Notice2023-07502
Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change Consisting of Amendments to MSRB Rule G-40, on Advertising by Municipal Advisors, and MSRB Rule G-8, on Books and Records
Primary source
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Published
April 11, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 69 (Tuesday, April 11, 2023)</title>
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[Federal Register Volume 88, Number 69 (Tuesday, April 11, 2023)]
[Notices]
[Pages 21729-21731]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-07502]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97255; File No. SR-MSRB-2023-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendment No. 1 to Proposed Rule Change
Consisting of Amendments to MSRB Rule G-40, on Advertising by Municipal
Advisors, and MSRB Rule G-8, on Books and Records
April 5, 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 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule (the ``original proposed rule change'')
consisting of amendments to MSRB Rule G-40 on advertising by municipal
advisors (``Rule G-40''), and MSRB Rule G-8 on books and records
(``Rule G-8'').\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See MSRB filing of original proposed rule change, available
at <a href="https://msrb.org/sites/default/files/2023-01/MSRB-2023-01.pdf">https://msrb.org/sites/default/files/2023-01/MSRB-2023-01.pdf</a>.
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The original proposed rule change was published for comment in the
Federal Register on February 14, 2023.\4\ The Commission received two
comment letters on the original proposed rule change.\5\ On March 21,
2023, the MSRB granted an extension of time for the Commission to act
on the filing until May 15, 2023.\6\
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\4\ Release No. 34-96840 (Feb. 8, 2023), 88 FR 9580 (Feb. 14,
2023) (``Notice''). The comment period closed on March 7, 2023.
\5\ See Letter to Secretary, Commission, from Leslie M. Norwood,
Managing Director and Associate General Counsel, Securities Industry
and Financial Markets Association, dated March 7, 2023 (``SIFMA
Letter''); Letter to Secretary, Commission, from Susan Gaffney,
Executive Director, National Association of Municipal Advisors,
dated March 7, 2023 (``NAMA Letter'').
\6\ See ``Extension of Time on File No. SR-MSRB-2023-01 to May
15, 2023,'' available at <a href="https://msrb.org/sites/default/files/2023-03/MSRB-2023-01%20eot.pdf">https://msrb.org/sites/default/files/2023-03/MSRB-2023-01%20eot.pdf</a>.
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On April 4, 2023, the MSRB responded to the comments \7\ and filed
Amendment No. 1 to the original proposed rule change (``Amendment No.
1''). The text of Amendment No. 1 is available on the MSRB's
website.\8\ The Commission is publishing this notice to solicit
comments on Amendment No. 1 from interested persons.
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\7\ See Letter from Saliha Olgun, Interim Chief Regulatory
Officer, MSRB, to Secretary, Commission, dated April 4, 2023,
available at <a href="https://msrb.org/sites/default/files/2023-04/MSRB-2023-01%20Comment%20Letter.pdf">https://msrb.org/sites/default/files/2023-04/MSRB-2023-01%20Comment%20Letter.pdf</a>.
\8\ Amendment No. 1 is available at <a href="https://msrb.org/sites/default/files/2023-04/MSRB-2023-01%20A-1.pdf">https://msrb.org/sites/default/files/2023-04/MSRB-2023-01%20A-1.pdf</a>.
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II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Amendment
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.\9\
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\9\ 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. See Amendment No. 1.
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A. Definition of Testimonial
The MSRB noted that a commenter suggested that the term
``testimonial'' be defined within the rule language itself.\10\ 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) \11\ under the Investment
Advisers Act of 1940 (``Advisers Act'').\12\ Specifically, the MSRB
defined ``testimonial'' in 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.'' \13\ 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.'' \14\ 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.\15\ 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).\16\
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\10\ NAMA Letter at 1-2; see also Amendment No. 1.
\11\ 17 CFR 275.206(4)-1(b)(1).
\12\ See Amendment No. 1; 15 U.S.C. 80b-1-80b-2.
\13\ See Amendment No. 1.
\14\ See id.
\15\ See id.
\16\ The MSRB also added a cross-reference to the new definition
of ``testimonial'' in the original proposed rule change's Rule G-8.
See id.
