[Federal Register Volume 88, Number 95 (Wednesday, May 17, 2023)]
[Notices]
[Pages 31562-31571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10468]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97483; File No. SR-MSRB-2023-01]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Order Granting Approval of a Proposed Rule Change, as Modified 
by Amendment No. 1, Consisting of Amendments to MSRB Rule G-40, on 
Advertising by Municipal Advisors, and MSRB Rule G-8, on Books and 
Records

May 11, 2023.

I. Introduction

    On January 31, 2023, the Municipal Securities Rulemaking Board 
(``MSRB'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change (``original proposed rule 
change'') to amend MSRB Rule G-40 (``Rule G-40''), on advertising by 
municipal advisors, and MSRB Rule G-8 (``Rule G-8''), on books and 
records.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The original proposed rule change was published for comment in the 
Federal Register on February 14, 2023.\3\ The Commission received two 
comment letters on the original proposed rule change.\4\ On March 21, 
2023, the MSRB granted an extension of time for the Commission to act 
on the filing until May 15, 2023.\5\
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 96840 (Feb. 8, 2023), 88 
FR 9580 (Feb. 14, 2023) (``Notice'').
    \4\ See Letter to Secretary, Commission, from Leslie M. Norwood, 
Managing Director and Associate General Counsel, Securities Industry 
and Financial Markets Association (``SIFMA''), dated March 7, 2023 
(``SIFMA Letter''); Letter to Secretary, Commission, from Susan 
Gaffney, Executive Director, National Association of Municipal 
Advisors (``NAMA''), dated March 7, 2023 (``NAMA Letter I'').
    \5\ See ``Extension of Time on File No. SR-MSRB-2023-01 to May 
15, 2023,'' available at https://msrb.org/sites/default/files/2023-03/MSRB-2023-01%20eot.pdf.
---------------------------------------------------------------------------

    On April 4, 2023, the MSRB responded to the comment letters \6\ and 
filed Amendment No. 1 to the original proposed rule change (``Amendment 
No. 1'').\7\ On April 11, 2023, the Commission published notice of 
Amendment No. 1 in the Federal Register.\8\ In response to Amendment 
No. 1, the Commission received one comment letter.\9\ On April 28, 
2023, the MSRB submitted a response to the comment received on 
Amendment No. 1.\10\ This order approves the original proposed rule 
change, as modified by Amendment No. 1 (as so modified, the ``proposed 
rule change'').
---------------------------------------------------------------------------

    \6\ See Letter to Secretary, Commission, from Saliha Olgun, 
Interim Chief Regulatory Officer, MSRB, dated April 4, 2023 (the 
``MSRB Letter I'').
    \7\ Amendment No. 1 is available at https://msrb.org/sites/default/files/2023-04/MSRB-2023-01%20A-1.pdf.
    \8\ Securities Exchange Act Release No. 97255 (Apr. 5, 2023), 88 
FR 21729 (Apr. 11, 2023) (``Notice of Amendment No. 1'').
    \9\ See Letter to Secretary, Commission, from Susan Gaffney, 
Executive Director, National Association of Municipal Advisors, 
dated April 26, 2023 (``NAMA Letter II'').
    \10\ See Letter to Secretary, Commission, from Saliha Olgun, 
Interim Chief Regulatory Officer, MSRB, dated April 28, 2023 (``MSRB 
Letter II'').
---------------------------------------------------------------------------

II. Description of Original Proposed Rule Change

    The MSRB stated that, consistent with its strategic goal to 
modernize its rulebook, the original proposed rule change would amend 
Rule G-40 to allow municipal advisors to use testimonials in certain 
circumstances.\11\ The MSRB stated that this change would better align 
Rule G-40 with, to the extent appropriate, the principles of MSRB Rule 
G-21 (``Rule G-21''), on advertising by brokers, dealers or municipal 
securities, as well as Rule 206(4)-1 \12\ under the Investment Advisers 
Act of 1940 (``Advisers Act'') \13\ adopted in 2020 \14\ by the 
Commission.\15\
---------------------------------------------------------------------------

    \11\ Notice, 88 FR at 9580.
    \12\ 17 CFR 275.206(4)-1.
    \13\ 15 U.S.C. 80b-1 et seq.
    \14\ See Investment Advisers Act Release No. 5653 (Dec. 22, 
2020), the adopting release for Investment Adviser Marketing (the 
``SEC 2020 Adopting Release''), 86 FR 13024 (Mar. 5 2021).
    \15\ Notice, 88 FR at 9580-81.
---------------------------------------------------------------------------

    Specifically, the MSRB indicated the original proposed rule change 
would consist of amendments to Rule G-40 to: (i) permit municipal 
advisors to use testimonials in advertisements, subject to certain 
conditions; (ii) specify additional supervisory obligations with

[[Page 31563]]

respect to the use of testimonials; (iii) modify the definition of 
municipal advisory client to better align with MSRB Rule G-38, on 
solicitation of municipal securities business; (iv) specify the 
obligation to keep a record of any payment for a testimonial; and (v) 
create a conforming obligation under Rule G-8, on books and records to 
be made by brokers, dealers, municipal securities dealers and municipal 
advisors, to include records to correspond with the current obligation 
under Rule G-40 to maintain records relating to the supervision of 
advertisements as well as the proposed obligation to maintain records 
of any payments for a testimonial.\16\
---------------------------------------------------------------------------

    \16\ Notice, 88 FR at 9580.
---------------------------------------------------------------------------

A. Background

1. Advertisements Under Rule G-40
    According to the MSRB, in recognition of the fact that municipal 
advisors bear similarities with both brokers, dealers and municipal 
securities dealers (collectively and individually, ``dealers'') and 
investment advisers, and to promote regulatory consistency for 
regulated entities dually registered as a dealer and as a municipal 
advisor, or as an investment adviser registered with the SEC, the MSRB 
established advertising standards for municipal advisors in 2018.\17\ 
The MSRB noted that those advertising standards were developed by 
aligning with, to the extent practicable, the then existing standards 
for investment advisers under Rule 206(4)-1 and the then existing 
standards for dealers under Rule G-21.\18\
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 83177 (May 7, 
2018), 83 FR 21794 (May 10, 2018) (approving MSRB-2018-01, 
implementing new Rule G-40). The effective date for municipal 
advisors to comply with Rule G-40 was August 23, 2019. Notice, 88 FR 
at 9581 n. 6.
    \18\ Notice, 88 FR at 9581.
---------------------------------------------------------------------------

    The MSRB stated that Rule G-40 is designed to protect municipal 
entities, obligated persons and the general public by requiring a 
municipal advisor's advertisement to adhere to specific content 
standards based on the principles of fair dealing and good faith.\19\
---------------------------------------------------------------------------

    \19\ Id.
---------------------------------------------------------------------------

    According to the MSRB, in establishing Rule G-40, it determined to 
prohibit municipal advisors, directly or indirectly, from publishing, 
circulating or distributing any advertisement which refers, directly or 
indirectly, to any testimonial of any kind concerning the municipal 
advisor or concerning the advice, analysis, report or other service 
rendered by the municipal advisor.\20\ The MSRB stated that at that 
time, it expressed the view that a testimonial in a municipal advisor's 
advertisement would present significant issues, including the 
possibility of being misleading.\21\ As a basis for this view, the MSRB 
noted that the Commission had taken a similar position in adopting 
Advisers Act Rule 206(4)-1 in 1961 (``Initial IA Advertising Rule'' or 
``Initial Rule 206(4)-1''), determining that the use of a testimonial 
by an investment adviser would constitute a fraudulent, deceptive, or 
manipulative act, practice, or course of action.\22\ The MSRB expressed 
that it believed that doing so would help ensure consistent regulation 
between regulated entities subject to a fiduciary standard, and that 
the MSRB determined to act consistently with the language of Initial 
Rule 206(4).\23\
---------------------------------------------------------------------------

