.\149\ The 
MSRB also noted that FINRA Rule 2210 does not provide a similar 
exclusion.\150\ The MSRB added that, for almost 40 years, it has 
limited the exclusions to the definition of an advertisement to issuer 
prepared documents that are widely disseminated.\151\ The MSRB stated 
that, similarly, FINRA Rule 2210 does not exclude a private placement 
memorandum from the definition of a ``communication.'' \152\ Rather, 
the MSRB stated, FINRA Rule 2210 provides limited exclusions from FINRA 
Rule 2210(c)'s filing requirements and from Rule 2210(d)'s content 
standards for prospectuses, preliminary prospectuses, fund profiles, 
offering circulars and similar documents that have been filed with the 
SEC or any state and similar offering documents concerning securities 
offerings that are exempt from SEC and state registration requirements 
and free writing prospectuses that are exempt from filing with the 
SEC.\153\ The MSRB stated that the exclusions from FINRA Rule 2210 
avoid regulatory duplication.\154\ Moreover, the MSRB noted, SIFMA 
stated that dealers or municipal advisors may have played a role in 
preparing the private placement memoranda or limited offering 
memoranda.\155\ The MSRB stated that FINRA clearly has stated that in 
such cases, FINRA Rule 2210 would apply to dealers.\156\
---------------------------------------------------------------------------

    \146\ See Response Letter.
    \147\ Id.
    \148\ Id.
    \149\ Id.
    \150\ Id.
    \151\ Id.
    \152\ Id.
    \153\ Id.
    \154\ Id.
    \155\ Id.
    \156\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it continues to believe that it can best 
fulfill its mission to protect investors, municipal entities, obligated 
persons, and the public interest by retaining the narrow exclusions 
from the definition of an advertisement that are currently set forth in 
Rule G-21 and that would be set forth in proposed Rule G-40.\157\ In so 
doing, the MSRB stated that it believes, consistent with its regulatory 
charge and mission, that it is best able to prevent potential fraud 
from entering the municipal securities market.\158\ Thus, the MSRB 
stated that it has determined, consistent with FINRA Rule 2210, not to 
exclude those materials from the scope of proposed amended Rule G-
21.\159\
---------------------------------------------------------------------------

    \157\ Id.
    \158\ Id.
    \159\ Id.
---------------------------------------------------------------------------

    BDA also commented that, ``[a]s part of its harmonization effort, 
the MSRB should exclude [from the scope of Rule G-21] materials that 
are comparable to offering materials that accompany preliminary 
official statements, such as investor roadshow presentations and other 
similar materials information [sic].'' \160\
---------------------------------------------------------------------------

    \160\ See BDA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that an investor road show may be a 
written offer that contains a presentation about an offering by one or 
more members of the issuer's management and includes discussion of one 
or more of the issuer, such management and the securities being 
offered.\161\ The MSRB further stated that a written investor road show 
in general is a free writing prospectus that is not required to be 
filed with the SEC.\162\ The MSRB stated that it recognizes that an 
investor road show may be used in connection with a private placement, 
as well as to accompany a preliminary official statement provided to 
institutional investors, and, in some cases, the investor road show may 
be made available to retail investors in municipal securities.\163\
---------------------------------------------------------------------------

    \161\ See Response Letter.
    \162\ Id.
    \163\ Id.
---------------------------------------------------------------------------

ii. Response to an RFP or RFQ
    BDA and SIFMA commented that the MSRB should amend Rule G-21 (BDA, 
SIFMA, and NAMA also made similar comments with respect to proposed 
Rule G-40) to exclude a response to an RFP or RFQ from the definition 
of an advertisement.\164\ Commenters submitted that it was not 
appropriate for the MSRB to regulate responses to requests for 
proposals or qualifications the same way that the MSRB regulates 
``retail communications''--i.e., possibly requiring principal approval 
in writing before sending the response to the RFP or RFQ to an 
issuer.\165\
---------------------------------------------------------------------------

    \164\ See BDA Letter and SIFMA Letter.
    \165\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it agrees, and provided supplementary material 
in the proposed rule change to provide clarification to proposed 
amended Rule

[[Page 21802]]

G-21's definition of a ``form letter''.\166\ The MSRB stated that it 
believes that a response to an RFP or RFQ would generally not be within 
the definition of an advertisement primarily because such responses 
would not meet the definition of a form letter in proposed amended Rule 
G-21(a)(ii) and proposed Rule G-40(a)(ii).\167\ The MSRB stated that 
Supplementary Material .03 to proposed amended Rule G-21 and 
Supplementary Material .01 to proposed Rule G-40 explain that an entity 
that receives a response to an RFP, RFQ or similar request would count 
as one ``person'' for the purposes of the definition of a form letter 
no matter the number of employees of the entity who may review the 
response.\168\ Further, the MSRB stated that the unilateral publication 
of a response to an RFP or RFQ or similar request by an issuer official 
would not make that response an advertisement.\169\ The MSRB noted 
that, nevertheless, such responses are subject to MSRB Rule G-17, on 
conduct of municipal securities and municipal advisory activities.\170\ 
The MSRB added that, given the supplementary material contained in 
proposed amended Rule G-21 and proposed Rule G-40, the MSRB believes 
that no additional provisions are necessary at this time to address 
commenters' concerns.\171\
---------------------------------------------------------------------------

    \166\ See Response Letter.
    \167\ Id.
    \168\ Id.
    \169\ Id.
    \170\ Id.
    \171\ Id.
---------------------------------------------------------------------------