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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.\17\ The MSRB posited
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
testimonials may be used if certain requirements are met.'' \18\ 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'').\19\
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\17\ See id.
\18\ NAMA Letter at 4; see also id.
\19\ See Amendment No. 1.
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B. Non-Client Testimonials
The MSRB noted that both commenters suggested that it would promote
further harmonization with MSRB Rule G-21 (``Rule G-21''), on
advertising by brokers, dealers, and municipal securities dealers, if
municipal advisors were able to use testimonials by third parties.\20\
The MSRB stated that it will 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.\21\ The MSRB reasoned that, for example,
analogous to Rule 206-4(1) \22\ under the Advisers Act,\23\ 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.\24\ 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.\25\
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\20\ See id.; NAMA Letter and SIFMA Letter.
\21\ See Amendment No. 1.
\22\ 17 CFR 275.206(4)-1(b)(1).
\23\ 15 U.S.C. 80b-1-80b-2.
\24\ See Amendment No. 1.
\25\ See id.; see also Release No. IA-5653 (Dec. 22, 2020) (File
No. S7-21-19), 86 FR 13024 (Mar. 5, 2021) (``IA Marketing Rule
Adopting Release'') at 13048.
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C. Solicitor Municipal Advisors
The MSRB stated that both commenters found the proposal to
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establish a different standard for the use of testimonials by solicitor
municipal advisors confusing.\26\ 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.\27\ 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.\28\ 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.\29\ 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.\30\
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\26\ See NAMA Letter and SIFMA Letter; see also Amendment No.1.
\27\ See Amendment No.1.
\28\ See id.
\29\ See id.
\30\ Correspondingly, the MSRB added the phrase ``directly or
indirectly'' to the original proposed rule change's Rule G-8. See
id.
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D. Social Media Guidance
The MSRB wrote that 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'') \31\ be updated to reflect the proposed amendments to Rule
G-40.\32\
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\31\ These frequently asked questions (``FAQs'') were filed with
the Commission for immediate effectiveness. See Release No. 34-85222
(Feb. 28, 2019), 84 FR 8132 (Mar. 6, 2019) (File No. SR-MSRB-2019-
04). These FAQs can be found on the MSRB's website at <a href="https://www.msrb.org/FAQs-regarding-Use-Social-Media-under-MSRB-Rule-G-21-Advertising-Brokers-Dealers-or-Municipal-0">https://www.msrb.org/FAQs-regarding-Use-Social-Media-under-MSRB-Rule-G-21-Advertising-Brokers-Dealers-or-Municipal-0</a> (Aug. 23, 2019).
\32\ See NAMA Letter and SIFMA Letter; see also Amendment No. 1.
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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).\33\ 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.\34\ The MSRB stated that Amendment No.1's 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).\35\
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\33\ See Amendment No. 1.
\34\ See id.
\35\ See id.
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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.\36\ 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).\37\ The MSRB also revised the social
media guidance's footnotes with updated citations and conforming
numbering changes.\38\
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\36\ See id.
\37\ See id.
\38\ See id.
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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.\39\
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\39\ See NAMA Letter at 4.
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i. 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.\40\
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\40\ See Amendment No. 1.
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ii. 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.\41\ 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.\42\
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\41\ See Amendment No. 1.
\42\ See id.
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III. Date of Effectiveness of the Proposed Rule Change and Amendment
No. 1
As stated in the original proposed rule change, the MSRB will
publish a regulatory notice no later than one month following the
Commission's approval date, which will include an implementation date
that shall be no later than three months following the Commission
approval date.\43\
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\43\ See Notice.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the filing as
amended by Amendment No. 1 is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#146661787139777b7979717a6067546771773a737b62"><span class="__cf_email__" data-cfemail="f082859c95dd939f9d9d959e8483b0839593de979f86">[email protected]</span></a>. Please include
File Number SR-MSRB-2023-01 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-MSRB-2023-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the
[[Page 21731]]
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the MSRB. All comments received will be posted
without change. Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
MSRB-2023-01 and should be submitted on or before April 26, 2023.
For the Commission, pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-07502 Filed 4-10-23; 8:45 am]
BILLING CODE 8011-01-P
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