    \20\ Id.; see also Rule G-40(a)(iv)(G).
    \21\ Notice, 88 FR at 9581; see also Securities Exchange Act 
Release No. 82616 (Feb. 1, 2018), 83 FR 5474 (Feb. 7, 2018), notice 
of proposed rule change (``Notice of Proposed Rule G-40'').
    \22\ Notice, 88 FR at 9581; see also Investment Advisers Act 
Release No. 121 (Nov. 1, 1961) (the ``1961 Advertising Rule Adopting 
Release''), 26 FR 10548 (Nov. 9, 1961). The Commission adopted the 
1961 Advertising Rule to target advertising practices that the 
Commission believed were likely to be misleading. Notice, 88 FR at 
9581 n.13.
    \23\ Notice, 88 FR at 9581; see also Notice of Proposed Rule G-
40, 83 FR at 5478 n. 26.
---------------------------------------------------------------------------

2. Testimonials Under Rule G-21
    The MSRB stated that in establishing Rule G-40, it also sought, to 
the extent practicable, to harmonize with its existing rule governing 
the advertisements of dealers, Rule G-21.\24\ The MSRB also wrote that, 
while not identical, the two MSRB rules are both are based on 
principles of fair dealing and maintain rigorous content standards.\25\ 
However, the MSRB noted that Rule G-40 currently prohibits a municipal 
advisor from using a testimonial in an advertisement.\26\ The MSRB 
described 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.\27\
---------------------------------------------------------------------------

    \24\ Notice, 88 FR at 9581.
    \25\ Id.
    \26\ Id.
    \27\ Id.; see generally Notice of Proposed MSRB Rule G-40.
---------------------------------------------------------------------------

    The MSRB explained that Rule G-21 permits a dealer to use a 
testimonial in an advertisement if certain conditions are met.\28\ 
Specifically, the MSRB noted that, if a dealer's advertisement contains 
a testimonial, then the person providing the testimonial concerning a 
technical aspect of investing must have the knowledge and experience to 
form a valid opinion.\29\ Additionally, the MSRB stated that, if an 
advertisement contains a testimonial about the investment advice or 
investment performance of the dealer, the advertisement must 
prominently disclose: (i) the fact that the testimonial may not be 
representative of the experience of other customers; (ii) the fact that 
the testimonial is no guarantee of future performance or success; and 
(iii) if more than $100 in value is paid for the testimonial, the fact 
that it is a paid testimonial.\30\
---------------------------------------------------------------------------

    \28\ Notice, 88 FR at 9581; see generally Rule G-21.
    \29\ Notice, 88 FR at 9581; see also Rule G-21(a)(iii)(G)(1).
    \30\ Notice, 88 FR at 9581; see also Rule G-21(a)(iii)(G)(2).
---------------------------------------------------------------------------

3. Testimonials Under Advisers Act Rule 206(4)-1
    The MSRB stated that in establishing Rule G-40 in 2018, it 
recognized that the Commission was considering modernizing the Initial 
IA Advertising Rule and noted that it would monitor developments 
related to the testimonial ban.\31\ The MSRB recounted that, on 
December 22, 2020, the Commission adopted amendments to modernize and 
consolidate the Initial IA Advertising Rule and Rule 206(4)-3 of the 
Advisers Act (the ``IA Solicitation Rule'') \32\ into one marketing 
rule for investment advisers, under the Advisers Act (the ``Modernized 
IA Marketing Rule'' or ``IA Rule 206(4)-1'').\33\
---------------------------------------------------------------------------

    \31\ Notice, 88 FR at 9581; see also Notice of Proposed MSRB 
Rule G-40, 83 FR at 5487.
    \32\ Notice, 88 FR at 9581; see also 17 CFR 275.206(4)-3. The IA 
Solicitation Rule was adopted in 1979 ``to help ensure clients are 
aware that paid solicitors who refer them to advisers have a 
conflict of interest.'' See SEC 2020 Adopting Release, 86 FR at 
13025.
    \33\ Notice, 88 FR at 9581; see generally SEC 2020 Adopting 
Release. The Modernized IA Marketing Rule applies to any investment 
adviser registered or required to be registered with the Commission 
under section 203 of the Advisers Act that directly or indirectly 
disseminates an advertisement.
---------------------------------------------------------------------------

    The MSRB indicated that when the Commission adopted the Modernized 
IA Marketing Rule, the Commission stated that this rule replaced the 
previous rule's ``broadly drawn limitations with principles-based 
provisions designed to accommodate the continual evolution and 
interplay of technology and advice and includes tailored requirements 
for certain types of advertisements.'' \34\ The MSRB noted that the 
Modernized IA Marketing Rule replaced the prior ban on testimonials 
under the Initial IA Advertising Rule with a permissive use of 
testimonials and endorsements in

[[Page 31564]]

advertisements,\35\ which includes traditional referral and 
solicitation activity, subject to certain conditions.\36\
---------------------------------------------------------------------------

    \34\ Notice, 88 FR at 9581-82; see also ``SEC Adopts Modernized 
Marketing Rule for Investment Advisers,'' (Dec. 22, 2020), available 
at https://www.sec.gov/news/press-release/2020-334.
    \35\ A ``testimonial'' is a statement made by a current client 
or investor in a private fund advised by the investment adviser, 
whereas an ``endorsement'' is a statement made by a person other 
than a current client or investor in a private fund advised by the 
investment adviser. See 17 CFR 275.206(4)-1(e)(17); 1(e)(5).
    \36\ Notice, 88 FR at 9582. See also 17 CFR 275.206(4)-1(b) 
(relating to compensated testimonials and endorsements); 17 CFR 
206(4)-1(e)(1)(ii) (defining the term ``advertisement'' to include 
compensated testimonials and endorsements). These conditions differ 
depending on whether the testimonial or endorsement is compensated 
or uncompensated. 17 CFR 275.206(4)-1(b)(4)(i) (exempting a 
testimonial or endorsement disseminated for no compensation or de 
minimis compensation from paragraphs 206(4)-1(b)(2)(ii) and (3)).
---------------------------------------------------------------------------

    The MSRB stated that the Modernized IA Marketing Rule requires 
advertisements that include testimonials or endorsements to provide 
disclosures of certain information.\37\ The MSRB noted that all 
testimonials, including those that are compensated and uncompensated, 
are subject to oversight and compliance.\38\
---------------------------------------------------------------------------

    \37\ Notice, 88 FR at 9582. See also 17 CFR 275.206(4)-1(b)(1).
    \38\ Notice, 88 FR at 9582.
---------------------------------------------------------------------------

    In light of the Commission's adoption of the Modernized IA 
Marketing Rule, the MSRB stated that it conducted a review of Rule G-40 
and filed the original proposed rule change to promote regulatory 
consistency among regulated entities subject to a fiduciary 
standard.\39\ The MSRB indicated that the original proposed rule change 
would permit municipal advisors to use testimonials in advertisements, 
subject to certain conditions, as discussed below.\40\
---------------------------------------------------------------------------

    \39\ Id.
    \40\ Id. The term ``testimonial'' is not specifically defined in 
Rule G-21 or Rule G-40; based on the application of each rule, the 
term has been understood to include a statement given by a current 
client or person other than a current client and does not 
distinguish between a testimonial and an endorsement. See Notice, 88 
FR at 9582 n. 28; see also Rules G-21 and G-40.
---------------------------------------------------------------------------

B. Summary of the Original Proposed Rule Change

    The MSRB stated that to promote regulatory consistency, where 
practicable, among Rule G-40, Rule G-21, and the SEC's Modernized IA 
Marketing Rule, proposed amended Rule G-40 would permit the use of 
testimonials subject to disclosures and other tailored conditions.\41\ 
The MSRB further described that the original proposed rule change would 
not only align Rule G-40 with the analogous requirements for dealers 
under Rule G-21, but, because municipal advisors have a fiduciary duty 
to their clients, the original proposed rule change would also include 
certain provisions, tailored to apply to municipal advisors, which 
align with the SEC's Modernized IA Marketing Rule.\42\ Specifically, 
according to the MSRB, the original proposed rule change would amend 
the content standards under Rule G-40(a)(iv) to permit municipal 
advisors to use testimonials in advertisements subject to certain 
conditions; amend the supervisory obligations under Rule G-40(c) to 
specify additional supervisory obligations with respect to the use of 
testimonials; modify the definition of municipal advisory client; and 
amend Rule G-8 to include records to correspond with the current 
obligation under Rule G-40 to maintain records relating to the 
supervision of advertisements.\43\
---------------------------------------------------------------------------

