Notice2023-16109
Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-3 To Create an Exemption for Municipal Advisor Representatives From Requalification by Examination and Remove Waiver Provisions and To Amend MSRB Rule G-8 To Establish Related Books and Records Requirements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 31, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 145 (Monday, July 31, 2023)</title>
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[Federal Register Volume 88, Number 145 (Monday, July 31, 2023)]
[Notices]
[Pages 49528-49540]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16109]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97984; File No. SR-MSRB-2023-05]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change To Amend MSRB Rule G-
3 To Create an Exemption for Municipal Advisor Representatives From
Requalification by Examination and Remove Waiver Provisions and To
Amend MSRB Rule G-8 To Establish Related Books and Records Requirements
July 25, 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 July 21, 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
[[Page 49529]]
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 amend
MSRB Rule G-3, on professional qualification requirements to (i) remove
the waiver provisions with respect to municipal advisor representative
and principal qualification requirements; (ii) establish a new,
criteria-based exemption to permit certain individuals to requalify as
a municipal advisor representative \3\ without reexamination; (iii)
retitle and replace Supplementary Material .02, on extraordinary
waivers with text specifying the means for electronic delivery of the
requisite notice to the MSRB regarding satisfaction of the criteria-
based exemption; and (iv) make technical changes to the rule to update
certain phrases and clauses. The MSRB also proposes to amend MSRB Rule
G-8, on books and records, to establish accompanying recordkeeping
requirements (the proposed amendments to Rules G-3 and G-8 collectively
make up the ``proposed rule change''). The MSRB requests that the
proposed rule change be approved with a compliance date of no more than
30 days following the Commission approval date. The proposed rule
change is specific to the professional qualification obligations of
municipal advisors, including associated persons thereof, under Rule G-
3, and does not modify any requirements to firms registered solely as
brokers, dealers and/or municipal securities dealers (collectively,
``dealers'' and each, individually ``a dealer''), or associated persons
thereof.
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\3\ Rule G-3(d)(i)(A) defines the term ``municipal advisor
representative'' to mean a natural person associated with a
municipal advisor who engages in municipal advisory activities, on
the municipal advisor's behalf, other than a person performing only
clerical, administrative, support or similar functions. Rule G-
3(d)(ii)(A) requires all persons meeting the definition of a
municipal advisor representative to be qualified in that capacity by
taking and passing the Municipal Advisor Representative
Qualification Examination (``Series 50 examination'') prior to being
qualified as a municipal advisor representative. Under current Rule
G-3(d)(ii)(B), any person who, after qualifying as a municipal
advisor representative, ceases to be associated with a municipal
advisor firm for two or more years shall re-take and pass the Series
50 examination, unless a waiver is granted from the Board in
``extraordinary cases'' pursuant to current Rule G-3(h)(ii).
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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 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 is charged with setting professional qualification
standards for dealers and municipal advisors. Specifically, Section
15B(b)(2)(A) of the Act authorizes the MSRB to prescribe standards of
training, experience, competence, and such other qualifications as the
Board finds necessary or appropriate in the public interest or for the
protection of investors and municipal entities or obligated persons.\4\
Sections 15B(b)(2)(A)(i) \5\ and 15B(b)(2)(A)(iii) \6\ of the Act also
provide that the Board may appropriately classify associated persons of
dealers and municipal advisors and require persons in any such class to
pass tests prescribed by the Board. Accordingly, over the years, the
MSRB has adopted professional qualification standards to ensure that
associated persons of dealers and municipal advisors attain and
maintain specified levels of competence and knowledge for each
qualification category.
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\4\ See 15 U.S.C. 78o-4(b)(2)(A).
\5\ See 15 U.S.C. 78o-4(b)(2)(A)(i).
\6\ See 15 U.S.C. 78o-4(b)(2)(A)(iii).
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Description of the Proposed Rule Change
As part of the MSRB's rule book modernization initiative and in
light of the industry-wide continuing education (CE) transformation
initiative for broker-dealers,\7\ the MSRB undertook a review of Rule
G-3 to identify opportunities to provide individuals associated with
municipal advisor firms increased regulatory flexibility with respect
to maintaining their professional qualifications. To that end, the
proposed rule change would create a one-time, criteria-based exemption,
under Rule G-3, for former municipal advisor representatives to,
without reexamination, requalify in that capacity no later than one
year after their two-year lapse in qualification. Second, the proposed
rule change would remove language from Rule G-3 that currently permits
the Board, in extraordinary cases, to waive the reexamination
requirements for municipal advisor representatives and principals.