    SIFMA requested guidance under proposed Rule G-40 about whether an 
email that only includes required regulatory disclosures that is sent 
to more than 25 municipal advisory clients through blind copies would 
constitute an advertisement.\172\ In response, the MSRB stated that 
such emails containing only required regulatory disclosures would not 
constitute advertisements under proposed Rule G-40.\173\ The MSRB added 
that those emails would not be published or used in any electronic or 
other public media and would not constitute written or electronic 
promotional literature.\174\ The MSRB also stated that if an email that 
contained a required regulatory disclosure also included material that 
was promotional in nature and sent to more than 25 persons within any 
period of 90 consecutive days, that email could constitute an 
advertisement and would be subject to proposed Rule G-40.\175\
---------------------------------------------------------------------------

    \172\ See SIFMA Letter.
    \173\ See Response Letter.
    \174\ Id.
    \175\ Id.
---------------------------------------------------------------------------

c. Hypothetical Illustrations
    The Response Letter noted that FINRA had recently requested comment 
on draft amendments to FINRA Rule 2210 to create an exception to the 
rule's prohibition on projecting performance to permit a firm to 
distribute a customized hypothetical investment planning illustration 
that includes the projected performance of an investment strategy.\176\ 
SIFMA commented that the MSRB should include a similar exception in the 
proposed rule change.\177\ The MSRB noted that it had asked in its 
initial Request for Comment whether it should consider a similar 
proposal, in part to promote regulatory consistency among the 
advertising regulations of financial regulators.\178\ The MSRB noted 
that the comment period on FINRA's draft amendments to FINRA Rule 2210 
closed March 27, 2017, and FINRA has not yet announced any next 
rulemaking steps.\179\ The MSRB determined that it would be premature 
to include provisions to address FINRA's draft amendments to Rule 2210 
in the proposed rule change before FINRA determines how to proceed with 
those draft amendments and before the SEC has taken action with respect 
to the proposed rule change.\180\ The MSRB also stated that such action 
currently would not promote regulatory consistency among the 
advertising regulations of financial regulators, but that it will 
continue to monitor the FINRA initiative.\181\
---------------------------------------------------------------------------

    \176\ See Response Letter and MSRB Notice 2017-04, Request for 
Comment on Draft Amendments to MSRB Rule G-21, on Advertising, and 
on Draft Rule G-40, on Advertising by Municipal Advisors (Feb. 16, 
2017) (``Request for Comment'').
    \177\ See SIFMA Letter.
    \178\ See Response Letter and Request for Comment.
    \179\ See Response Letter.
    \180\ Id.
    \181\ Id.
---------------------------------------------------------------------------

d. Dealer/Municipal Advisor Jurisdictional Guidance
    SIFMA commented that the MSRB should provide guidance and/or 
exemptions from proposed amended Rule G-21 for dealer/municipal 
advisors.\182\ Specifically, SIFMA suggested that the MSRB amend Rule 
G-21 to clarify that the activities of dealer/municipal advisors are 
governed by proposed Rule G-40 when those dealer/municipal advisors are 
engaging in municipal advisor advertising.\183\
---------------------------------------------------------------------------

    \182\ See SIFMA Letter.
    \183\ Id.
---------------------------------------------------------------------------

    In response, the MSRB stated that it believes, consistent with its 
statutory mandate, that a dealer or a municipal advisor only becomes 
subject to MSRB rules based on its activities, and that the MSRB's 
advertising rules are based, in part, on the activities in which the 
dealers or municipal advisors engage.\184\ The MSRB noted, for example, 
that if a dealer/municipal advisor publishes a print advertisement 
relating to the sale of municipal bonds, those activities would be 
subject to Rule G-21.\185\ Similarly, the MSRB stated, if the dealer/
municipal advisor prepares a professional advertisement about its 
municipal advisory services that it then circulates to municipal 
entities, that advertisement would be subject to proposed Rule G-
40.\186\ The MSRB agreed that as currently drafted, certain provisions 
of proposed amended Rule G-21 and proposed Rule G-40 are similar.\187\ 
For example, the MSRB stated, as noted by commenters, the content 
standards of each rule are similar.\188\ The MSRB stated that to the 
extent that there are differences between proposed amended Rule G-21 
and proposed Rule G-40, those differences are based, in part, on the 
activities in which a dealer or municipal advisor engages.\189\ Thus, 
the MSRB concluded that such jurisdictional guidance may not be needed 
at this time because of the similarities between proposed amended Rule 
G-21 and proposed Rule G-40.\190\
---------------------------------------------------------------------------

    \184\ See Response Letter.
    \185\ Id.
    \186\ Id.
    \187\ Id.
    \188\ Id.
    \189\ Id.
    \190\ Id.
---------------------------------------------------------------------------

    Nevertheless, the MSRB stated that jurisdictional guidance relating 
to dealer/municipal advisors under Rule G-21 may be beneficial in the 
future, and the MSRB expects to begin to address such issues in its 
next fiscal year.\191\ The MSRB believes that its regulation of 
financial advisory activities (as an element of municipal securities 
activity) should remain in place at least until its advertising rule 
for municipal advisors is approved by the Commission and the 
professional qualification examinations for municipal advisors have 
been filed by the MSRB with the Commission.\192\ The MSRB also stated 
that it had recently approved the filing of the Municipal Advisor 
Principal Qualification Examination Content Outline (Series 54) to 
formally establish the Series 54 examination.\193\ However, in 
recognition, in part, of the challenges faced by dealer/municipal 
advisors, the MSRB expects to begin to address such jurisdictional 
issues during its next

