Notice2023-09686
Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MSRB Rule G-27 To Further Extend the Current Regulatory Relief for Remote Office Inspections Through June 30, 2024 and Amend MSRB Rule G-16 To Delete Temporary Relief for the Initiation of Periodic Compliance Examinations of Dealers by the Examining Authorities
Primary source
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Published
May 8, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 88 (Monday, May 8, 2023)</title>
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[Federal Register Volume 88, Number 88 (Monday, May 8, 2023)]
[Notices]
[Pages 29774-29777]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-09686]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97423; File No. SR-MSRB-2023-04]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend MSRB Rule G-27 To Further Extend the Current Regulatory
Relief for Remote Office Inspections Through June 30, 2024 and Amend
MSRB Rule G-16 To Delete Temporary Relief for the Initiation of
Periodic Compliance Examinations of Dealers by the Examining
Authorities
May 2, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that, on April 27, 2023, the Municipal Securities
Rulemaking Board (``MSRB'' or ``Board'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the MSRB. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB filed with the Commission a proposed rule change to (i)
amend Supplementary Material .01, Temporary Relief for Completing
Office Inspections, of MSRB Rule G-27, on Supervision, to further
extend the current regulatory relief and permit brokers, dealers and
municipal securities dealers (each, individually ``dealer'' and
collectively ``dealers'') to conduct office inspections due to be
completed during calendar year 2023 remotely through December 31, 2023,
and office inspections due to be completed during calendar year 2024
remotely through June 30, 2024; and (ii) delete Supplementary Material
.01, Temporary Relief for Completing Periodic Compliance Examination,
of MSRB Rule G-16, on periodic compliance examinations, which provided
temporary relief for the initiation of periodic compliance examinations
of dealers by registered securities associations \3\ and appropriate
regulatory agencies \4\ (collectively, the ``examining authorities'')
(collectively the ``proposed rule change''). The MSRB has designated
the proposed rule change as constituting a ``noncontroversial'' rule
change under section 19(b)(3)(A) \5\ of the Act and Rule 19b-4(f)(6)
\6\ thereunder, which renders the proposal effective upon receipt of
this filing by the Commission. The MSRB proposes an operative date of
July 1, 2023.
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\3\ Section 15B(c)(7)(A)(i) of the Exchange Act provides that
periodic examinations of municipal securities brokers and municipal
securities dealers shall be conducted by a registered securities
association, in the case of municipal securities brokers and
municipal securities dealers that are members of such association.
The Financial Industry Regulatory Authority (``FINRA'') is currently
the only registered securities association. See <a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>.
\4\ Pursuant to section 15B(c)(7)(A)(ii) of the Exchange Act,
municipal securities brokers and municipal securities dealers who
are not members of a registered securities association shall be
examined by their appropriate regulatory agency. The term
``appropriate regulatory agency'' when used with respect to
municipal securities dealers means, in part, the Office of the
Comptroller of the Currency (``OCC''), the Board of Governors of the
Federal Reserve System (``FRB''), and the Federal Deposit Insurance
Corporation (``FDIC''). See 15 U.S.C. 78c(a)(34)(A). The Commission
also has the authority to examine all registered municipal
securities dealers if the Commission deems it necessary or
appropriate in the public interest, for the protection of investors,
or otherwise in furtherance of the purpose of the Exchange Act. See
15 U.S.C. 78q(b)(1).
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 17 CFR 240.19b-4(f)(6).
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The text of the proposed rule change is available on the MSRB's
website at <a href="https://msrb.org/2023-SEC-Filings">https://msrb.org/2023-SEC-Filings</a>, at
[[Page 29775]]
the MSRB's principal office, and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The MSRB has continued to monitor the impact of the coronavirus
disease on municipal market participants and how dealers' operations
and business models have evolved during the public health crisis. The
MSRB previously filed proposed rule changes for immediate effectiveness
with the SEC in April 2020,\7\ in December 2020,\8\ in October 2021,\9\
in March 2022,\10\ and in November 2022 \11\ (``April 2020 relief,''
``December 2020 relief,'' ``October 2021 relief,'' ``March 2022
relief,'' and ``November 2022 relief,'' respectively). In connection
with the April 2020 relief, the MSRB provided an extension of time for
dealers to complete certain supervisory obligations, including, among
other things, that office inspections due to be conducted during
calendar year 2020 could be conducted by March 31, 2021, but with the
expectation that dealers would conduct their inspections on-site. The
December 2020 relief provided dealers with the option to conduct their
office inspections remotely that were due to be completed by March 31,
2021 (for calendar year 2020) and those for calendar year 2021, subject
to certain conditions. The October 2021 relief provided an additional
extension of time permitting dealers to continue to conduct office
inspections remotely through June 30, 2022, for their office
inspections that were due to be completed for calendar year 2022.\12\
The March 2022 relief allowed for dealers to complete office
inspections, due to be completed during calendar year 2022, remotely
through December 31, 2022. The November 2022 relief allowed for dealers
to conduct office inspections, due to be completed during calendar year
2023, remotely through June 30, 2023.