    \41\ Notice, 88 FR at 9582.
    \42\ Id.
    \43\ Id.
---------------------------------------------------------------------------

1. Rule G-40 Content Standards
    The MSRB stated that Rule G-40 currently prohibits the use of 
testimonials in advertisements by municipal advisors.\44\ The MSRB 
explained that it is not proposing to alter the fundamental content 
standards of Rule G-40 that require advertisements to be based on the 
principles of fair dealing and good faith, be fair and balanced, and 
provide a sound basis for evaluating the facts and that the 
advertisements not make any false, exaggerated, unwarranted, 
promissory, or misleading statement or claim.\45\ The MSRB explained 
that, consistent with those standards, and recognizing the fiduciary 
duty owed by municipal advisors to their municipal entity clients, the 
MSRB proposed to permit the use of testimonials in advertisements by 
municipal advisors subject to certain conditions that the MSRB believes 
would diminish the concern, expressed in establishing Rule G-40, that 
testimonials could cause a municipal advisor's advertisement to be 
misleading.\46\ The MSRB stated that, as proposed, Rule G-40(a)(iv)(G) 
would be amended to provide that municipal advisor advertisements that 
contain testimonials would be subject to additional content 
standards.\47\
---------------------------------------------------------------------------

    \44\ Id.; Rule G-40(a)(iv)(G).
    \45\ Notice, 88 FR at 9582; Rule G-40(a)(iv)(A)-(F); G-40(a)(v); 
G-40(b)(ii).
    \46\ Notice, 88 FR at 9582.
    \47\ Id. Amendment No. 1 specifically defines the term 
``testimonial'' for purposes of Rule G-40 as a ``statement of a 
person's or entity's experience concerning the municipal advisor or 
concerning the municipal advisory services rendered by the municipal 
advisor.'' Furthermore, if a municipal advisor's advertisement meets 
certain conditions, then a municipal advisor may, directly or 
indirectly, publish, circulate or distribute an advertisement which 
refers directly or indirectly, to a testimonial. See Amendment No. 
1; Notice of Amendment No. 1, 88 FR at 21729.
---------------------------------------------------------------------------

    The MSRB explained that if a municipal advisor's advertisement 
contains a testimonial of any kind concerning the municipal advisor or 
concerning the advice, analysis, report, or other service rendered by 
the municipal advisor, the person making the testimonial would be 
required to have the knowledge and experience to form a valid 
opinion.\48\ The MSRB stated that this obligation would standardize the 
content standard with that applicable to dealers' use of testimonials 
under Rule G-21.\49\ The MSRB argued that applying this standard to 
municipal advisors is consistent with the existing content standards of 
Rule G-40 established to prevent false or misleading advertisements and 
would promote regulatory consistency.\50\
---------------------------------------------------------------------------

    \48\ Notice, 88 FR at 9582. In Amendment No. 1, the MSRB also 
removed language from the original proposed rule change that 
referred to the ``advice, analysis or report or other services, 
rendered by the municipal advisor'' and instead, uses ``municipal 
advisory services'' in the proposed definition of ``testimonial'' 
and elsewhere in the rule text. See Amendment No. 1; Notice of 
Amendment No. 1, 88 FR at 21729. The MSRB also clarified that a 
municipal advisor may only use a testimonial if the person or entity 
providing the testimonial has the knowledge and experience to make a 
statement concerning their experience with the municipal advisor or 
with the municipal advisory services rendered by the municipal 
advisor. See Amendment No. 1; Notice of Amendment No. 1, 88 FR at 
21730.
    \49\ Notice, 88 FR at 9582. This content standard in Rule G-21 
currently aligns with the standard established in Rule 2210, 
Communications with the Public, of the Financial Industry Regulatory 
Authority (``FINRA''). Specifically, FINRA Rule 2210(d)(6)(A) 
provides that ``if any testimonial in a communication concerns a 
technical aspect of investing, the person making the testimonial 
must have the knowledge and experience to form a valid opinion.'' 
Notice, 88 FR at 9582 n. 33.
    \50\ Notice, 88 FR at 9582.
---------------------------------------------------------------------------

    The MSRB stated that if an advertisement contains a testimonial 
concerning the municipal advisor or concerning the advice, analysis, 
report, or other service rendered by the municipal advisor, that 
advertisement must include, clearly and prominently, disclosures 
designed to reduce the risk that the use of a testimonial in an 
advertisement could be misleading.\51\

[[Page 31565]]

First, the MSRB explained that the testimonial must include a clear and 
prominent disclosure that the person providing the testimonial is a 
current municipal advisory client or, if not currently a municipal 
advisory client, the timeframe, denoted by calendar year(s), during 
which the person was a municipal advisory client.\52\ The MSRB 
concluded that the clear and prominent disclosure standard requires 
that the disclosures be included within the advertisement that includes 
the testimonial such that the testimonial and disclosures are read at 
the same time and improve the salience and impact of the 
disclosures.\53\
---------------------------------------------------------------------------

    \51\ Notice, 88 FR at 9583. The MSRB added a Supplementary 
Material .03 to Rule G-40 to clarify that in order for a requisite 
disclosure in an advertisement to be clear and prominent (including 
that a testimonial is a paid testimonial), the disclosure must be at 
least as prominent in the advertisement as the testimonial. 
According to the MSRB, this revision indicates that disclosures 
should appear close to the associated testimonial statement with the 
same prominence so that the statement and disclosures are read at 
the same time, rather than referring the reader to somewhere else in 
the advertisement. See Amendment No. 1; Notice of Amendment No. 1, 
88 FR at 21730.
    \52\ Notice, 88 FR at 9583. The MSRB stated that it would amend 
the original proposed rule change to permit municipal advisors to 
use testimonials from a third party, whether a person or entity, 
subject to the conditions set forth in Amendment No. 1. Notice of 
Amendment No. 1, 88 FR at 21729.
    \53\ Notice, 88 FR at 9583.
---------------------------------------------------------------------------

    The MSRB also wrote that the testimonial would also be required to 
include clear and prominent disclosures that the testimonial may not be 
representative of the experience of other clients, that the testimonial 
is no guarantee of future performance or success, and, if more than 
$100 in total value in cash or non-cash compensation is paid for the 
testimonial, the fact that it is a paid testimonial.\54\ The MSRB 
explained that requiring municipal advisors that use testimonials to 
adhere to these disclosure requirements would harmonize the content 
standards with those applicable to dealers' use of testimonials under 
Rule G-21.\55\ The MSRB argued that requiring such disclosures is 
consistent with the existing content standards of Rule G-40 and would 
promote regulatory consistency.\56\
---------------------------------------------------------------------------

    \54\ Id.
    \55\ Id. These disclosure requirements in Rule G-21 currently 
align with the disclosure requirements in FINRA Rule 
2210(d)(6)(B)(1)-(3). Notice, 88 FR at 9583 n. 38.
    \56\ Notice, 88 FR at 9583.
---------------------------------------------------------------------------

    Finally, the MSRB noted that the testimonial also would be required 
to include, clearly and prominently, a brief statement of any material 
conflicts of interest on the part of the person providing the 
testimonial resulting from the municipal advisor's relationship with 
such person.\57\ The MSRB wrote that, recognizing the fiduciary duty 
owed by municipal advisors to their municipal entity clients, the MSRB 
considered the obligations of registered investment advisers, who, like 
municipal advisors, are subject to a fiduciary standard in determining 
the disclosures that would be appropriate for municipal advisors when 
using testimonials in advertisements.\58\ The MSRB stated that this 
disclosure obligation parallels a disclosure obligation required of 
registered investment advisers under IA Rule 206(4)-1(b)(1)(iii).\59\ 
The MSRB explained that a brief statement of any material conflicts of 
interest on the part of the person providing the testimonial resulting 
from the municipal advisor's relationship with such person would result 
in information that informs the likely recipients of the advertisement 
(i.e., municipal entities and obligated persons) which serves to ensure 
that the advertisement is fair and balanced and reduces the risk that 
the use of a testimonial could be misleading.\60\ Furthermore, the MSRB 
discussed that establishing the same disclosure obligation for 
municipal advisors under Rule G-40 promotes regulatory consistency, 
particularly among regulated entities subject to a fiduciary 
standard.\61\ The MSRB wrote that it expects this disclosure to be 
succinct.\62\
---------------------------------------------------------------------------