[[Page 21803]]

fiscal year.\194\ Thus, after careful consideration of the commenter's 
suggestions, the MSRB\195\ determined not to revise proposed amended 
Rule G-21 to reflect the commenter's request.
---------------------------------------------------------------------------

    \191\ Id.
    \192\ Id.
    \193\ Id.
    \194\ Id.
    \195\ Id.
---------------------------------------------------------------------------

e. Economic Analysis of Proposed Amended Rule G-21
    SIFMA commented that the advertising rules should be structured 
based on activity and not by registration.\196\
---------------------------------------------------------------------------

    \196\ See SIFMA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that it does consider the nature and 
scope of dealer and municipal advisor activities when it develops 
rules, and that the proposed rule change, in fact, is based on 
respective activities of dealers and municipal advisors.\197\ 
Additionally, the MSRB stated that although dealer/municipal advisors 
will be governed by both proposed amended Rule G-21 and proposed Rule 
G-40, dual-registrants should recognize that advertisements that are 
solely related to dealer activities would only be subject to proposed 
amended Rule G-21.\198\ Likewise, the MSRB noted, advertisements that 
are solely related to municipal advisory activities would only be 
subject to proposed Rule G-40.\199\ The MSRB also stated that because 
the baseline is current Rule G-21, the MSRB believes that at least some 
of the costs associated with dealer advertising compliance are already 
reflected in existing costs.\200\ The MSRB believes that many of the 
new or increased costs associated with proposed amended Rule G-21 would 
be up-front costs from initial compliance development such as updating 
or rewriting policies and procedures.\201\ Finally, the MSRB stated 
that the proposed amended Rule G-21 will promote regulatory consistency 
with FINRA's rules that should, in fact, promote efficiency and be 
beneficial to regulated entities.\202\
---------------------------------------------------------------------------

    \197\ See Response Letter.
    \198\ Id.
    \199\ Id.
    \200\ Id.
    \201\ Id.
    \202\ See Response Letter.
---------------------------------------------------------------------------

B. Comments Received Regarding Proposed Rule G-40

    Two comment letters primarily focused on proposed Rule G-40.\203\ 
These commenters focused on (i) the ability of the MSRB to regulate 
advertising by municipal advisors through other MSRB rules without 
proposed Rule G-40, (ii) suggested revisions to proposed Rule G-40's 
content standards, (iii) the suggested adoption of the relief that SEC 
staff provided to investment advisers relating to testimonials in 
advertisements, (iv) principal pre-approval, (v) guidance relating to 
municipal advisor websites and the use of social media, and (vi) the 
economic analysis.\204\ One commenter agreed with many of the 
provisions of proposed new Rule G-40.\205\ The other commenter, 
although in agreement that municipal advisors should engage in 
advertisements based on the principles of fair dealing and good faith, 
recommended that the MSRB withdraw proposed Rule G-40.\206\
---------------------------------------------------------------------------

    \203\ See NAMA Letter and PFM Letter.
    \204\ Id.
    \205\ See PFM Letter.
    \206\ See NAMA Letter.
---------------------------------------------------------------------------

a. Ability To Regulate Municipal Advisor Advertising Through Other 
Rules
    NAMA commented that proposed Rule G-40 is not necessary because the 
protections offered by Rule G-17 provide sufficient investor protection 
from misleading statements.\207\
---------------------------------------------------------------------------

    \207\ Id.
---------------------------------------------------------------------------

    In response, the MSRB stated that adopting the course of action 
suggested by NAMA not only would be inconsistent with the MSRB's 
statutory mandate, but also would create an un-level playing field in 
the municipal securities market.\208\ The MSRB stated that the United 
States Congress charged the MSRB with the responsibility to create a 
new regulatory regime for municipal advisors that, in part, requires 
the MSRB to protect municipal entities as well as obligated 
persons.\209\ The MSRB added that to fulfill those statutory 
responsibilities, the MSRB has tailored its developing municipal 
advisor regulatory regime, as appropriate, to reflect the differences 
in the roles and responsibilities of municipal advisors and dealers in 
the municipal securities market.\210\ The MSRB stated that it has long 
recognized that the market for municipal advisory services is separate 
and distinct from the market for services of municipal securities 
brokers and dealers, and as such, it is appropriate and reasonable to 
tailor MSRB rules for municipal advisors.\211\
---------------------------------------------------------------------------

    \208\ See Response Letter.
    \209\ Id.
    \210\ Id.
    \211\ Id.
---------------------------------------------------------------------------

    The MSRB stated that one of the ways that fraud may enter the 
market for municipal advisory services is through advertising.\212\ The 
MSRB added that, consistent with its statutory mandate, the MSRB 
designed proposed Rule G-40 to help prevent fraudulent and manipulative 
practices in the market for municipal advisory services, and tailored 
proposed Rule G-40 to reflect the types of advertisements that 
municipal advisors publish.\213\ The MSRB stated that regulating 
advertising by municipal advisors through Rule G-17 would be 
inconsistent with the MSRB's statutory mandate to protect municipal 
entities and obligated persons.\214\ According to the MSRB, Rule G-17 
sets forth the MSRB's fair dealing principles; Rule G-17 does not 
provide particular guidance on how a municipal advisor should apply 
those principles to its advertisements.\215\ By contrast, the MSRB 
noted, proposed Rule G-40 provides the detail needed to enable 
municipal advisors through specific conduct to better comply with those 
fair dealing principles as they relate to advertising.\216\
---------------------------------------------------------------------------

