
[Federal Register Volume 83, Number 249 (Monday, December 31, 2018)]
[Notices]
[Pages 67772-67775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28398]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84926; File No. SR-MSRB-2018-10]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing and Immediate Effectiveness of the Content 
Outline for the Municipal Advisor Principal Qualification Examination 
and Its Associated Selection Specifications for the Examination

December 21, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on December 20, 2018 the Municipal 
Securities Rulemaking Board (the ``MSRB'' or ``Board'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the MSRB. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB filed with the Commission the content outline for the 
Municipal Advisor Principal Qualification Examination (``Series 54 
examination'') and its associated selection specifications for the 
examination (``selection specifications'') (collectively, the 
``proposed rule change'').\3\ The MSRB is not proposing any textual 
changes to its rules. The proposed rule change has been filed for 
immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act \4\ 
and Rule 19b-4(f)(6) thereunder.\5\
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    \3\ The MSRB is also proposing the question bank for the Series 
54 examination, but based upon instructions from the Commission 
staff, the MSRB is not filing the question bank for Commission 
review. See letter to Diane G. Klinke, General Counsel, MSRB, from 
Belinda Blaine, Associate Director, Division of Market Regulation, 
SEC, dated July 24, 2000, attached as Exhibit 3b. The question bank 
is available for Commission review.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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    The text of the proposed rule change is available on the MSRB's 
website at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2018-Filings.aspx, at the MSRB's principal office, and at the Commission's 
Public Reference Room.

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

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

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

1. Purpose
    Section 15B of the Act authorizes the MSRB to prescribe ``standards 
of training, experience, competence, and such other qualifications as 
the Board finds necessary or appropriate in the public interest or for 
the protection of investors and municipal entities or obligated 
persons'' \6\ and requires persons in any such class to pass tests 
prescribed by the Board.\7\ Section 15B(b)(2)(L)(iii) of the Act 
further requires the MSRB to establish professional standards for 
municipal advisors.\8\ A professional qualification examination is 
intended to determine whether an individual meets the MSRB's required 
qualification standards. The MSRB believes that professional 
qualification examinations, such as the Municipal Advisor 
Representative Qualification Examination (``Series 50 examination'') 
and the Series 54 examination, are means for determining the competency 
of individuals in particular qualification classifications.
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    \6\ 15 U.S.C. 78o-4(b)(2)(A).
    \7\ 15 U.S.C. 78o-4(b)(2)(A)(iii).
    \8\ 15 U.S.C. 78o-4(b)(2)(L)(iii).
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    On November 20, 2018, the Commission approved amendments \9\ to 
MSRB Rule G-3, on professional qualification requirements, to require, 
among other things, that municipal advisor principals--those who engage 
in the management, direction or supervision of the municipal advisory 
activities of the municipal advisor and its associated persons 
(``principal-level activity'')--pass the Series 54 examination, in 
addition to the Series 50 examination, to become appropriately 
qualified as a municipal advisor principal. The Series 50 examination 
is designed to establish that persons associated with a municipal 
advisor who engage in municipal advisory activities and persons who 
engage in principal-level activity demonstrate a baseline knowledge of 
the municipal market, municipal advisory activities, as well as the 
regulatory requirements. Conversely, the Series 54 examination is 
designed to establish that persons who engage in principal-level 
activity demonstrate a specified level of knowledge of the application 
of federal securities laws, including MSRB rules to the municipal 
advisory activities of a municipal advisor and that of its associated 
persons.
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    \9\ See Exchange Act Release No. 84630 (November 20, 2018), 83 
FR 60927 (November 27, 2018) (File No. SR-MSRB-2018-07).
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    The MSRB believes the establishment of qualification requirements 
for municipal advisor principals would assist in ensuring that such 
persons have a specified level of competency necessary with respect to 
the supervision of the municipal advisory activities of the municipal 
advisor that is appropriate in the public interest and for the 
protection of investors, and municipal entities and obligated persons.
    The MSRB has, in consultation with the MSRB's Professional 
Qualification Advisory Committee (PQAC), and in