    \57\ Id.
    \58\ Id.
    \59\ Id.
    \60\ Id.
    \61\ Id.
    \62\ Id.
---------------------------------------------------------------------------

    Next, the MSRB explained that there are two broad categories of 
municipal advisors: \63\ (i) those that provide certain advice to or on 
behalf of a municipal entity or obligated person; and (ii) those that 
undertake certain solicitations of a municipal entity or obligated 
person on behalf of certain third-party financial professionals, often 
referred to as solicitors.\64\ The MSRB stated that it understands that 
municipal entity clients generally do not accept compensation for 
testimonials and believes that the payment of more than a de minimis 
amount (more than $1000 in total value in cash or non-cash compensation 
during the preceding 12 months) to a municipal entity client could 
present a potential conflict of interest.\65\ Therefore, according to 
the MSRB, proposed Rule G-40(a)(iv)(G)(3) would prohibit a non-
solicitor municipal advisor from paying more than a de minimis amount 
of compensation for a testimonial.\66\
---------------------------------------------------------------------------

    \63\ Notice, 88 FR at 9583. See also 15 U.S.C. 78o-4(e)(4); 17 
CFR 240.15Ba1-1(d)(1)(i); Securities Exchange Act Release No. 70462 
(Sept. 20, 2013), 78 FR 67467, n. 138 and 408 (Nov. 12, 2013).
    \64\ Notice, 88 FR at 9583. See also 15 U.S.C. 78o-4(e)(9); 17 
CFR 240.15Ba1-1(n), 17 CFR 240.15Ba1-1(d)(1); (d)(3)(viii).
    \65\ Notice, 88 FR at 9583.
    \66\ Id.
---------------------------------------------------------------------------

    The MSRB stated that, to avoid this concern and to avoid creating 
complexity in Rule G-40 by establishing different standards for 
obligated person clients of non-solicitor municipal advisors, it 
determined to prohibit non-solicitor municipal advisors from paying any 
compensation for a testimonial to a person, directly or indirectly, of 
more than $1000 in total value in cash or non-cash compensation during 
the preceding 12 months.\67\ However, the MSRB noted that this change 
would, permit solicitor municipal advisors to pay such compensation to 
a municipal advisor, or an investment adviser (as defined under section 
202 of the Advisers Act) on behalf of whom the municipal advisor 
undertakes, or has undertaken, a solicitation of a municipal entity or 
obligated person, as defined in Exchange Act Rule 15Ba1-1(n) \68\ 
subject to certain conditions.\69\
---------------------------------------------------------------------------

    \67\ Notice, 88 FR at 9583-84.
    \68\ 17 CFR 240.15Ba1-1(n).
    \69\ Notice, 88 FR at 9584. In response to comments that the 
proposal to establish a different standard for the use of 
testimonials by solicitor municipal advisors was confusing, the MSRB 
proposed in Amendment No. 1 to remove proposed language that would 
have permitted, subject to certain conditions, a solicitor municipal 
advisor to pay more than $1000 in total value in cash or non-cash 
compensation during the preceding 12 months for a testimonial. 
Further, the MSRB eliminated the language in the original proposed 
rule change in Rules G-40 and G-8 concerning additional records to 
be maintained by a solicitor municipal advisor related to such 
payments. Notice of Amendment No. 1, 88 FR at 21730.
---------------------------------------------------------------------------

2. Rule G-40 Supervisory Obligations
    The MSRB identified that Rule G-40 currently requires that each 
advertisement subject to the requirements of the rule be approved in 
writing by a municipal advisor principal, as defined in MSRB Rule G-
3(e)(i), prior to first use.\70\ The MSRB noted that the original 
proposed rule change would broaden these supervisory obligations to 
require, with respect to an advertisement that includes a testimonial, 
that such approval be based on a reasonable belief that the testimonial 
complies with the requirements of proposed Rule G-40(a)(iv)(G).\71\ The 
MSRB wrote that this additional supervisory obligation is appropriate 
in allowing municipal advisors the use of testimonials in 
advertisements.\72\ The MSRB stated that this obligation would be 
consistent with the oversight obligation under the Modernized IA 
Marketing Rule that requires an investment adviser to have a reasonable 
basis for believing that a testimonial complies with the requirements 
of IA Rule 206(4)-1.\73\ The MSRB argued that establishing the same 
obligation for municipal advisors under

[[Page 31566]]

Rule G-40 would promote regulatory consistency, particularly among 
regulated entities subject to a fiduciary standard.\74\
---------------------------------------------------------------------------

    \70\ Notice, 88 FR at 9584; see also Rule G-40.
    \71\ Notice, 88 FR at 9584.
    \72\ Id.
    \73\ Id.; see also 17 CFR 275.206(4)-1(b)(2)(i).
    \74\ Notice, 88 FR at 9584.
---------------------------------------------------------------------------

3. Rule G-40 Definitions
    The MSRB stated that Rule G-40(a)(iii) currently defines 
``municipal advisory client,'' for purposes of Rule G-40, to include 
either: a municipal entity or obligated person for whom the municipal 
advisor engages in municipal advisory activities, as defined in MSRB 
Rule G-42(f)(iv); or a broker, dealer, municipal securities dealer, 
municipal advisor, or investment adviser (as defined under section 202 
of the Advisers Act) on behalf of whom the municipal advisor undertakes 
a solicitation of a municipal entity or obligated person, as defined in 
Rule 15Ba1-1(n) under the Act.\75\ However, the MSRB explained that 
MSRB Rule G-38 prohibits dealers from paying persons who are not 
affiliated with the dealers for a solicitation of municipal securities 
business on their behalf.\76\ The MSRB stated that, to avoid confusion 
and promote standardization across MSRB rules, the proposal would 
modify the definition of municipal advisory client.\77\ Specifically, 
the MSRB wrote that the amended definition would exclude a broker, 
dealer, and municipal securities dealer from the list of entities on 
behalf of whom the municipal advisor undertakes a solicitation of a 
municipal entity or obligated person.\78\
---------------------------------------------------------------------------

    \75\ Notice, 88 FR at 9584; see also Rule G-40(a)(iii).
    \76\ Notice, 88 FR at 9584.
    \77\ Id.
    \78\ Id.
---------------------------------------------------------------------------

4. Recordkeeping Requirements Under Rules G-40 and G-8
    The MSRB explained that Rule G-40 currently requires that each 
municipal advisor make and keep current in a separate file, records of 
all advertisements.\79\ The MSRB stated that the original proposed rule 
change would extend that obligation to include records of any payment 
made to a municipal advisory client for a testimonial.\80\ The MSRB 
noted that original proposed rule change also would make a conforming 
amendment to the recordkeeping obligations under Rule G-8(h) to add 
subparagraph (viii) to include records concerning compliance with Rule 
G-40.\81\ Specifically, the MSRB articulated that the original proposed 
rule change would amend Rule G-8(h) to specify that every municipal 
advisor that is registered or required to be registered under section 
15B of the Act (and the rules and regulations thereunder) would be 
required to make and keep current the records specified under Rule G-
40.\82\ The MSRB concluded that this proposal would include not only a 
record of all advertisements, which is currently required under Rule G-
40(e), but also, to align with the proposed amendments to Rule G-40(e), 
a record of any cash or non-cash compensation provided to a municipal 
advisory client, as that term is defined in Rule G-40(a)(iii) and a 
record of any written agreement with a municipal advisor or investment 
adviser required under proposed Rule G-40(a)(iv)(G)(3)(b), which is 
required to describe the scope of the agreed-upon activities with 
respect to the testimonial and the terms of the compensation for 
such.\83\
---------------------------------------------------------------------------