    \212\ Id.
    \213\ Id.
    \214\ Id.
    \215\ Id.
    \216\ Id.
---------------------------------------------------------------------------

    Moreover, the MSRB believes that relying on Rule G-17 to regulate 
municipal advisor advertising would create an un-level playing field, 
and would be contrary to the recommendations of other market 
participants.\217\ The MSRB stated that this un-level playing field 
would be between municipal advisors (subject to Rule G-17, but not Rule 
G-21) and dealers (subject to both Rules G-17 and G-21) and among 
municipal advisors that are not registered as dealers and municipal 
advisors that are also registered as dealers or investment advisers 
(subject to Rule G-21 and FINRA Rule 2210 or Rule 206(4)-1 under the 
Investment Advisers Act of 1940, as amended, (the ``Advisers Act''), as 
relevant).\218\ Further, the MSRB noted that other commenters believed 
that having a separate rule to address advertising by municipal 
advisors would be helpful as dealers and municipal advisors have 
different roles and responsibilities in the municipal securities 
market.\219\ Therefore, after careful consideration, the MSRB 
determined to address advertising by municipal advisors through 
proposed Rule G-40.\220\
---------------------------------------------------------------------------

    \217\ Id.
    \218\ Id.
    \219\ Id.
    \220\ Id.
---------------------------------------------------------------------------

b. Definition of ``Advertisement'' Under Proposed Rule G-40
    NAMA commented that the general information exclusions from the 
definition of ``advice'' under Rule 15Ba1-1(d)(1)(ii) under the Act 
that

[[Page 21804]]

would permit a municipal advisor to not register with the SEC should 
equally apply as exclusions to the MSRB's municipal advisor advertising 
rule.\221\
---------------------------------------------------------------------------

    \221\ See NAMA Letter.
---------------------------------------------------------------------------

    In response to NAMA's comment, the MSRB stated that the purpose of 
proposed Rule G-40, in part, is to ensure that municipal advisor 
advertising does not contain any untrue statement of material fact and 
is not otherwise false or misleading. The MSRB also stated that 
regardless of whether certain information rises to the level of advice, 
that information may be advertising used to market to potential 
municipal advisory clients.\222\ The MSRB believes this type of 
information should be covered by proposed Rule G-40, as the MSRB is 
obligated to protect municipal entities under the Act.\223\ The MSRB 
reiterated that Congress mandated that the MSRB protect investors; 
municipal entities, including issuers of municipal securities; 
obligated persons; and the public interest.\224\ Thus, after 
considering commenters' suggestions, the MSRB determined not to include 
additional exceptions from the definition of an ``advertisement'' in 
proposed Rule G-40.\225\
---------------------------------------------------------------------------

    \222\ See Response Letter.
    \223\ Id.
    \224\ Id.
    \225\ Id.
---------------------------------------------------------------------------

c. Proposed Rule G-40's Content Standards
    In the NAMA Letter, NAMA requested that the MSRB revise proposed 
Rule G-40 to provide more definitive content standards.\226\ In 
particular, NAMA stated that the content standards in proposed Rule G-
40 should reflect a clearer separation between the content standards 
applicable to product advertisements and the content standards 
applicable to professional advertisements.\227\ NAMA suggested that 
this separation was important because the clear majority of municipal 
advisors only engage in professional services advertising.\228\ To that 
end, NAMA suggested that there should be separate content standards for 
product advertisements and for professional advertisements, that the 
liability provisions in proposed Rule G-40 should be reduced, and that 
the requirement that all advertisements be fair and balanced should be 
deleted.\229\
---------------------------------------------------------------------------

    \226\ See NAMA Letter.
    \227\ Id.
    \228\ Id.
    \229\ Id.
---------------------------------------------------------------------------

    In response, the MSRB stated that it believes that such separate 
standards could needlessly increase the complexity of proposed Rule G-
40 without any offsetting benefit of enhancing the ability of a 
municipal advisor to comply with proposed Rule G-40. Moreover, the MSRB 
stated, NAMA's suggestions about the content standards for professional 
advertisements would lessen the strict liability provisions set forth 
in proposed Rule G-40(b)(ii) that would apply to professional 
advertisements.\230\
---------------------------------------------------------------------------

    \230\ See Response Letter.
---------------------------------------------------------------------------

    NAMA also suggested that the MSRB completely delete the MSRB's 
general standard for advertisements set forth in proposed Rule G-
40(a)(v).\231\ The general standard for advertisements requires, in 
part, that a municipal advisor shall not publish an advertisement 
relating to municipal securities or municipal financial products that 
the municipal advisor knows or has reason to know contains any untrue 
statement of material fact or is otherwise false or misleading.\232\ 
The MSRB stated that the liability provisions are important to the 
MSRB's advertising regulation, and since 1978, the MSRB has imposed 
strict liability with respect to professional advertisements.\233\ The 
MSRB also stated that it has resisted prior suggestions that the MSRB 
lessen that standard for professional advertisements.\234\ The MSRB 
continues to believe that (i) the liability provisions are key elements 
to its advertising regulation, (ii) the liability provisions in its 
advertising regulations should be consistent between dealers and 
municipal advisors, and (iii) the liability provisions in the MSRB's 
advertising regulations should not be lessened.
---------------------------------------------------------------------------

    \231\ See NAMA Letter.
    \232\ See Response Letter.
    \233\ Id.
    \234\ Id.
---------------------------------------------------------------------------

