[Federal Register Volume 87, Number 168 (Wednesday, August 31, 2022)]
[Notices]
[Pages 53526-53529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18765]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 95602; File No. SR-MSRB-2022-05]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change Consisting of 
Amendments to MSRB Rule G-34 to Better Align the CUSIP Requirements for 
Underwriters and Municipal Advisors With Current Market Practices

August 25, 2022.

I. Introduction

    On July 1, 2022, the Municipal Securities Rulemaking Board (the 
``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ a proposed rule change to consisting of amendments 
to MSRB Rule G-34, on CUSIP numbers, New Issue, and Market Information 
Requirements (the ``proposed rule change''). The proposed rule change 
would make amendments to better align Rule G-34's requirements for 
obtaining CUSIP numbers with the process followed by market 
participants and facilitate compliance with MSRB Rule G-34 by 
streamlining the rule text.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on July 13, 2022.\3\ The public comment period closed on 
August 3, 2022, and three comment letters were received on the proposed 
rule change.\4\ On August 22, 2022, the MSRB responded to those 
comments.\5\ This order approves the proposed rule change.
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    \3\ Exchange Act Release No. 95208 (July 7, 2022) (the ``Notice 
of Filing''), 87 FR 41846 (July 13, 2022).
    \4\ See Letter to Secretary, Commission, from Michael Decker, 
Senior Vice President for Public Policy, Bond Dealers of America 
(``BDA''), dated August 3, 2022 (the ``BDA Letter''); Letter to 
Secretary, Commission, from Kim M. Whelan, Co-President, and Noreen 
P. White, Co-President, Acacia Financial Group Inc., dated August 3, 
2022 (the ``Acacia Letter''); and Letter to Secretary, Commission, 
from Susan Gaffney, Executive Director, National Association of 
Municipal Advisors (``NAMA''), dated July 6, 2022 (the ``NAMA 
Letter'').
    \5\ See Letter to Secretary, Commission, from Gail Marshall, 
Chief Regulatory Officer, MSRB, dated August 22, 2022 (the ``MSRB 
Response Letter'').
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II. Description of Proposed Rule Change

    As described further herein and in the Notice of Filing, the 
proposed rule change specifies that CUSIP applications must be made to 
the Board's designee (and not the Board itself); removes the obligation 
for municipal advisors providing advice with respect to a competitive 
offering to apply for the CUSIP number by no later than one business 
day after dissemination of a notice of sale in favor of a more flexible 
standard that still obligates the application to be made within 
sufficient time to ensure timely CUSIP number assignment; removes 
language dictating the precise content of a CUSIP number application 
that the MSRB believes would more appropriately be left to the Board's 
designee for receiving and reviewing such applications; and provides 
that certain obligations set forth in the rule do not apply when CUSIP 
numbers have been preassigned.\6\
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    \6\ See Notice of Filing 87 FR 41846 at 41847.
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A. Designee of the Board

    MSRB Rule G-34(a)(i)(A) currently requires an underwriter or 
municipal advisor to obtain CUSIP numbers through an application in 
writing to the Board or its designee. The proposed rule change amends 
this language by providing that underwriters and municipal advisors 
must apply to the Board's designee and removing the language in the 
rule text that makes reference to the Board as an option with which to 
submit CUSIP application.\7\ The MSRB states that this revised language 
is designed to avoid the potential for confusion associated with the 
current rule text and to more clearly convey the MSRB's expectations 
with respect to the process of obtaining a CUSIP number.\8\ The MSRB 
notes that it does not currently assign CUSIP numbers to municipal 
securities; underwriters and municipal advisors may only obtain a CUSIP 
by application to the only entity that provides these identifiers, 
CUSIP Global Services, which is currently the only entity serving as 
the Board's designee.\9\ This designation would remain unchanged by the 
proposed rule change and would be reflected in new Supplementary 
Material .01.\10\ The MSRB states that if CUSIP numbers become 
available from another source or another identifier for municipal 
securities becomes market practice at some point in the future, the 
MSRB would notify the market of a decision to modify the designee via