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\7\ See Exchange Act Release No. 88694 (April 20, 2020), 85 FR
23088 (April 24, 2020) (File No. SR-MSRB-2020-01).
\8\ See Exchange Act Release No. 90621 (December 9, 2020), 85 FR
81254 (December 15, 2020) (File No. SR-MSRB-2020-09).
\9\ See Exchange Act Release No. 93435 (October 27, 2021), 86 FR
60522 (November 2, 2021) (File No. SR-MSRB-2021-06).
\10\ See Exchange Act Release No. 94383 (March 9, 2022), 87 FR
14596 (March 15, 2022) (File No. SR-MSRB-2022-01).
\11\ See Exchange Act Release No. 96346 (November 17, 2022), 87
FR 71719 (November 23, 2022) (File No. SR-MSRB-2022-08).
\12\ The MSRB noted in the October 2021 relief that it would
continue to monitor the effectiveness of remote office inspections
on dealers' overall supervisory systems and would consider more
long-term regulatory initiatives that align with and promote the
evolving ways dealers are doing business and supervising the
activities of a dealer and its associated persons. See Exchange Act
Release No. 93435 (October 27, 2021), 86 FR 60522 (November 2, 2021)
(File No. SR-MSRB-2021-06). The MSRB is still undertaking such
review.
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The MSRB understands that a large number of firms have implemented
a hybrid work environment in which particular business functions
continue to be de-centralized. Therefore, the November 2022 relief was
intended to allow dealers time to address ongoing challenges related to
variations of telework arrangements.\13\ The MSRB believes that an
additional extension allowing dealers to conduct office inspections
remotely through the first half of the calendar year (June 30, 2024),
would provide dealers with the necessary time to continue to assess the
current and future state of work and evolve their current supervisory
practices to better support an integrated hybrid work environment.
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\13\ See Exchange Act Release No. 96346 (November 17, 2022), 87
FR 71719 (November 23, 2022) (File No. SR-MSRB-2022-08).
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Relatedly, in October 2022, FINRA submitted a proposed rule filing
with the SEC to extend its remote office inspection relief through the
earlier of the effective date of its proposed remote office inspection
pilot program,\14\ if approved, or the end of calendar year 2023.\15\
The MSRB believes the extension of time through the first half of the
calendar year (June 30, 2024), will afford the industry time, including
the MSRB, to better assess the impact of FINRA's open rulemaking
initiative pending with the Commission, and provide greater regulatory
certainty as to the length of time dealers can operate under the
current regulatory relief to aid dealers' ability to plan for the
coming year.
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\14\ See Exchange Act Release No. 95452 (August 9, 2022), 87 FR
50144 (August 15, 2022) (File No. SR-FINRA-2022-021). FINRA proposes
to amend FINRA Rule 3110, on supervision, to adopt a voluntary,
three-year remote inspection pilot program to allow FINRA member
firms to elect to conduct inspections of some or all of a firm's
branch offices and locations remotely without an on-site visit to
such office or location, subject to specified terms and conditions.
\15\ See Exchange Act Release No. 96241 (November 4, 2022), 87
FR 67969 (November 10, 2022) (File No. SR-FINRA-2022-030).
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To that end, the MSRB is proposing amendments to Supplementary
Material .01 of MSRB Rule G-27. Specifically, the proposed amendments
to Supplementary Material .01 of MSRB Rule G-27 would allow dealers to
satisfy their office inspection obligations by permitting dealers to
conduct office inspections, due to be completed in calendar year 2023,
remotely for the remainder of calendar year 2023, as well as allow
dealers to conduct calendar year 2024 office inspections remotely
through June 30, 2024.\16\
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\16\ As the MSRB has noted in the past, pursuant to Rule G-
27(g)(ii)(A)(7), a temporary location established in response to the
implementation of a business continuity plan is not deemed an office
for purposes of complying with the office inspection obligations,
under MSRB Rule G-27. See supra note 7.
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The conditions required to be met for dealers to avail themselves
of the option to conduct office inspections remotely would remain
unchanged under Rule G-27. However, amendments are being proposed to
paragraphs (a) and (d) of Supplementary Material .01 to reflect the
additional extension of time under the proposed rule change. Pursuant
to paragraphs (b)-(d) of Supplementary Material .01 of MSRB Rule G-27,
as currently effective, dealers electing to conduct their office
inspections remotely must (i) amend or supplement their written
supervisory procedures as appropriate to provide for remote inspections
that are reasonably designed to assist in detecting and preventing
violations of, and achieving compliance with, applicable securities
laws and regulations, and with applicable Board rules; (ii) use remote
office inspections as part of an effective supervisory system, which
would include the ongoing review of activities and functions occurring
at all offices and locations whether or not the dealer conducts
inspections remotely; and (iii) make and maintain a centralized record
for each of the calendar years 2020, 2021, 2022, and for calendar year
2023 through June 30, 2023, separately identifying all offices or
locations that had inspections that were conducted remotely; and any
offices or locations for which the dealer determined to impose
additional supervisory procedures or more frequent monitoring as
provided for under paragraph (c) of Supplementary Material .01, of MSRB
Rule G-27. Thus, under the proposed
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rule change, the dates within paragraphs (a) and (d) of Supplementary
Material .01, of MSRB Rule G-27, would be revised to include the
remainder of calendar year 2023 and calendar year 2024 through June 30,
2024, for conducting remote office inspections and with respect to the
related documentation requirement for dealers that elect to conduct
their inspections remotely.