    NAMA commented that the content standards of the proposed rule 
change were not clear, and suggested that proposed Rule G-40(a)(iv)(A) 
be deleted because it is repetitive of Rule G-17.\235\ The MSRB 
responded that proposed Rule G-40(a)(iv)(A) would require, in part, 
that an advertisement be fair and balanced, and those principles would 
apply to an advertisement of any service.\236\ The MSRB stated that it 
developed the content standards based, in part, on analogous 
advertising regulations of other financial regulators, primarily those 
of FINRA, as well as those of the SEC and the National Futures 
Association.\237\ The MSRB stated that similar content standards to 
those set forth in proposed Rule G-40(a)(iv)(A) have long been 
understood by the financial entities subject to regulation by those 
financial regulators.\238\ In addition, the MSRB stated that reliance 
only on Rule G-17 to regulate municipal advisor advertising would 
result in municipal advisors not having the specificity needed based on 
their activities to enable municipal advisors to better comply with 
those principles.\239\ Nevertheless, the MSRB stated, if the SEC were 
to approve proposed Rule G-40, the MSRB would publish guidance about 
proposed Rule G-40's content standards before proposed Rule G-40 were 
to become effective.\240\ Thus, after careful consideration and for the 
reasons stated above, the MSRB determined not to revise proposed Rule 
G-40's content standards.\241\
---------------------------------------------------------------------------

    \235\ See NAMA Letter.
    \236\ See Response Letter.
    \237\ Id.
    \238\ Id.
    \239\ Id.
    \240\ Id.
    \241\ Id.
---------------------------------------------------------------------------

d. Use of Testimonials Under Proposed Rule G-40
    NAMA, PFM, and SIFMA commented on proposed Rule G-40(iv)(G)'s 
prohibition on the use of testimonials in municipal advisor 
advertisements.\242\ Their comments ranged from the view that 
testimonials should be excluded from proposed Rule G-40 \243\ to the 
view that, while the prohibition on the use of testimonials may be 
warranted, the MSRB should provide guidance under proposed Rule G-
40(iv)(G) relating to the use of client lists and case studies.\244\ 
Specifically, NAMA suggested that ``if any version of Rule G-40 is 
ultimately adopted, then the current circumstances argue strongly in 
favor of the MSRB removing testimonials from Rule G-40 for now and, if 
necessary, consider any future amendment to deal with testimonials in a 
way that is consistent with FINRA's and the SEC's overall treatment.'' 
\245\ SIFMA suggested that proposed Rule G-40 be harmonized with FINRA 
Rule 2210(d)(6) which permits testimonials in advertisements by 
dealers, ``subject to the content standards and requirements that 
apply.'' \246\ NAMA also commented that at a minimum, testimonials 
should ``be treated the same under both Rules G-21 and G-40.'' \247\ 
NAMA and PFM commented that, if proposed Rule G-40 were to prohibit 
testimonials by municipal advisors, then the MSRB

[[Page 21805]]

should provide certain interpretive relief from that prohibition.\248\ 
NAMA suggested that the MSRB narrow that prohibition by adopting all 
the SEC staff's guidance that is applicable to investment advisers 
relating to testimonials.\249\ NAMA also commented that the definition 
of advertisement should ``provide for client lists and case studies to 
be exempt from advertising consistent with the SEC's prior action and 
current investment adviser practices.'' \250\ PFM requested that the 
MSRB provide clarification relating to the use of client lists and case 
studies.\251\
---------------------------------------------------------------------------

    \242\ See NAMA Letter, PFM Letter and SIFMA Letter.
    \243\ See NAMA Letter.
    \244\ See PFM Letter.
    \245\ See NAMA Letter.
    \246\ See SIFMA Letter.
    \247\ See NAMA Letter.
    \248\ See NAMA Letter and PFM Letter.
    \249\ See NAMA Letter.
    \250\ Id.
    \251\ See PFM Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that it considered commenters' 
suggestions, and continues to believe that a testimonial presents 
significant issues, including the ability of the testimonial to be 
misleading.\252\ The MSRB stated that dealers and municipal advisors 
have different types of relationships and roles with their customers or 
municipal advisory clients, respectively, and have different models for 
providing advice.\253\ The MSRB further stated that those differences 
are recognized in the Act, particularly with regard to the fiduciary 
duties owed by a municipal advisor to its municipal entity 
clients.\254\ Citing to the Act, the MSRB noted that dealers do not owe 
a similar fiduciary duty to their customers.\255\ The MSRB stated that, 
recognizing the fiduciary duty owed by municipal advisors to their 
municipal entity clients, the MSRB considered the regulations of other 
financial regulators where the regulated entity owes a fiduciary duty 
to its clients.\256\ Thus, the MSRB stated that it recognizes that 
other comparable financial regulations, such as Rule 206(4)-1 under the 
Advisers Act, prohibit advisers from including testimonials in 
advertisements and noted that investment advisers are subject to 
fiduciary standards.\257\ The MSRB also stated, as discussed in the 
Notice of Filing, that it is aware of the interpretive guidance 
provided by the SEC staff relating to testimonials.\258\
---------------------------------------------------------------------------

    \252\ See Response Letter.
    \253\ Id.
    \254\ Id.
    \255\ Id.
    \256\ Id.
    \257\ See Response Letter and Notice of Filing.
    \258\ Id.
---------------------------------------------------------------------------

    For the reasons set forth in the Notice of Filing and the Request 
for Comment, the MSRB determined not to revise proposed Rule G-40 to 
delete the testimonial ban or to adopt all SEC staff guidance related 
to the testimonial ban under Rule 206(4)-1.\259\ The MSRB stated that 
if the SEC were to approve proposed Rule G-40, the MSRB would publish 
guidance about the use of municipal advisory client lists and case 
studies by municipal advisors before Rule G-40 were to become 
effective.\260\
---------------------------------------------------------------------------