[[Page 53527]]

publication of an MSRB regulatory notice.\11\
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    \7\ Id.
    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ Id.
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    In addition, as it is the Board's designee, and not the Board, that 
controls the CUSIP number application process, the MSRB proposes to 
remove the in-writing requirement for the application made for 
obtaining CUSIP numbers.\12\ Because it does not receive or review 
CUSIP applications, the MSRB believes that the manner in which an 
applicant applies for CUSIP numbers is best left to the entity that 
reviews applications and assigns the CUSIP number.\13\
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    \12\ Id.
    \13\ Id.
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B. One Business Day Obligation

    MSRB Rule G-34(a)(i)(A)(3) states that a municipal advisor advising 
the issuer with respect to a competitive sale of a new issue of 
municipal securities shall make an application by no later than one 
business day after dissemination of a notice of sale or other such 
request for bids. The proposed rule change removes the obligation to 
make such application by no later than one business day because, the 
MSRB believes that it is not always practical for municipal advisors to 
comply given the realities of the marketplace,\14\ and therefore may 
place an undue burden on municipal advisors.\15\ The MSRB notes that 
the rule already obligates the application to be made at a time 
sufficient to ensure final CUSIP number assignment occurs prior to the 
award of the issue.\16\ The MSRB believes that this language is 
sufficient to ensure that any such application is timely without 
dictating a more burdensome approach of requiring a specific numeric 
time obligation.\17\ Additionally, the MSRB has stated that it 
understands that, from an operational perspective, it may be 
impracticable for municipal advisors to apply for a CUSIP number within 
one business day after dissemination of a notice of sale, as currently 
required by Rule G-34(a)(i)(A)(3).\18\ Accordingly, the MSRB believes 
that removal of this language would better align the rule text with the 
operational process followed by municipal advisors in connection with 
their CUSIP applications.\19\
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    \14\ See Letter from Susan Gaffney, Executive Director, NAMA, 
dated May 28, 2019 available at: https://www.msrb.org/rfc/2019-08/gaffney.pdf (stating that there is an inherent timing inconsistency 
with respect to Rule G-34(a)(i)(A)(3) as it requires application for 
CUSIP numbers no later than one business day after the Notice of 
Sale, which will almost always be before the identity of the 
investors are known, and therefore the [municipal advisor] could not 
reasonably obtain the investors' written representations).
    \15\ Id.
    \16\ Id.
    \17\ Id.
    \18\ Id.
    \19\ Id.
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C. Information To Be Provided When Applying for CUSIP Numbers

    MSRB Rule G-34(a)(i)(A)(4) lists specific data points that must be 
provided when applying for CUSIP numbers.\20\ The proposed rule change 
removes these data points from the rule and instead provides that 
underwriters and municipal advisors shall provide the information 
required by the Board's designee in connection with their CUSIP 
application.\21\ The proposed rule change also makes a similar 
amendment to Rule G-34(a)(i)(D), removing from the rule text the three 
specified pieces of information that must be included in an application 
to obtain a CUSIP number in connection with certain new issuances that 
refund part of an outstanding issuance.\22\ The MSRB states that it 
believes that Rule G-34 should not contain specific data points to be 
provided to its designee, as the MSRB does not control the specifics of 
the application process, nor does it make a determination on the 
sufficiency of an application to receive CUSIP numbers.\23\ The MSRB 
believes that the entity awarding CUSIP numbers, the Board's designee, 
is the appropriate entity to dictate what individual data points must 
be provided with an application for CUSIP numbers in order to 
sufficiently evaluate an application.\24\ The MSRB believes that this 
flexibility will help create a rule that is less likely to become stale 
and require further amendments over time.\25\
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    \20\ Id.
    \21\ Id at 41848.
    \22\ Id.
    \23\ Id.
    \24\ Id.
    \25\ Id.
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D. CUSIP Pre-Assignment