    \79\ Id.; see also Rule G-40(e).
    \80\ Notice, 88 FR at 9584-85.
    \81\ Notice, 88 FR at 9585.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

    The MSRB argued that specifying these recordkeeping requirements 
would provide more certainty for municipal advisors with respect to 
their recordkeeping obligations.\84\ In addition, the MSRB stated that 
with the application of existing MSRB Rule G-9, which requires that 
municipal advisors generally preserve the books and records described 
in G-8(h) for a period of not less than five years, the proposed 
amendments to Rule G-8(h) would provide examining authorities 
beneficial information to assist in evaluating a municipal advisor's 
compliance with Rule G-40.\85\ In addition, the MSRB wrote that the 
proposed amendment to Rule G-8 would align with SEC recordkeeping 
requirements, which require a municipal advisor to make and keep true, 
accurate, and current certain books and records relating to its 
municipal advisory activities, including originals or copies of all 
written communications sent, by such municipal advisor (including 
inter-office memoranda and communications) relating to municipal 
advisory activities, regardless of the format of such 
communications.\86\
---------------------------------------------------------------------------

    \84\ Id.
    \85\ Id. Municipal advisors are also subject to the 
recordkeeping requirements described in Exchange Act Rule 15Ba1-
8(a)(1)-(8).
    \86\ Notice, 88 FR at 9585; see also 17 CFR 240.15Ba1-8. Rule G-
8 requires that municipal advisors make and keep current all books 
and records described in Exchange Act Rule 15Ba-18(a)(1)-(8).
---------------------------------------------------------------------------

III. Description of Amendment No. 1

    As described further below, the MSRB filed Amendment No. 1 to 
respond to comments on the original proposed rule change, relating to: 
(1) the definition of ``testimonial;'' (2) non-client testimonials; (3) 
solicitor municipal advisors; (4) social media guidance; and (5) other 
clarifications to rule text and design.\87\
---------------------------------------------------------------------------

    \87\ Notice of Amendment No. 1, 88 FR at 21729. The MSRB stated 
that Amendment No. 1 does not alter or impact the analysis in the 
original proposed rule change's burden on competition or the 
statutory basis sections. Id.
---------------------------------------------------------------------------

A. Definition of Testimonial

    The MSRB noted that a commenter suggested that the term 
``testimonial'' be defined within the rule language itself.\88\ The 
MSRB responded, stating it would provide a definition of a 
``testimonial'' in Rule G-40 to avoid confusion with the term 
``testimonial'' as used in Rule 206-4(1) \89\ under the Advisers 
Act.\90\ Specifically, the MSRB defined ``testimonial'' in the amended 
Rule G-40(a)(iv)(G)(1) as ``a statement of a person's or entity's 
experience concerning the municipal advisor or concerning the municipal 
advisory services rendered by the municipal advisor.'' \91\ 
Furthermore, the MSRB also removed language from the original proposed 
rule change referring to the ``advice, analysis, report, or other 
services rendered by the municipal advisor.'' \92\ The MSRB concluded 
that replacing this language with ``municipal advisory services'' in 
the definition of ``testimonial'' (and elsewhere in the original 
proposed rule change's rule text) provided greater clarity.\93\ The 
MSRB also made conforming numbering changes to the original proposed 
rule change's Rule G-40 revisions to accommodate the addition of the 
definition of ``testimonial'' to amended Rule G-40(a)(iv)(G)(1).\94\
---------------------------------------------------------------------------

    \88\ Id.
    \89\ 17 CFR 275.206(4)-1(b)(1).
    \90\ Notice of Amendment No. 1, 88 FR at 21729.
    \91\ Id.
    \92\ Id.
    \93\ Id.
    \94\ Id. The MSRB also added a cross-reference to the new 
definition of ``testimonial'' in the original proposed rule change's 
Rule G-8. Notice of Amendment No. 1, 88 FR at 21729 n.16.
---------------------------------------------------------------------------

    The MSRB stated that the revised rule text in amended Rule G-
40(a)(iv)(G)(2) provides that, if a municipal advisor's advertisement 
meets certain conditions, then a municipal advisor may, directly or 
indirectly, publish, circulate or distribute an advertisement which 
refers, directly or indirectly, to a testimonial.\95\ The MSRB wrote 
that this definition addresses a comment requesting that Rule G-40 
include a definition of the term ``testimonial,'' but also a comment's 
suggestion that the rule ``include affirmative language that

[[Page 31567]]

testimonials may be used if certain requirements are met.'' \96\ The 
MSRB also deleted a redundant phrase later in this subsection; 
specifically, amended Rule G-40(a)(iv)(G)(2)(b)(iv)(``the paid 
testimonial must include'').\97\
---------------------------------------------------------------------------

    \95\ Notice of Amendment No. 1, 88 FR at 21729.
    \96\ Id.
    \97\ Id.
---------------------------------------------------------------------------

B. Non-Client Testimonials

    The MSRB noted that both commenters suggested that it would promote 
further harmonization with Rule G-21, on advertising by brokers, 
dealers, and municipal securities dealers, if municipal advisors were 
able to use testimonials by third parties.\98\ The MSRB stated that it 
would amend the original proposed rule change to permit municipal 
advisors to use testimonials from a third party, whether a person or 
entity, subject to the conditions set forth in proposed Amendment No. 
1.\99\ The MSRB reasoned that, for example, analogous to Rule 206-4(1) 
\100\ under the Advisers Act,\101\ an advertisement of a municipal 
advisor that includes a testimonial would need to include a disclosure 
indicating whether the testimonial is from a current client or from 
someone who is not a current client.\102\ The MSRB wrote that it agreed 
with the Commission's belief that this type of disclosure would provide 
important context for weighing the relevance of the testimonial.\103\
---------------------------------------------------------------------------

    \98\ Id.; see also NAMA Letter I and SIFMA Letter.
    \99\ Notice of Amendment No. 1, 88 FR at 21729.
    \100\ 17 CFR 275.206(4)-1(b)(1).
    \101\ 15 U.S.C. 80b-1-80b-2.
    \102\ Notice of Amendment No. 1, 88 FR at 21729.
    \103\ Notice of Amendment No. 1, 88 FR at 21729; see also SEC 
2020 Adopting Release, 86 FR at 13048.
---------------------------------------------------------------------------

C. Solicitor Municipal Advisors

    The MSRB stated that both commenters found the proposal to 
establish a different standard for the use of testimonials by solicitor 
municipal advisors confusing.\104\ In response, the MSRB revised the 
original proposed rule change to create uniformity in the criteria for 
the use of testimonials by all municipal advisors.\105\ Specifically, 
the MSRB removed proposed language that would have permitted, subject 
to certain conditions, a solicitor municipal advisor to pay more than 
$1000 in total value in cash or non-cash compensation during the 
preceding 12 months for a testimonial.\106\ Additionally, the MSRB 
eliminated the proposed language in the original proposed rule change 
in Rules G-40 and G-8 concerning additional records to be maintained by 
a solicitor municipal advisor related to such payments.\107\ The MSRB 
concluded that these revisions in Amendment No. 1 would prohibit any 
municipal advisor from providing any compensation to a person or 
entity, directly or indirectly, of more than $1000 in total value in 
cash or non-cash compensation during the preceding 12 months.\108\
---------------------------------------------------------------------------

    \104\ Notice of Amendment No. 1, 88 FR at 21729-30; see also 
NAMA Letter I and SIFMA Letter.
    \105\ Notice of Amendment No. 1, 88 FR at 21730.
    \106\ Id.
    \107\ Id.
    \108\ Id. Correspondingly, the MSRB added the phrase ``directly 
or indirectly'' to the original proposed rule change's Rule G-8. 
Notice of Amendment No. 1, 88 FR at 27130 n.30.
---------------------------------------------------------------------------

D. Social Media Guidance

    The MSRB wrote that both commenters suggested that the MSRB's 
``FAQs regarding the Use of Social Media under Rule G-21, on 
Advertising by Brokers, Dealers or Municipal Securities Dealers, and 
Rule G-40, on Advertising by Municipal Advisors'' (``social media 
guidance'') \109\ be updated to reflect the proposed amendments to Rule 
G-40.\110\
---------------------------------------------------------------------------