    \259\ See Response Letter, Request for Comment and Notice of 
Filing.
    \260\ See Response Letter.
---------------------------------------------------------------------------

e. Principal Pre-Approval Under Proposed Rule G-40
    BDA commented that principal pre-approval was not needed or could 
be limited to certain types of advertisements.\261\ BDA commented that 
clients of municipal advisors are institutions, and that as 
institutions, they do not need many of the ``mechanistic protections 
applicable to dealer relationships with retail investors.'' \262\ BDA 
commented that it ``does not believe that a principal needs to approve 
every municipal advisor advertisement . . . [but that] the MSRB should 
allow either a municipal advisor principal or a general securities 
principal to approve advertisements, consistent with Rule G-21.'' \263\ 
Similarly, SIFMA commented that proposed Rule G-40(c) should allow for 
a general securities principal to approve advertisements consistent 
with Rule G-21.\264\
---------------------------------------------------------------------------

    \261\ See BDA Letter.
    \262\ Id.
    \263\ Id.
    \264\ See SIFMA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that an important element of the 
MSRB's statutory mandate is to protect municipal entities and obligated 
persons.\265\ The MSRB noted that the Congress determined that 
municipal entities do need protection under the federal securities 
laws, and charged the MSRB with developing a municipal advisor 
regulatory scheme to so do.\266\ Moreover, the MSRB stated, there is no 
general securities principal qualification applicable to municipal 
advisors.\267\ Therefore, the MSRB stated that it interprets BDA's and 
SIFMA's comments as suggesting that a general securities principal who 
may review dealer advertisements under Rule G-21 should also be able to 
review municipal advisor advertising under proposed Rule G-40.\268\ The 
MSRB responded that, in that case, it believes that it would be 
inconsistent with the MSRB's regulatory framework for municipal 
advisors to have a general securities principal review municipal 
advisor advertising, as a general securities principal would not be 
qualified under Rule G-3, on professional qualification requirements, 
to do so.\269\ The MSRB stated that it believed qualification as a 
general securities principal under FINRA's Series 24 examination would 
not ensure that the general securities principal would be aware of the 
regulatory requirements applicable to municipal advisors as those 
requirements are not tested as part of that examination.\270\ Further, 
the MSRB noted that it believes it would be inconsistent with an 
important part of the MSRB's mission to protect state and local 
governments and other municipal entities to have a general securities 
principal, with little regulatory assurance of minimum knowledge of 
applicable MSRB rules, approve advertising by a municipal advisor.\271\ 
Thus, the MSRB stated that it determined not to revise proposed Rule G-
40 to permit a general securities principal to approve advertising by 
municipal advisors.\272\
---------------------------------------------------------------------------

    \265\ See Response Letter.
    \266\ Id.
    \267\ Id.
    \268\ Id.
    \269\ Id.
    \270\ Id.
    \271\ Id.
    \272\ Id.
---------------------------------------------------------------------------

f. Guidance Relating to Municipal Advisor Websites and the Use of 
Social Media
    In the NAMA Letter, NAMA requested more specific guidance about the 
content posted on a municipal advisor's website and about the use of 
social media by a municipal advisor.\273\ Specifically, NAMA requested 
guidance about whether material posted on a municipal advisor's website 
would constitute an advertisement under proposed Rule G-40.\274\ 
Further, NAMA requested guidance on the use of social media.\275\
---------------------------------------------------------------------------

    \273\ See NAMA Letter.
    \274\ Id.
    \275\ Id.
---------------------------------------------------------------------------

    In response, the MSRB stated that the definition of advertisement 
under proposed Rule G-40 is broad, and similar to Rule G-21, would 
apply to any ``material . . . published or used in any electronic or 
other public media . . . .'' \276\ Thus, the MSRB stated, because a 
website is electronic and public, any material posted on a municipal 
advisor's website would be an advertisement if that material comes 
within the definition of an advertisement.\277\ The MSRB added that 
simply publishing material on a website would not exclude material that

[[Page 21806]]

otherwise would qualify as an advertisement under proposed Rule G-
40(a)(i).\278\ As such, the MSRB stated, proposed Rule G-40 would apply 
to any material posted on a municipal advisor's public website or more 
generally, on any website, if that material comes within the other 
terms of the definition of an advertisement as set forth in proposed 
Rule G-40(a)(i).\279\
---------------------------------------------------------------------------

    \276\ See Response Letter.
    \277\ Id.
    \278\ Id.
    \279\ Id.
---------------------------------------------------------------------------

    In response to NAMA's request for additional interpretive guidance 
regarding the use social media by municipal advisors, the MSRB stated 
that it believes that such guidance would be timely after any SEC 
approval of an advertising rule for municipal advisors.\280\ The MSRB 
further stated that if the SEC were to approve proposed Rule G-40, such 
that the terms of a rule that will be going into effect are determined, 
the MSRB would publish social media guidance before the effective date 
of such rule.\281\
---------------------------------------------------------------------------

    \280\ Id.
    \281\ Id.
---------------------------------------------------------------------------

g. Economic Analysis of Proposed Rule G-40
    Several comments were received comments on the Economic Analysis 
that the MSRB performed on the proposed rule change from both NAMA and 
SIFMA.\282\ NAMA suggested that the MSRB did not properly considered 
the aggregate burden that rulemaking has placed on municipal advisor 
firms.\283\ NAMA also commented that the MSRB did not appropriately 
consider the burden placed on small firms.\284\ SIFMA suggested that 
proposed Rule G-40 mirror proposed amended Rule G-21 to reduce costs 
for dual-registrants.\285\
---------------------------------------------------------------------------