    The proposed rule change specifies that the Rule G-34(a)(i)(A)(3) 
obligation to apply for a CUSIP number only applies where no CUSIP 
numbers have been pre-assigned.\26\ The MSRB states that it believes 
that this change aligns with the common understanding among market 
participants that there is no obligation to seek a CUSIP number where 
one has already been pre-assigned.\27\ A similar amendment to Rule G-
34(a)(i)(C) provides that the provisions of Rule G-34(a)(i) regarding 
the assignment and affixture of CUSIP numbers do not apply with respect 
to any new issue of municipal securities on which CUSIP numbers have 
been preassigned.\28\
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    \26\ Id.
    \27\ Id.
    \28\ Id.
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III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received three comment letters 
on the proposed rule change, as well as the MSRB Response Letter. All 
three comment letters were supportive of the proposed rule change.\29\ 
However, two commenters raised questions about the process by which the 
MSRB considered and ultimately submitted the proposed rule change for 
Commission approval.\30\ One commenter raised three questions regarding 
the MSRB's rulemaking process: (1) What time-frame requirements, if 
any, are in place for the MSRB to send to the SEC for approval any 
rules that its Board has approved; (2) Outside of the formal rulemaking 
and amendment process which typically includes public notice and 
comment (except in necessary special and emergency circumstances), what 
processes and standards are in place for the Board to create, 
reconsider or make changes to a rule; and (3) What responsibilities 
does the MSRB have to provide public notice that the Board will 
discuss, consider/reconsider, and vote on its rulemaking? \31\
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    \29\ See BDA Letter, Acacia Letter, NAMA Letter.
    \30\ See Acacia Letter, NAMA Letter.
    \31\ See NAMA Letter.
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    The MSRB issued a response to the comments on August 22, 2022.\32\ 
The MSRB responded to comments that the MSRB's rulemaking process 
lacked transparency and predictability by reviewing the history of the 
Rule G-34 amendment process that began in March of 2017 to show that, 
in the MSRB's view, stakeholder feedback had been received and 
considered over a period of several years before the current proposal 
was submitted to the SEC for public comment.\33\ Further, the MSRB 
provided data related to an economic analysis that was conducted in 
conjunction with the proposal to support the obligation for dealer and 
non-dealer municipal advisors to obtain CUSIP numbers in competitive 
offerings.\34\ The MSRB Response Letter did not address the commenter's 
questions regarding the MSRB's rulemaking process.
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    \32\ See MSRB Response Letter.
    \33\ Id.
    \34\ Id.
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    In the MSRB Response Letter, the MSRB described a proposed rule 
change to MSRB Rule G-34 that the Commission approved the on December

[[Page 53528]]