[[Page 67773]]

accordance with The Standards for Educational and Psychological Testing 
\10\ developed the Series 54 examination to ensure that a person 
seeking to qualify as a municipal advisor principal satisfies a 
specified level of competency and knowledge by measuring a candidate's 
ability to apply the applicable federal securities laws, including MSRB 
rules to the municipal advisory activities of a municipal advisor.
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    \10\ See American Educational Research Association, American 
Psychological Association, & National Council on Measurement in 
Education, The Standards for Educational and Psychological Testing 
(2d ed. 2014).
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    The Series 54 examination content outline has been developed to 
serve as a guide to the subject matters tested on the examination and 
prescribes the specified knowledge required in each functional area 
that is specific to the role and responsibilities of associated 
persons.\11\ From October 17, 2017 through November 7, 2017, the MSRB 
conducted a job study \12\ of municipal advisor principals to identify 
the subject matters to be represented on the content outline and to be 
covered on the Series 54 examination. The job study was sent to over 
500 municipal advisors, representing municipal advisors with at least 
one person qualified with the Series 50 examination. The job study, 
coupled with consultation with the MSRB's psychometrician, provided the 
empirical basis for the representation of topic areas on the Series 54 
examination content outline.\13\ The Series 54 examination content 
outline comprises three sections of the examination as follows: (1) 
Understanding the Municipal Advisor Regulatory Framework (25 
questions); (2) Supervising Municipal Advisory Activities (35 
questions); and (3) Supervising Municipal Advisor Firm Operations (40 
questions). Additionally, to familiarize individuals with the format of 
the Series 54 examination, the content outline includes sample 
questions that are similar to the type of questions that may be found 
on the Series 54 examination. The Series 54 examination content outline 
is attached as Exhibit 3a and will be made available on the MSRB's 
website.
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    \11\ See Series 54 examination content outline attached hereto 
as Exhibit 3a.
    \12\ A job study is an assessment of the essential skills and 
functions that are required to complete a particular job.
    \13\ While the topic areas represented on the Series 54 
examination content outline may have redundancies with topic areas 
appearing on the Series 50 examination content outline, the Series 
54 examination is designed to test the specific application of 
federal securities laws to the municipal advisory activities of the 
municipal advisor, whereas the Series 50 examination is meant to 
test the baseline competency of individuals engaged in municipal 
advisory activities and is not designed to specifically or 
extensively test the application of federal securities laws and MSRB 
rules.
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    The MSRB will announce the effective date of the permanent Series 
54 examination at a later date in an MSRB Notice published on the 
MSRB's website. In advance of the permanent Series 54 examination, 
however, the MSRB will conduct a pilot of the Series 54 examination, 
the results of which will be used to determine the passing score for 
the permanent Series 54 examination. The pilot of the Series 54 
examination will consist of 100 unique computer-generated questions 
drawn from a large collection of test questions available for the 
Series 54 examination. The random selection of Series 54 examination 
questions is subject to restrictions designed to ensure that the 
content covered by the Series 54 examination and the overall difficulty 
of the Series 54 examination is similar for all individuals. 
Individuals will receive 10 additional questions that are randomly 
distributed throughout the Series 54 examination and do not count for 
scoring purposes; these 10 questions serve to pretest questions to be 
used in future administration of the Series 54 examination. Individuals 
will be allowed 180 minutes to complete the Series 54 examination and 
will be provided with a brief tutorial on the administration of the 
computerized exam before the Series 54 examination begins.
    The pilot of the Series 54 examination will be from February 2019 
through June 2019 (the ``pilot period'') with municipal advisor 
principals having a full 120 calendar days from opening an exam 
enrollment window to take the exam. Individuals will only be afforded 
one opportunity to take the pilot of the Series 54 examination during 
the pilot period. The MSRB will announce, in an MSRB Notice, the time 
period for, and the process of opening an enrollment to take the Series 
54 examination.\14\ The MSRB will notify individuals who take the pilot 
of the Series 54 examination of their results by email in the Fall of 
2019. Those municipal advisor principals who take and pass the pilot of 
the Series 54 examination during the pilot period will be considered 
qualified as a municipal advisor principal when the MSRB permanently 
establishes the Series 54 examination in the Fall of 2019 and will not 
be required to take the permanent Series 54 examination. An individual 
who fails to pass the pilot of the Series 54 examination will, 
consistent with MSRB Rule G-3(g), still be permitted three attempts to 
pass the permanent Series 54 examination before having to wait a period 
of 6 months to take the permanent Series 54 examination again.\15\ More 
specifically, a failure of the pilot of the Series 54 examination will 
not count as one of the three attempts an individual has to 
successfully pass the examination prior to having to wait 6 months from 
the date the candidate last failed the examination.
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    \14\ For the most up-to-date information on the pilot of the 
Series 54 examination visit the Municipal Advisor Principal 
Qualification Examination web page on the MSRB's website.
    \15\ Pursuant to Rule G-3(g), an individual would be permitted 
to take the examination again after a period of 30 days has elapsed 
from the date of the individual's last attempt.
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    The MSRB will announce the launch of the permanent examination in 
an MSRB Notice published on the MSRB's website. The selection 
specifications for the Series 50 examination, which the MSRB has 
submitted under separate cover with a request for confidential 
treatment to the Commission, pursuant to Rule 24b-2 under the Act,\16\ 
describe additional confidential information regarding the Series 54 
examination. As noted above, the MSRB has designated the proposed rule 
change to provide the Series 54 examination content outline for 
immediate effectiveness.
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    \16\ 17 CFR 240.24b-2.
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2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(A) of the Act,\17\ which authorizes the MSRB to 
prescribe ``standards of training, experience, competence, and such 
other qualifications as the Board finds necessary or appropriate in the 
public interest or for the protection of investors and municipal 
entities or obligated persons'' and Sections 15B(b)(2)(A)(i) \18\ and 
15B(b)(2)(A)(iii) \19\ of the Act, which provides that the Board may 
appropriately classify associated persons of municipal advisors and 
require such persons in any such class to pass tests prescribed by the 
Board. The MSRB believes that the proposed rule change is consistent 
with the provisions of Section 15B(b)(2)(A) of the Act in that the 
content outline details the functional tasks, key concepts and rules to 
be tested on the examination to ensure individuals are sufficiently 
prepared to take and pass the examination in order to demonstrate the 
specified level of competence that would be appropriate and in 
furtherance of the public interest. Also, consistent