    \282\ See NAMA Letter and SIFMA Letter.
    \283\ See NAMA Letter.
    \284\ Id.
    \285\ Id.
---------------------------------------------------------------------------

    As the MSRB noted in the Notice of Filing and the Response Letter, 
the MSRB stated that it is planning to conduct a retrospective analysis 
on the cumulative impact of the municipal advisor regulatory framework 
on the municipal advisory industry once the entire framework is 
implemented.\286\ The MSRB stated that such analysis is currently 
planned for 2019 when proposed Rule G-40 would become effective, if 
approved by the SEC.\287\ Thus, the MSRB stated, it does not believe 
that a formal analysis of the entire municipal advisor regulatory 
framework could commence prior to 2019.\288\ The MSRB stated that as a 
part of the municipal advisor regulatory framework retrospective 
analysis, the MSRB is also planning to specifically examine the 
frequency with which issuers use municipal advisors over time, pending 
availability of data.\289\ The MSRB stated that it believes the costs 
associated with the proposed rule change should not be unduly 
burdensome for small municipal advisory firms.\290\ The MSRB contended 
that for some one-time initial compliance costs, the MSRB believes that 
small municipal advisory firms may incur proportionally larger costs 
than larger firms.\291\ However, the MSRB noted that for many other 
ongoing costs, such as costs associated with principal approval and 
recordkeeping requirements, as well as investments in advertisements 
previously developed but no longer compliant, the costs should be 
proportionate to the size of the firm, assuming that small firms 
generally advertise less than larger firms.\292\ Thus, the MSRB stated 
that it believes it is unlikely that proposed Rule G-40 would have an 
outsized impact on small firms.\293\ The MSRB stated that it believes 
that proposed Rule G-40 and proposed amended Rule G-21 are already 
substantially similar; the main differences between the two rules are 
proposed Rule G-40's ban on testimonials and omission of three 
provisions that concern product advertisements.\294\ The MSRB noted 
that in developing the substantially similar provisions, the MSRB was 
sensitive to the burdens on dealer/municipal advisors and the 
efficiencies resulting from consistent provisions.\295\ The MSRB stated 
that the degree to which proposed Rule G-40 and proposed amended Rule 
G-21 mirror each other is a result of these considerations and that 
differences are attributable to aspects of municipal advisory activity 
that differs from broker-dealer activity, irrespective of whether the 
municipal advisor is a dealer or non-dealer municipal advisor.\296\
---------------------------------------------------------------------------

    \286\ See Response Letter and Notice of Filing.
    \287\ Id.
    \288\ See Response Letter.
    \289\ Id.
    \290\ Id.
    \291\ Id.
    \292\ Id.
    \293\ Id.
    \294\ Id.
    \295\ Id.
    \296\ Id.
---------------------------------------------------------------------------

C. MSRB's General Response to Comments and Commitment To Provide 
Interpretive Guidance

    In response to the comments received regarding the proposed rule 
change, the MSRB stated that it believes that the proposed rule change 
will enhance the MSRB's fair practice rules for dealers by promoting 
regulatory consistency among Rule G-21 and the advertising rules of 
other financial regulators.\297\ Further, the MSRB stated that as the 
proposed rule change is a key element of the MSRB's development of its 
core regulatory framework for municipal advisors, the proposed rule 
change will enhance the MSRB's fair practice rules by, for the first 
time, providing rules about advertising by municipal advisors through 
proposed Rule G-40.\298\ Finally, the MSRB stated that, consistent with 
the MSRB's goal of providing tools to enhance the ability of dealers 
and municipal advisors to comply with MSRB rules, if the SEC were to 
approve the proposed rule change, the MSRB would provide the following 
guidance before proposed amended Rule G-21 and proposed Rule G-40 would 
become effective: \299\
---------------------------------------------------------------------------

    \297\ Id.
    \298\ Id.
    \299\ Id.
---------------------------------------------------------------------------

     Guidance under proposed Rule G-40(a)(iv)(G) relating to 
case studies and client lists; \300\
---------------------------------------------------------------------------

    \300\ Id.
---------------------------------------------------------------------------

     Guidance under proposed Rule G-40(c) relating to content 
standards; \301\ and
---------------------------------------------------------------------------

    \301\ Id.
---------------------------------------------------------------------------

     Guidance under proposed Rule G-40 relating to a municipal 
advisor's use of social media.\302\
---------------------------------------------------------------------------

    \302\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received and the Response Letter. The Commission 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to the 
MSRB.
    In particular, the proposed amended Rule G-21 and proposed Rule G-
40, are consistent with Section 15B(b)(2)(C) of the Act.\303\ Section 
15B(b)(2)(C) of the Act requires that the MSRB's rules 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

[[Page 21807]]

municipal financial products, and, in general, to protect investors, 
municipal entities, obligated persons, and the public interest.\304\
---------------------------------------------------------------------------