Third, the proposed rule change would make certain clarifying
amendments to Rule G-3 to address an interpretive question pertaining
to a lapse in qualification for an individual associated with a dually
registered firm that is both a dealer and a municipal advisor. Fourth,
the proposed rule change would retitle and replace the current text of
Supplementary Material .02 of Rule G-3 with text specifying the means
for electronic delivery of the requisite notice to the MSRB regarding
satisfaction of the criteria-based exemption. Additionally, the
proposed rule change would make technical amendments to Rule G-3 to
update certain phrases, clauses and referenced provisions to, among
other things, improve the overall readability of the rule. Finally, the
proposed rule change would amend Rule G-8 to require municipal advisors
to make and keep certain books and records relating to the exemption to
be created under the proposed rule change, as prescribed under Rule G-
3(h)(ii)(I).
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\7\ As industry and market practices evolved in recent years,
the MSRB, in coordination with other self-regulatory organizations,
advanced rulemaking initiatives to modernize applicable professional
qualification and continuing education program requirements for
dealers (``CE Transformation''). See e.g., Exchange Act Release No.
95684 (September 7, 2022), 87 FR 56137 (September 13, 2022) (Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change to
Amend MSRB Rule G-3 Continuing Education Program Requirements to
Harmonize with Industry-Wide Transformation) (File No. SR-MSRB-2022-
07).
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A more detailed description of the proposed rule change follows.
Clarifying Amendments to Rule G-3(d)(ii)(B)
Currently, pursuant to Rule G-3(d)(ii)(B), on qualification
requirements for municipal advisor representatives, any person who
ceases to be associated with a municipal advisor \8\ for two or more
years after having qualified as a municipal advisor representative, in
accordance with the rule, must take and pass the Series 50 examination
prior to being qualified as a municipal advisor representative, unless
a waiver is granted. Proposed amendments to this provision would
provide that any person who ceases to be associated with
[[Page 49530]]
``or engaged in municipal advisory activities on behalf of'' a
municipal advisor for two or more years after having qualified by
examination as a municipal advisor representative (i.e., experiences a
``lapse in qualification'') must take and pass the Series 50
examination unless exempt from such requirement pursuant to Rule G-
3(h)(ii), as amended by the proposed rule change.
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\8\ For purposes of this filing and Exhibit 5, when the term
``municipal advisor'' is used it refers only to the firm and not
associated persons of the firm.
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The proposed amendments to Rule G-3(d)(ii)(B) add the new language
``or engaged in municipal advisory activities on behalf of'' which is
intended to provide clarity on the requirement for an individual
associated with a firm that is dually registered as a dealer and
municipal advisor. If an individual associated with such firm ceases to
be engaged in activity requiring qualification as a municipal advisor
representative \9\ and instead engages only in municipal securities
business on behalf of the firm for a period of two or more years, then
that individual's municipal advisor representative qualification would
have lapsed, notwithstanding the fact that such person remains
associated with a firm that is also a registered municipal advisor.\10\
The proposed amendments to Rule G-3(d)(ii)(B) would also delete the
reference to the mention of a waiver (i.e., the clause ``a waiver is
granted'') to clarify that such persons would need to qualify by
examination as municipal advisor representatives, unless obtaining the
one-time criteria-based exemption.
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\9\ Pursuant to Section 15B(e)(4)(A)(i) and (ii) of the Act (15
U.S.C. 78o-4(e)(4)(A)(i) and (ii)) and Rules D-13, G-3(d)(i)(A), and
G-3(d)(ii)(A), municipal advisory activities requiring qualification
as a municipal advisor representative include providing advice to or
on behalf of a municipal entity or obligated person with respect to
municipal financial products or the issuance of municipal
securities, including advice with respect to the structure, timing,
terms, and other similar matters concerning such financial products
or issues; or undertaking a solicitation of a municipal entity or
obligated person.
\10\ Under Exchange Act Rule 15Ba1-2, SEC Form MA-I: Information
Regarding Natural Persons Who Engage in Municipal Advisory
Activities (``SEC Form MA-I'') is filed with the SEC to indicate
natural persons who are associated with the municipal advisor and
engaged in municipal advisory activities on its behalf. See 17 CFR
240.15Ba1-2. Firms are required to promptly amend Form MA-I,
pursuant to Exchange Act Rule 15Ba1-5 (17 CFR 240.15Ba1-5), in such
cases where an individual ceases to engage in municipal advisory
activities on behalf of a firm.