    \109\ These frequently asked questions (``FAQs'') were filed 
with the Commission for immediate effectiveness. See Securities 
Exchange Act Release No. 85222 (Feb. 28, 2019), 84 FR 8132 (Mar. 6, 
2019). These FAQs can be found on the MSRB's website at https://www.msrb.org/FAQs-regarding-Use-Social-Media-under-MSRB-Rule-G-21-Advertising-Brokers-Dealers-or-Municipal-0 (Aug. 23, 2019).
    \110\ Notice of Amendment No. 1, 88 FR at 21730; see also NAMA 
Letter I and SIFMA Letter.
---------------------------------------------------------------------------

    The MSRB responded by proposing to amend its social media guidance 
to reflect the proposed amendments to Rule G-40 (inter alia, allowing 
the use of testimonials in municipal advisor advertisements, subject to 
certain conditions).\111\ The MSRB explained that the current social 
media guidance notes that, by paying for or soliciting positive 
comments from a third party: (i) a municipal advisor would be deemed to 
be entangled with those comments, and (ii) the posting of those third-
party comments on the municipal advisor's social media page would be 
deemed to be an advertisement by the municipal advisor that contains a 
testimonial.\112\ The MSRB stated that such revisions to the social 
media guidance would make clear that the advertisement containing a 
testimonial would be permissible so long as the advertisement meets the 
requirements of Rule G-40 (including having the requisite 
disclosures).\113\
---------------------------------------------------------------------------

    \111\ Notice of Amendment No. 1, 88 FR at 21730.
    \112\ Id.
    \113\ Id.
---------------------------------------------------------------------------

    In addition, the MSRB noted that the revised social media guidance 
would make clear that if a municipal advisor did not pay, directly or 
indirectly, for a testimonial, but liked, shared, or commented on a 
post from a third-party, the municipal advisor would be deemed to have 
adopted those comments and the posting of those third party comments on 
the municipal advisor's social media page would be deemed an 
advertisement that contains a testimonial.\114\ The MSRB concluded that 
the advertisement containing a testimonial would be permissible so long 
as the advertisement meets the requirements of Rule G-40 (including 
having the requisite disclosures).\115\ The MSRB also revised the 
social media guidance's footnotes with updated citations and conforming 
numbering changes.\116\
---------------------------------------------------------------------------

    \114\ Id.
    \115\ Id.
    \116\ Id.
---------------------------------------------------------------------------

E. Other Modifications to Rule Text

    As discussed further below, the MSRB also proposed other textual 
changes in Amendment No. 1 to provide additional clarity and facilitate 
compliance.\117\
---------------------------------------------------------------------------

    \117\ Id.
---------------------------------------------------------------------------

1. Language in Rule G-40 Regarding Use of a Testimonial
    The MSRB stated that it revised the original proposed rule change 
to clarify that a municipal advisor may only use a testimonial if the 
person or entity providing the testimonial has the knowledge and 
experience to make a statement concerning their experience with the 
municipal advisor or with the municipal advisory services rendered by 
the municipal advisor.\118\
---------------------------------------------------------------------------

    \118\ Id.
---------------------------------------------------------------------------

2. Supplementary Material .03 to Rule G-40
    The MSRB added Supplementary Material .03 to Rule G-40 to the 
original proposed rule change, stating that this revision would clarify 
that, in order for a requisite disclosure in an advertisement to be 
clear and prominent (including that a testimonial is a paid 
testimonial), the disclosure must be at least as prominent in the 
advertisement as the testimonial.\119\ The MSRB also explained that 
this revision indicates that disclosures should appear close to the 
associated testimonial statement with the same prominence so that the 
statement and disclosures are read at the same time, rather than 
referring the reader to somewhere else in the advertisement to view the 
disclosures.\120\
---------------------------------------------------------------------------

    \119\ Id.
    \120\ Id.

---------------------------------------------------------------------------

[[Page 31568]]

IV. Summary of Comments Received to the Original Proposed Change and 
Amendment No. 1 and MSRB's Responses

A. Comments Received in Response to the Original Proposed Rule Change

    The Commission received two comment letters \121\ on the original 
proposed rule change, as well as response from the MSRB to the comment 
letters.\122\
---------------------------------------------------------------------------

    \121\ See NAMA Letter I and SIFMA Letter.
    \122\ See MSRB Letter I.
---------------------------------------------------------------------------

1. Definition of Testimonial
    One commenter suggested that the term ``testimonial'' be defined 
within the rule language itself. The commenter wrote that, ``While 
within a footnote in the Filing, endorsements are noted as being within 
the meaning of testimonial,'' the MSRB does not fully explain what it 
``means by an endorsement in this context, which under the Investment 
Adviser Rule would consist of statements from persons other than a 
current client (but are not limited to past clients), or if/how it 
applies to municipal advisors.'' \123\ In response, the MSRB stated 
that it proposed, in Amendment No. 1, to specifically define the term 
``testimonial'' for purposes of Rule G-40 to mean a statement of a 
person's or entity's experience concerning the municipal advisor or 
concerning the municipal advisory services rendered by the municipal 
advisor.\124\ In addition, the MSRB noted that the proposed rule text 
would specifically provide that if a municipal advisor's advertisement 
meets certain conditions, then a municipal advisor may, directly or 
indirectly, publish, circulate or distribute an advertisement which 
refers, directly or indirectly, to a testimonial.\125\
---------------------------------------------------------------------------

    \123\ NAMA Letter I at 1.
    \124\ MSRB Letter I at 2.
    \125\ Id.
---------------------------------------------------------------------------

    The MSRB responded that this not only addresses the comment 
requesting that Rule G-40 include a definition of the term 
``testimonial,'' but also the commenter's suggestion that the rule 
``include affirmative language that testimonials may be used if certain 
requirements are met.'' \126\
---------------------------------------------------------------------------

    \126\ NAMA Letter I at 4; see also MSRB Letter I at 2.
---------------------------------------------------------------------------

2. Non-Client Testimonials
    Both commenters suggested that the proposal would promote further 
harmonization with Rule G-21, on advertising by brokers, dealers or 
municipal securities dealers, if municipal advisors were able to use 
testimonials by third parties. Specifically, one commenter stated that 
non-client testimonials/endorsements should be specifically allowed and 
the rule should also discuss the requirements and parameters for 
testimonials/endorsements from other parties \127\ and another 
discussed that municipal advisor testimonials by third parties should 
be permitted, in order to harmonize Rule G-40 with the Advisers Act as 
well as Rule G-21 covering brokers, dealers, and municipal securities 
dealers.\128\
---------------------------------------------------------------------------

    \127\ NAMA Letter I at 2.
    \128\ SIFMA Letter at 1.
---------------------------------------------------------------------------

    The MSRB responded that it was amending the original proposed rule 
change to permit municipal advisors to use testimonials from any third 
party, whether a person or entity, subject to the conditions set forth 
in Amendment No. 1.\129\ The MSRB explained, for example, that similar 
to IA Rule 206-4(1)9, an advertisement of a municipal advisor that 
includes a testimonial would need to include a disclosure indicating 
whether the testimonial is from a current client or from someone that 
is not a current client.\130\ The MSRB added that it agreed with the 
Commission's belief that this type of disclosure (in the context of 
testimonials pertaining to investment advisers) would provide important 
context for weighing the relevance of the testimonial.\131\
---------------------------------------------------------------------------

    \129\ MSRB Letter I at 3.
    \130\ Id.
    \131\ Id.
---------------------------------------------------------------------------

3. Solicitor Municipal Advisors
    Both commenters found the original proposed change to establish a 
different standard for the use of testimonials by solicitor municipal 
advisors to be confusing. Specifically, one commenter noted ``[i]t is 
important for the Rule to be very clear on the requirements of 
municipal advisors (the vast majority of MAs) and solicitor municipal 
advisors, and separate the requirements for each'' \132\ and another 
noted ``MSRB Rule G-40 will be unnecessarily complicated by including 
solicitor municipal advisors.'' \133\
---------------------------------------------------------------------------