14, 2017.\35\ The MSRB stated that subsequently, municipal advisors 
expressed concern over the burden of developing and following 
compliance and supervisory policies related to the amendments,\36\ 
which led the MSRB to issue an RFC on February 27, 2019 to obtain 
feedback on various aspects of the rule.\37\ The MSRB states in the 
MSRB Response Letter that the Board then reconsidered the new 
amendments to Rule G-34 and authorized MSRB staff to file with the SEC 
a proposed rule change to eliminate the requirement for both dealer and 
non-dealer municipal advisors to apply for CUSIP numbers in a 
competitive transaction in which they advise.\38\ On October 2, 2019, 
the Commission requested comment on a proposed exemptive order 
permitting registered municipal advisors to engage in certain 
solicitation activities, while acting in their roles as municipal 
advisors, in connection with the direct placement of municipal 
securities without registering as a broker.\39\ Although the 
Commission's proposed exemptive order did not pertain to the type of 
competitive transactions at issue in Rule G-34, the MSRB states that it 
then decided to pause moving forward with Rule G-34 rule changes in 
response to the Commission's request for comment on the proposed 
exemptive order.\40\ The MSRB further states that the COVID-19 pandemic 
then occurred which caused the MSRB change its focus as it worked to 
reduce regulatory burdens for municipal advisors during this period of 
uncertainty.\41\ The MSRB states that the Board of Directors then 
determined at its April 2021 meeting that since the rule had been in 
place for several years and had proven to enhance market efficiency 
that the rule would remain in its current form.\42\ The MSRB states 
that it continued to engage with stakeholders after the Board's 
decision and, as a result of these stakeholder discussions, the Board 
authorized the proposed rule change.\43\ The MSRB notes that it delayed 
submitting the proposed changes to the Rule G-34 proposal in large part 
due to operational issues presented by the pandemic.\44\
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    \35\ See Securities Exchange Act Release No. 82321 (December 14, 
2017), 82 FR 60433 (December 20, 2017). https://www.sec.gov/rules/sro/msrb/2017/34/82321.pdf.
    \36\ See MSRB Response Letter.
    \37\ See MSRB Notice 2019-08, Request for Comment on MSRB Rule 
G-34 Obligation of Municipal Advisors to Apply for CUSIP Numbers 
When Advising on Competitive Sales (February 27, 2019). https://msrb.org/-/media/Files/Regulatory-Notices/RFCs/2019/08.ashx??n=1.
    \38\ See MSRB Press Release (July 29, 2019). https://
www.msrb.org/About-MSRB/Governance/MSRB-Board-ofDirectors/~/
link.aspx?_id=9E75A24433E942E8B910E102360317E3&_z=z.
    \39\ See Securities Exchange Act Release No. 87204 (October 2, 
2019), 84 FR 54062 (October 9, 2019). https://www.sec.gov/rules/exorders/2019/34/87204.pdf.
    \40\ See MSRB Response Letter.
    \41\ Id.
    \42\ Id.
    \43\ Id.
    \44\ Id.
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    The MSRB provided data on CUSIP generation in a competitive 
offering based on information received from CUSIP Global Services.\45\ 
The MSRB states that it interpreted this data to mean the competitive 
sale market is more orderly and efficient as a result of the 2017 
amendments to MSRB Rule G-34.\46\ The MSRB noted that the 91.2% regular 
request rate in 2021 is consistent with the percentage of competitive 
offerings utilizing a municipal advisor, which the MSRB interprets as 
showing that approximately all competitive offerings with a municipal 
advisor apply for a CUSIP number through a regular request.\47\
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    \45\ Id.
    \46\ Id.
    \47\ Id.
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    The MSRB acknowledged that all three commenters expressed support 
for the proposed rule change, and stated that if the Commission 
approves the proposed rule change, the Board will continue to engage 
with stakeholders to support implementation of the amendments.\48\
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    \48\ Id.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received, and the MSRB 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 Commission believes that the proposed rule 
change is consistent with the provisions of Exchange Act Section 
15B(b)(2)(C), which provides, in part, that the MSRB's rules shall be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in municipal securities and municipal financial products, 
and to remove impediments to and perfect the mechanism of a free and 
open market in municipal securities and municipal financial products, 
and, in general, to protect investors, municipal entities, obligated 
persons, and the public interest.\49\
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    \49\ 15 U.S.C. 78o-4(b)(2)(C).
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    The Commission finds that the proposed rule change is consistent 
with Section 15B(b)(2)(C) of the Act, as further described below, 
because the amendments would: (i) promote just and equitable principles 
of trade; (ii) 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; (iii) remove impediments to and perfect the 
mechanism of a free and open market in municipal securities and 
municipal financial products; and (iv) protect investors, municipal 
entities, obligated persons, and the public interest.