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with the purpose of Section 15B(b)(2)(A) of the Act, providing 
individuals with a guide to the subject matter covered on the Series 54 
examination will aid individuals in their preparation for the 
examination and facilitates standards of competence being attained to 
carry out a municipal advisor principal's role of supervision of the 
municipal advisory activities of the municipal advisor and that of its 
associated persons, which is in furtherance of the public interest. 
More generally, the MSRB's professional qualification examinations are 
designed to measure knowledge of the business activities and regulatory 
requirements under federal securities laws, including MSRB rules, 
applicable to a particular qualification classification, which is also 
in furtherance of the Act.
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    \17\ 15 U.S.C. 78o-4(b)(2)(A).
    \18\ 15 U.S.C. 78o-4(b)(2)(A)(i).
    \19\ 15 U.S.C. 78o-4(b)(2)(A)(iii).
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    The MSRB also believes the proposed rule change is in accordance 
with Section 15B(b)(2)(C) of the Act,\20\ which requires, among other 
things, that MSRB rules ``be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, . . . and, in general, to protect investors, 
municipal entities, obligated persons, and the public interest . . .'' 
The MSRB notes the proposed rule change is consistent with this 
provision of the Act, to foster the prevention of fraudulent practices, 
because by ensuring municipal advisor principals demonstrate competence 
in the application of federal securities laws and MSRB rules to a 
firm's municipal advisory activities, such individuals are likely 
better equipped to mitigate problems associated with advice provided by 
municipal advisor representatives.
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    \20\ 15 U.S.C. 78o-4(b)(2)(C).
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    Lastly, Section 15B(b)(2)(L)(iv) of the Act \21\ provides that MSRB 
rules may ``not impose a regulatory burden on small municipal advisors 
that is not necessary or appropriate in the public interest and for the 
protection of investors, municipal entities, and obligated persons, 
provided that there is robust protection of investors against fraud.'' 
The MSRB believes, although the proposed rule change would affect all 
municipal advisors, including small municipal advisors, the proposed 
rule change is a necessary and appropriate regulatory burden in 
furtherance of the Act because establishing a specified level of 
competence for those functioning in a principal capacity promotes 
compliance with the rules and regulations governing the conduct of 
municipal advisors.
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    \21\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 15B(b)(2)(C) of the Act \22\ requires that MSRB rules not 
be designed to impose any burden on competition not necessary or 
appropriate in furtherance of the purpose of the Act. In addition, 
Section 15B(b)(2)(L)(iv) of the Act \23\ provides that MSRB rules may 
``not impose a regulatory burden on small municipal advisors that is 
not necessary or appropriate in the public interest and for the 
protection of investors, municipal entities, and obligated persons, 
provided that there is robust protection of investors against fraud.'' 
In determining whether these standards have been met, the MSRB has been 
guided by the Board's adopted policy to more formally integrate 
economic analysis into the rulemaking process.\24\ The MSRB does not 
believe that the proposed rule change will result in any burden on 
competition that is not necessary or appropriate in furtherance of 
these provisions and their purposes under the Act. Relative to the 
economic baseline, which includes the requirement that municipal 
advisor professionals demonstrate by passing an examination that they 
meet professional standards deemed necessary or appropriate in the 
public interest or for the protection of investors, municipal entities 
and obligated persons, the MSRB believes that the economic impact of 
the proposed rule change is de minimis and no greater than what is 
necessary or appropriate in the furtherance of the purposes of the 
Act.\25\
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    \22\ 15 U.S.C. 78o-4(b)(2)(C).
    \23\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
    \24\ Policy on the Use of Economic Analysis in MSRB Rulemaking 
is available at http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx. In evaluating whether there was a burden on 
competition, the Board was guided by its principles that required 
the Board to consider costs and benefits of a rule change, its 
impact on capital formation and the main reasonable alternative 
regulatory approaches.
    \25\ The MSRB recognizes that municipal advisors will incur 
programmatic costs associated with municipal advisor principals 
having to take and pass the Series 54 examination. The MSRB 
estimates the total costs incurred for taking the examination should 
be no more than $715 per each municipal advisor principal. See supra 
note 9.
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    In addition, based on the well-established and nationally-accepted 
process \26\ used by the MSRB to develop the Series 54 examination 
content outline, the MSRB has no reason to believe that the Series 54 
examination content outline will pose any greater burden on individuals 
associated with smaller municipal advisors than those associated with 
larger municipal advisors or that the burden could be materially 
reduced while still achieving the purposes of the Act of robust 
protection of investors against fraud.
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    \26\ See supra note 10.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Board did not solicit comment on the proposed change. 
Therefore, there are no comments on the proposed rule change received 
from members, participants or others.