The proposed rule change also deletes Supplementary Material .01,
Temporary Relief for Completing Periodic Compliance Examinations, of
MSRB Rule G-16, on periodic compliance examination, that provided
temporary relief for completing periodic examinations of dealers by
registered securities associations and appropriate regulatory
agencies.\17\ Supplementary Material .01, of MSRB Rule G-16, currently
provides that any examination initiated between January 1, 2020 and
March 31, 2021 is deemed to have occurred in calendar year 2020. As
that time period has since passed and the Supplementary Material is no
longer relevant, the proposed rule change deletes this Supplementary
Material in order to streamline the rule.
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\17\ See Exchange Act Release No. 90621 (December 9, 2020), 85
FR 81254 (December 15, 2020) (File No. SR-MSRB-2020-09).
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2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
section 15B(b)(2)(C) of the Exchange Act,\18\ which provides 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.
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\18\ 15 U.S.C. 78o-4(b)(2)(C).
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The proposed rule change is designed to provide dealers additional
time to comply with certain obligations under MSRB rules for a
temporary period of time and greater regulatory certainty as to the
length of time dealers can operate under the current regulatory relief
to aid dealers' ability to plan for the coming year. The proposed rule
change does not relieve dealers from compliance with their core
regulatory obligations to establish and maintain a system to supervise
the activities of each of their associated persons that is reasonably
designed to achieve compliance with applicable rules and regulations,
and with applicable MSRB rules, which serve to protect investors,
municipal entities, obligated persons, and the public interest. The
MSRB believes that an additional extension affording dealers the option
to conduct remote inspections, due to be completed in calendar year
2023, as well as the option to conduct remote office inspections, due
to be completed in calendar year 2024, for the first half of the
calendar year (June 30, 2024), is a prudent regulatory approach. This
approach will allow dealers time to continue to adapt their supervisory
practices to long-term hybrid work arrangements while continuing to
serve the important investor protection and public interest objectives
of the inspection obligations. Lastly, the proposed rule change also
will alleviate some of the operational challenges dealers may be
experiencing, which will allow them to more effectively allocate
resources to the operations that facilitate 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.\19\
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\19\ The proposed rule change only creates the option for
dealers to conduct office inspections remotely through June 30,
2024. With that in mind, dealers should consider whether, under
their particular operating conditions, electing to conduct the
required office inspections remotely would be reasonable under facts
and circumstances.
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The proposed rule change to remove outdated references to the
regulatory relief that is no longer applicable would ensure that rule
provisions are clear, accurate, and streamlined, thereby facilitating
compliance and promoting just and equitable principles of trade by
clarifying the regulatory obligations under MSRB rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) of the Act requires that MSRB rules be
designed not to impose any burden on competition that is not necessary
or appropriate in furtherance of the purposes of the Act.\20\ In fact,
the MSRB does not believe that the proposed rule change will have any
burden on competition because the proposed rule change treats all
dealers equally in that all dealers have the option to elect to conduct
remote inspections remotely through June 30, 2024. The goal of the
proposed rule change is to grant additional time for dealers to focus
their time on the establishment and integration of long-term hybrid
work arrangements--recognizing the use of a remote work force and
transformative technology to decentralize functions--while also
balancing the regulatory obligation to establish office inspection
schedules for the first half of 2024 and meet their office inspection
obligations, under Supplementary Material .01 of Rule G-27. The
temporary relief afforded does not alter dealers' underlying
obligations under Rule G-27 and with applicable MSRB rules that
directly serve investor protection.
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\20\ 15 U.S.C. 78o-4(b)(2)(C).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6) \22\ thereunder. At any time within 60 days of the filing of
the proposed rule change, the Commission summarily may temporarily
suspend such rule change if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(6).
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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 proposed rule
change 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#cfbdbaa3aae2aca0a2a2aaa1bbbc8fbcaaace1a8a0b9"><span class="__cf_email__" data-cfemail="255750494008464a4848404b5156655640460b424a53">[email protected]</span></a>. Please
include File Number SR-MSRB-2023-04 on the subject line.
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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-2023-04. 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="https://www.sec.gov/rules/sro.shtml">https://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 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. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to File Number SR-MSRB-2023-04 and should be
submitted on or before May 30, 2023.
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\23\ 17 CFR 200.30-3(a)(12).
For the Commission, pursuant to delegated authority.\23\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09686 Filed 5-5-23; 8:45 am]
BILLING CODE 8011-01-P
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