A. Promote Just and Equitable Principles of Trade

    The Commission finds the proposed rule change would promote just 
and equitable principles of trade by amending the rule text to better 
represent the realities of the marketplace and not place undue 
hardships on underwriters and municipal advisors in obtaining a CUSIP 
number in a new municipal securities offering. The Commission believes 
the proposed rule change provides certainty to underwriters and 
municipal advisors regarding the entity with which CUSIP applications 
must be sent which reduces confusion with the application process. 
Additionally, the Commission believes that eliminating the one business 
day requirement for municipal advisors to apply for a CUSIP number and 
explicitly providing that a CUSIP application is not necessary where a 
CUSIP number is preassigned removes unnecessary obstacles and better 
aligns with current market practice. As the MSRB noted, in many 
instances, the requirement for municipal advisors to submit a CUSIP 
application within one business was impossible, and replacing the one 
business day requirement with a flexible time frame better aligns with 
business practice and allows municipal advisors to remain in compliance 
with the rule. The Commission further believes that explicitly 
providing within the rule that a CUSIP application is not necessary 
when a CUSIP has been preassigned ensures market participants are not 
taking redundant action that may impose unnecessary financial and time 
burdens. Finally, removing the content requirement of CUSIP 
applications

[[Page 53529]]

provides certainty as to the entity underwriters and municipal advisors 
should follow regarding the requirements of the CUSIP application and 
prevents confusion in the event the Board's designee develops different 
content requirements than those outlined within the rule.

B. 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

    The Commission finds that the proposed rule change would foster 
cooperation and coordination between the SEC, the MSRB, and the Board's 
designee by directing underwriters and municipal advisors to submit 
CUSIP applications to the correct entity and stating their obligations 
in a manner that better aligns the requirements of the rule to the 
realities of the marketplace. The Commission believes these changes 
will provide regulatory clarity and facilitate compliance with the 
rule.

C. Remove Impediments to and Perfect the Mechanism of a Free and Open 
Market in Municipal Securities and Municipal Financial Products

    The Commission finds that the proposed rule change would remove 
impediments to, and perfect the mechanism of, a free and open market in 
municipal securities by reduce confusion arising from the MSRB Rule G-
34 and removing burdensome obligations that conflict with current 
business practices. The Commission believes that he proposed rule 
change provides certainty to underwriters and municipal advisors which 
helps to ensure a timely application process. Further, the Commission 
believes that replacing the one business day requirement for municipal 
advisors to submit a CUSIP application with a flexible timing 
requirement better aligns with the practicalities of a competitive 
municipal offering which better allows for municipal advisors to comply 
with the rule. Finally, the Commission finds that explicitly stating 
that municipal advisors do not have to submit a CUSIP application when 
a CUSIP number has been preassigned ensures that municipal advisors are 
not engaging in redundant actions that needlessly consume time and 
resources.

D. Protect Investors, Municipal Entities, Obligated Persons, and the 
Public Interest

    The Commission finds that the proposed rule change will protect 
investors, municipal entities, obligated persons, and the public 
interest by preventing ambiguity in the process and ultimately ensuring 
that CUSIP numbers for new municipal offerings are obtained in a timely 
and efficient manner while facilitating compliance with the rule.
    In approving the proposed rule change, the Commission has 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation.\50\ Exchange Act Section 
15B(b)(2)(C) \51\ requires that MSRB rules not be designed to impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Exchange Act.
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    \50\ 15 U.S.C. 78c(f).
    \51\ 15 U.S.C. 78o-4(b)(2)(C).
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    The Commission does not believe that the proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Exchange Act because the proposed 
rule change would encourage fair competition by reducing confusion and 
fostering compliance with existing CUSIP number requirements. 
Furthermore, the proposed rule change would apply equally to all MSRB 
regulated entities.
    The Commission has also 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.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\52\ that the proposed rule change (SR-MSRB-2022-05) be, and hereby 
is, approved.
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    \52\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18765 Filed 8-30-22; 8:45 am]
BILLING CODE 8011-01-P