    \132\ NAMA Letter I at 3.
    \133\ SIFMA Letter at 1.
---------------------------------------------------------------------------

    In response to these comments, the MSRB stated that Amendment No. 1 
harmonized the criteria for the use of testimonials by all municipal 
advisors, no longer making a distinction between the use of 
testimonials by solicitor municipal advisors and non-solicitor 
municipal advisors.\134\ As part of Amendment No. 1, the MSRB removed 
originally proposed language that would have permitted, subject to 
certain conditions, a solicitor municipal advisor to pay more than 
$1000 in total value in cash or non-cash compensation during the 
preceding 12 months for a testimonial. As a result, the MSRB noted that 
the proposed rule change would prohibit any municipal advisor from 
providing any compensation to a person or entity, directly or 
indirectly, of more than $1000 in total value in cash or non-cash 
compensation during the preceding 12-months.\135\
---------------------------------------------------------------------------

    \134\ MSRB Letter I at 3.
    \135\ MSRB Letter I at 3-4.
---------------------------------------------------------------------------

4. Other Clarifications to Rule Text and Design
    One commenter also suggested additional clarifications to the 
proposed text and design of Rule G-40, suggesting that such changes 
would be helpful to facilitate compliance, especially for small 
municipal advisor firms.\136\ For example, the commenter stated that 
the phrase ``concerning the advice, analysis, report or other service 
rendered by the municipal advisor. . .'' is too broad and could be 
problematic.\137\ The MSRB responded that, to provide additional 
clarity and facilitate compliance, the MSRB had Amendment No. 1 remove 
that phrase and replace it with ``concerning the municipal advisor or 
concerning the municipal advisory services rendered by the municipal 
advisor.'' \138\ Additionally, the commenter wrote that the language 
that a person providing a testimonial must have the knowledge and 
experience to form a valid opinion is too absolute and does not exist 
in the investment adviser rulemaking.\139\ In response, the MSRB 
explained that while this standard may not exist in the Investment 
Adviser Marketing Rule, it does exist, to some degree, in Rule G-
21.\140\
---------------------------------------------------------------------------

    \136\ See NAMA Letter I.
    \137\ NAMA Letter I at 2.
    \138\ MSRB Letter I at 4.
    \139\ NAMA Letter I at 3.
    \140\ MSRB Letter I at 4.
---------------------------------------------------------------------------

    The MSRB further noted that it could be misleading if a municipal 
advisor's advertisement included a testimonial from a person or entity 
that has no knowledge or experience to make a statement as to their 
experience with the municipal advisor or the municipal advisory 
services rendered by the municipal advisor.\141\ To address the concern 
that the text of the rule could be interpreted as overly broad, the 
MSRB indicated that it proposed Amendment No. 1 to clarify that a 
municipal advisor may only use a testimonial if the person or entity 
providing the testimonial has the

[[Page 31569]]

knowledge and experience to make a statement concerning their 
experience with the municipal advisor or with the municipal advisory 
services rendered by the municipal advisor.\142\
---------------------------------------------------------------------------

    \141\ Id.
    \142\ Id.
---------------------------------------------------------------------------

    One commenter also noted that the disclosure required for a paid 
testimonial should be in the same size font and location as the 
testimonial and not placed in a footnote.\143\ The MSRB responded that, 
in Amendment No. 1, Supplementary Material .03 to Rule G-40 would adopt 
a standard consistent with the views expressed by the SEC in adopting 
the Investment Adviser Marketing Rule.\144\ Specifically, according to 
the MSRB, Amendment No. 1 clarified that, for a requisite disclosure in 
an advertisement to be clear and prominent (including a disclosure that 
a testimonial is a paid testimonial), the disclosure must be at least 
as prominent in the advertisement as the testimonial.\145\ The MSRB 
added that disclosures should appear close to the associated 
testimonial statement with the same prominence so that the statement 
and disclosures are read at the same time, rather than referring the 
reader to somewhere else in the advertisement to view the 
disclosures.\146\
---------------------------------------------------------------------------

    \143\ NAMA Letter I at 3.
    \144\ MSRB Letter I at 4; see also SEC 2020 Adopting Release, 86 
FR at 13048.
    \145\ MSRB Letter I at 4-5.
    \146\ Id. at 5.
---------------------------------------------------------------------------

5. Social Media Guidance
    Both commenters suggested that the MSRB's ``FAQs regarding the Use 
of Social Media under MSRB Rule G-21, on Advertising by Brokers, 
Dealers or Municipal Securities Dealers, and MSRB Rule G-40, on 
Advertising by Municipal Advisors'' (``social media guidance'') be 
updated to reflect the proposed amendments to Rule G-40.\147\
---------------------------------------------------------------------------

    \147\ See NAMA Letter I and SIFMA Letter.
---------------------------------------------------------------------------

    The MSRB wrote that, in response to commenters, it drafted 
Amendment No. 1 to revise its social media guidance so that such 
guidance, as amended, incorporates the proposed amendments to Rule G-
40, which would allow municipal advisors to use testimonials, subject 
to certain conditions, in their advertisements.\148\ The MSRB explained 
that its current social media guidance notes that by paying for or 
soliciting positive comments from a third party, a municipal advisor 
would be deemed to be entangled with those comments, and the posting of 
those third-party comments on the municipal advisor's social media page 
would be deemed to be an advertisement by the municipal advisor that 
contains a testimonial.\149\ The MSRB argued that the updated guidance 
would make clear that the advertisement containing a testimonial would 
be permissible so long as the advertisement meets the requirements of 
Rule G-40, including having the requisite disclosures.\150\ The MSRB 
also noted that, in further response to comments, the updated guidance 
would make clear that if a municipal advisor did not pay, directly or 
indirectly, for a testimonial, but liked, shared, or commented on a 
post from a third party, the municipal advisor would be deemed to have 
adopted those comments and the posting of those third-party comments on 
the municipal advisor's social media page would be deemed an 
advertisement that contains a testimonial.\151\ The MSRB explained 
that, similarly, the advertisement containing a testimonial would be 
permissible so long as the advertisement meets the requirements of Rule 
G-40, including having the requisite disclosures.\152\
---------------------------------------------------------------------------

    \148\ MSRB Letter I at 5.
    \149\ Id.
    \150\ Id.
    \151\ Id.
    \152\ Id.
---------------------------------------------------------------------------

    One commenter also requested additional amendments to the social 
media guidance, and noted that technology and social media have changed 
dramatically over the past few years, and SIFMA members feel it would 
be helpful for the MSRB to review the FAQs in light of these changes 
and the proposed amendments to MSRB Rule G-40.\153\ The MSRB responded 
that in initially developing its social media guidance, the MSRB's goal 
was to align the FAQs with the social media guidance published by the 
SEC and FINRA, and not to create unnecessary inconsistencies between 
its guidance and similar guidance issued by other regulators that may 
be applicable to other aspects of the regulated entity's business.\154\ 
The MSRB also replied that it believes that its social media guidance 
remains appropriately aligned with other regulators, and therefore, 
other than amendments to reflect proposed amendments to Rule G-40, the 
MSRB is not otherwise making substantive changes to its social media 
guidance.\155\
---------------------------------------------------------------------------

    \153\ SIFMA Letter at 2.
    \154\ MSRB Letter I at 6.
    \155\ Id.
---------------------------------------------------------------------------

    The MSRB also noted that in establishing Rule G-40, it developed 
compliance resources to help facilitate compliance \156\ and will 
undertake a review of these compliance resources to ensure that they 
undergo an update to reflect any amendments to Rule G-40.\157\ In doing 
so, the MSRB stated that it expects to engage with stakeholders in some 
capacity (e.g., via discussions with the MSRB's Compliance Advisory 
Group and/or discussions with key stakeholders) to help ensure that the 
resources meet the needs of municipal advisors.\158\
---------------------------------------------------------------------------