    \303\ 15 U.S.C. 78o-4(b)(2)(C).
    \304\ See 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The Commission believes that proposed amended Rule G-21 is 
consistent with the provisions of Section 15B(b)(2)(C) \305\ of the Act 
because it will help prevent fraudulent and manipulative practices by 
prohibiting dealers from making any false, exaggerated, unwarranted, 
promissory or misleading statement or claim in an advertisement. 
Proposed amended Rule G-21 requires that advertisements be based on the 
principles of fair dealing and good faith, be fair and balanced, and 
provide a sound basis for evaluating the facts. A dealer will not be 
able to omit any material fact or qualification, if the omission, in 
light of the context of the material presented, would cause the 
advertisement to be misleading. Further, the prescriptive nature of 
proposed amended Rule G-21 provides guidelines for dealers to follow 
that will help prevent fraudulent and manipulative practices.
---------------------------------------------------------------------------

    \305\ Id.
---------------------------------------------------------------------------

    In addition, the Commission believes that proposed amended Rule G-
21 also will help protect investors and the public interest by helping 
ensure that advertisements present a fair statement of the services, 
products, or municipal securities advertised.
    The Commission believes that proposed Rule G-40 is consistent with 
the provisions of Section 15B(b)(2)(C) \306\ of the Act because it will 
help prevent fraudulent and manipulative practices by prohibiting 
municipal advisors from making any false, exaggerated, unwarranted, 
promissory or misleading statement or claim in an advertisement. 
Proposed Rule G-40 requires that advertisements of municipal advisors 
be based on the principles of fair dealing and good faith, be fair and 
balanced, and provide a sound basis for municipal entities and 
obligated persons to evaluate the information presented in such 
advertisements. A municipal advisor will not be able to omit any 
material fact or qualification if the omission, in light of the context 
of the material present, would cause the advertisement to be 
misleading. Further, the prescriptive nature of proposed Rule G-40 
provides guidelines for municipal advisors to follow that would help 
prevent fraudulent and manipulative practices.
---------------------------------------------------------------------------

    \306\ Id.
---------------------------------------------------------------------------

    In addition, the Commission believes that proposed Rule G-40 will 
help protect investors, municipal entities, obligated persons and the 
public interest by providing prescriptive requirements that will help 
ensure that advertisements present a fair statement of the municipal 
advisory services advertised.
    The Commission also finds that the proposed rule change is 
consistent with Section 15B(b)(2)(L)(iv), 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.\307\ For some one-time 
initial compliance costs, small municipal advisory firms may incur 
proportionally larger costs than larger firms. However, for many other 
ongoing costs, such as costs associated with principal approval and 
record-keeping requirements, as well as investments in advertisements 
previously developed but that would no longer be compliant, the costs 
should be proportionate to the size of the firm. Thus, the Commission 
believes it is unlikely that proposed Rule G-40 would have an outsized 
impact on small firms.
---------------------------------------------------------------------------

    \307\ See 15 U.S.C. 78o-4(b)(2)(L)(iv).
---------------------------------------------------------------------------

    In approving the proposed rule change, the Commission also has 
considered the impact of the proposed rule change, on efficiency, 
competition, and capital formation.\308\ The Commission does not 
believe that the proposed rule change will impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.
---------------------------------------------------------------------------

    \308\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes, through promoting regulatory consistency 
of certain MSRB advertising standards with those of other financial 
regulators, proposed amended Rule G-21 may improve efficiency in the 
form of less unnecessary complexity for dealers and reduced burdens and 
compliance costs over time, because such additional regulatory 
consistency should assist dealers with developing uniform policies and 
procedures. The Commission believes this may also benefit both retail 
and institutional investors, where transparency, consistency, truthful 
and accurate information and ease of comparison of different financial 
services would be highly valued. While dealers may experience increased 
costs because of the new requirements, these costs should not be 
significant for dealers also registered with FINRA as much of proposed 
amended Rule G-21 would align with FINRA Rule 2210. The Commission 
believes proposed amended Rule G-21 would not impose an unreasonable 
burden on dealers, and the likely benefits, such as the prevention of 
fraudulent and manipulative advertising by dealers and the protection 
of investors, justify such costs.
    The Commission believes that one benefit of proposed Rule G-40 may 
be that municipal advisors provide clients more accurate information 
through advertising, which may lead municipal entities and obligated 
persons to more informed decision-making when selecting municipal 
advisors. Furthermore, the Commission believes that as a result of 
municipal advisor compliance with proposed Rule G-40's advertising 
standards, municipal entities and obligated persons may be able to more 
easily establish objective criteria to use in selecting municipal 
advisors that may increase the likelihood that municipal advisors are 
hired because of their qualifications as opposed to other reasons. In 
addition, the Commission believes that transparency, consistency, 
truthful and accurate information in advertising should benefit 
municipal entities and obligated persons in general. Although municipal 
advisors are likely to incur costs associated with compliance with the 
proposed Rule G-40, the cost would be justified by the likely benefits 
of the proposed rule, such as the prevention of fraudulent and 
manipulative advertising by municipal advisors and the protection of 
municipal entities and obligated persons.
    The Commission has reviewed the record for the proposed rule change 
and notes that the record does not contain any information to indicate 
that the proposed rule change would have a negative effect on capital 
formation.
    As noted above, the Commission received four comment letters on the 
Notice of Filing. The Commission believes that the MSRB, through its 
responses and its commitment to provide additional interpretive 
guidance prior to the effective date of the proposed rule change, has 
addressed commenters' concerns.
    For the reasons noted above, the Commission believes that the 
proposed rule change is consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\309\ that the proposed rule change (SR-MSRB-2018-01) be, and 
hereby is, approved.
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    \309\ 15 U.S.C. 78s(b)(2).
    \310\ 17 CFR 200.30-3(a)(12).


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    For the Commission, pursuant to delegated authority.\310\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09933 Filed 5-9-18; 8:45 am]
 BILLING CODE 8011-01-P