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

    Pursuant to Section 19(b)(3)(A) \27\ of the Act and Rule 19b-
4(f)(6) \28\ thereunder, the MSRB has designated the proposed rule 
change as one that effects a change that: (i) Does not significantly 
affect the protection of investors or the public interest; (ii) does 
not impose any significant burden on competition; and (iii) by its 
terms, does not become operative for 30 days after the date of the 
filing, or such shorter time as the Commission may designate.
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative until 30 days after the date of filing.\29\ 
However, Rule 19b-4(f)(6)(iii) \30\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest.\31\ The MSRB has requested that the 
Commission designate the proposed rule change operative upon 
filing,\32\ as specified in Rule 19b-4(f)(6)(iii),\33\ which would make 
the proposed rule change operative on December 20, 2018. The MSRB has 
stated that an earlier operative date would provide individuals acting 
in a principal capacity for a municipal advisor with an earlier 
opportunity to begin preparation for the qualification requirement.\34\
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    \29\ Id.
    \30\ 17 CFR 240.19b-4(f)(6)(iii).
    \31\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file a proposed rule change, along with a brief 
description and text of such proposed rule change, at least five 
business days prior to the date of filing, or such shorter time as 
designated by the Commission. The MSRB satisfied this requirement on 
December 12, 2018.
    \32\ See SR-MSRB-2018-10.
    \33\ 17 CFR 240.19b-4(f)(6)(iii).
    \34\ See SR-MSRB-2018-10.
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    The Commission hereby grants the MSRB's request and believes that 
designating the proposed rule change operative upon filing is 
consistent with the protection of investors and the

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public interest.\35\ According to the MSRB, the Series 54 examination 
content outline is designed to ensure that individuals are sufficiently 
qualified to supervise municipal advisory activities.\36\ The 
Commission believes that designating the proposed rule change operative 
upon filing is consistent with the protection of investors and the 
public interest because it will allow individuals to prepare for the 
Series 54 examination without delay. In addition, the proposed rule 
change is not proposing any textual changes to MSRB rules. Therefore, 
the Commission hereby designates the proposed rule change operative 
upon filing.
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    \35\ For the purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule 
change's impact on efficiency, competition, and capital formation. 
See 15 U.S.C. 78c(f).
    \36\ See SR-MSRB-2018-10.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2018-10 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2018-10. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the MSRB. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-MSRB-2018-10 and should be submitted on 
or before January 22, 2019.

    For the Commission, pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-28398 Filed 12-28-18; 8:45 am]
 BILLING CODE 8011-01-P