    \156\ Application of the Content Standards to Advertisements by 
Municipal Advisors under MSRB Rule G-40 [effective Aug. 23, 2019], 
FAQs on Use of Municipal Advisory Client Lists and Case Studies 
[effective Aug. 23, 2019], Assessing Supervision of Municipal 
Advisor Advertising Regulations. MSRB Letter I at 6.
    \157\ Id.
    \158\ Id.
---------------------------------------------------------------------------

B. Comment Received in Response to Amendment No. 1

    The Commission received one comment letter on Amendment No. 1,\159\ 
as well as response from the MSRB to this comment letter.\160\ The 
commenter expressed support for Amendment No. 1, noting appreciation 
for the MSRB's work in addressing concerns initially raised in response 
to the original proposed rule change.\161\ The commenter also requested 
that ``the SEC approve the filing at its earliest convenience.'' \162\ 
Additionally, the commenter encouraged the MSRB to work with market 
participants and look for ways to provide streamlined guidance that can 
be easily and readily utilized by municipal advisors.\163\ The MSRB 
responded to the comment that it appreciated the continued 
participation of commenters in the rulemaking process, and reiterated 
its commitment in its earlier response letter that the MSRB will 
continue to engage with stakeholders to support the implementation of 
the amendments to help municipal advisors understand the applicable 
obligations and facilitate compliance.\164\
---------------------------------------------------------------------------

    \159\ See NAMA Letter II.
    \160\ See MSRB Letter II.
    \161\ See NAMA Letter II.
    \162\ Id. at 2.
    \163\ Id.
    \164\ MSRB Letter II at 2.
---------------------------------------------------------------------------

V. Discussion of Commission's Findings

    The Commission has carefully considered the proposed rule change, 
the comment letters received, and the MSRB's responses thereto. 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 section 15B(b)(2)(C), which 
provides, in

[[Page 31570]]

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, 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.\165\ The Commission finds that the proposed rule 
change will: (i) prevent fraudulent and manipulative acts and 
practices; (ii) protect investors, municipal entities, obligated 
persons, and the public interest; (iii) promote just and equitable 
principles of trade; and (iv) foster cooperation and coordination with 
persons engaged in regulating transactions in municipal securities.
---------------------------------------------------------------------------

    \165\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

A. Prevent Fraudulent and Manipulative Acts and Practices

    The Commission finds that the proposed rule change would help 
prevent fraudulent and manipulative acts and practices. The proposed 
rule change does not alter the standards 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 and that the 
advertisements do not include any false, exaggerated, unwarranted, 
promissory or misleading statement or claim. As a result, permitting 
municipal advisors to use only testimonials that are consistent with 
these standards would help ensure that Rule G-40 continues to prevent 
fraudulent and manipulatives acts and practices. The Commission further 
believes that the proposed amendment to Rule G-8 (with the related 
application of existing MSRB Rule G-9 on records preservation) would 
help municipal advisors create an audit trail for compliance and, in 
turn, would assist examination and enforcement authorities in their 
examination for compliance with Rule G-40, which would further help 
prevent fraudulent and manipulative acts and practices.

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

    The Commission finds that the proposed Rule G-40 also would protect 
municipal entities, obligated persons and the public interest. It would 
do so by ensuring that recipients of any advertisement containing a 
testimonial have the necessary context to evaluate the testimonial 
because the proposed rule change would only permit the use of 
testimonials if certain conditions are met, including that specified 
disclosures are made. Municipal entities and obligated persons are the 
likely audience for municipal advisors' testimonials. As such, the 
requisite disclosures would help ensure that the proposed rule change 
would further the protection of municipal entities, obligated persons, 
and the public interest.
    The Commission further notes that the amendments to Rule G-40 are 
intended to align Rule G-40's provision governing the use of 
testimonials by municipal advisors to the analogous requirements under 
the SEC's Modernized IA Marketing Rule, by prohibiting the use of 
testimonials in an advertisement unless a municipal advisor complies 
with disclosure and oversight provisions. Therefore, the Commission 
finds that the proposed rule change's associated requirements for 
testimonials (like the Modernized IA Marketing Rule) are meant to 
protect potential clients from misleading advertisements. In this way, 
the Commission finds that the proposed amendments to Rule G-40 would 
enhance protections for potential recipients of municipal advisor 
testimonials, including issuers, obligated persons, and other market 
participants.

C. Promote Just and Equitable Principles of Trade

    The Commission also believes that the proposed rule change would 
promote just and equitable principles of trade by aligning the 
advertising rule for municipal advisors, to the extent practicable, 
with the advertising rules for dealers and for investment advisers. 
This alignment serves to provide regulatory consistency for entities 
that may be dually registered (e.g., as a municipal advisor and an 
investment adviser). By establishing a consistent regulatory standard 
for advertising across dealers, investment advisors, and municipal 
advisors, the Commission finds that the proposed rule change promotes 
more just and equitable principles of trade among these different 
market participants.

D. Foster Cooperation and Coordination With Persons Engaged in 
Regulating Transactions in Municipal Securities

    Furthermore, the Commission believes the proposed rule change would 
foster coordination with persons engaged in regulating transactions in 
municipal securities. The amendments to Rule G-40 would more tightly 
align the content standards for Rule G-40 with the content standards of 
the SEC's Modernized IA Marketing Rule.\166\ The proposed change 
thereby provides a more uniform standard for regulated entities subject 
to a fiduciary standard (i.e., investment advisors and municipal 
advisors). This uniformity allows the examining authorities to 
coordinate examinations of municipal advisors and municipal advisors 
dually registered as investment advisors more effectively. Moreover, 
the proposed rule change will allow examiners to compare content 
standard practices across all municipal advisors (regardless of dually 
register status) more clearly. As such, the Commission finds that the 
proposed rule change serves to foster greater cooperation and 
coordination among the examining authorities responsible for ensuring 
compliance with MSRB rules.
---------------------------------------------------------------------------

    \166\ Notice, 88 FR at 9585-86.
---------------------------------------------------------------------------

    Section 15B(b)(2)(C) of the Act \167\ requires that MSRB rules not 
be designed to impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. In approving the 
proposed rule change, the Commission has considered the proposed rule 
change's impact on efficiency, competition, and capital formation.\168\
---------------------------------------------------------------------------

    \167\ 15 U.S.C. 78o-4(b)(2)(C).
    \168\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission does not believe the proposed rule change to amend 
Rule G-40 and Rule G-8 would impose any new burden on competition or 
have an impact on competition, as the proposed rule change would apply 
a similar regulatory regime to all municipal advisors. Further, the 
Commission believes that the proposed changes to Rules G-40 and G-8 
would promote regulatory consistency and would benefit municipal 
advisors by removing the prohibition that an advertisement does not 
refer, directly or indirectly, to any testimonial of any kind 
concerning the municipal advisors. By aligning MSRB rules with the 
SEC's Modernized IA Marketing Rule, as well as Rule G-21, the proposed 
amendments to Rules G-40 and G-8 would also improve efficiency by 
providing regulatory consistency for regulated entities dually 
registered as a dealer and as a municipal advisor, or as an investment 
adviser registered with the SEC and as a municipal advisor.
    The Commission also finds that the proposed rule change will not 
hinder capital formation, as the proposed amendments to Rule G-40 and 
Rule G-

[[Page 31571]]

8 would be applicable to all municipal advisors. As such, the 
Commission finds that the proposed rule change would help ensure that 
all regulated entities dually registered (as a dealer and as a 
municipal advisor, or as an investment adviser with the SEC and as a 
municipal advisor), are subject to consistent standards on the use of 
testimonials in advertisements. The Commission finds that the proposed 
amendments to Rules G-40 and G-8 would therefore promote efficiency in 
the marketplace. Therefore, the Commission concludes that the 
amendments to Rule G-40 and Rule G-8 would not negatively affect 
competition and capital formation.

VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Exchange Act,\169\ that the proposed rule change (SR-MSRB-2023-01) be, 
and hereby is, approved.
---------------------------------------------------------------------------

    \169\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Office of Municipal Securities, 
pursuant to delegated authority.\170\
---------------------------------------------------------------------------

    \170\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-10468 Filed 5-16-23; 8:45 am]
BILLING CODE 8011-01-P