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Relatedly, the proposed rule change would provide a technical
amendment to subparagraph (d)(ii)(B) of Rule G-3 by adding the phrase
``lapse in qualification'' to define for purposes of the rule when a
person ceases to be associated with a municipal advisor for two or more
years at any time after having qualified as a municipal advisor
representative. The proposed amendments also would replace the phrase
``a waiver is granted'' with ``exempt'' to make clear that the waiver
provision for extraordinary cases is being deleted and replaced with a
criteria-based exemption. The technical amendment to change the word
``shall'' to ``must'' is intended to add clarity without changing the
meaning of the term. Lastly, the proposed amendments would replace the
reference to ``subparagraph'' (h)(ii) with ``paragraph'' (h)(ii) to
create better uniformity across Rule G-3.
Clarifying Amendments to Rule G-3(e)(ii)(A) and (B)
Currently, pursuant to Rule G-3(e)(ii)(A), on qualification
requirements for municipal advisor principals, as a pre-requisite to
becoming qualified as a municipal advisor principal a person must take
and pass the Series 50 examination. The proposed amendments to this
provision would provide that taking and passing the Series 50
examination is the pre-requisite to becoming qualified as a municipal
advisor principal ``unless exempt from taking the Municipal Advisor
Representative Qualification Examination pursuant to paragraph (h)(ii)
of this rule.'' The proposed amendments to Rule G-3(e)(ii)(A) add the
new language ``unless exempt from taking the Municipal Advisor
Representative Qualification Examination pursuant to paragraph (h)(ii)
of this rule,'' which is intended to allow for individuals previously
qualified as municipal advisor principals to use the criteria-based
exemption to obtain requalification with the Series 50 examination and
provide clarity as to the application to such individuals.
Notwithstanding the availability of the criteria-based exemption from
requalification with the Series 50 examination, such municipal advisor
principals would still need to take and pass the Municipal Advisor
Principal Qualification Examination (``Series 54 examination'').
In addition, currently, pursuant to Rule G-3(e)(ii)(B), any person
who ceases to be associated with a municipal advisor for two or more
years after having qualified as a municipal advisor principal, in
accordance with the rule, must take and pass the Series 50 examination
and the Series 54 examination prior to being qualified as a municipal
advisor principal, unless a waiver is granted under current
subparagraph (h)(ii) of this rule. Proposed amendments to this
provision would provide that any person who ceases to be associated
with ``or engaged in municipal advisory activities on behalf of'' a
municipal advisor for two or more years after having qualified by
examination as a municipal advisor principal must take and pass the
Series 50 examination unless exempt from such requirement pursuant to
Rule G-3(h)(ii), as amended by the proposed rule change.
The proposed amendments to Rule G-3(e)(ii)(B) adds the new language
``or engaged in municipal advisory activities on behalf of,'' which is
intended to provide clarity on the requirement for an individual
associated with a firm that is dually registered as a dealer and
municipal advisor. For example, if an individual associated with such
firm ceases to be engaged in activity requiring qualification as a
municipal advisor principal and instead engages only in municipal
securities business on behalf of the firm for a period of two or more
years, then that individual's municipal advisor representative and
municipal advisor principal qualifications would have lapsed,
notwithstanding the fact that such person remains associated with a
firm that is also a registered municipal advisor. The proposed
amendments to Rule G-3(e)(ii)(B) would also delete the reference to the
mention of a waiver (i.e., the clause ``a waiver is granted'') to
clarify that such persons would need to qualify by examination as
municipal advisor principals.
Relatedly, proposed amendments to Rule G-3 would contain technical
amendments to Rules G-3(e)(ii)(A)(1) and G-3(e)(ii)(B). To clarify the
qualification requirements specific to municipal advisor principals, as
prescribed under G-3(e)(ii)(A)(1), the proposed rule change would add
the phrase ``unless exempt from taking the Municipal Advisor
Representative Qualification Examination pursuant to paragraph (h)(ii)
of this rule'' to make clear municipal advisor principals have to
requalify by reexamination unless such individuals have obtained the
one-time exemption. The proposed rule change would delete the phrase
``a waiver is granted'' and replace with the clause ``exempt from
taking the Municipal Advisor Representative Qualification Examination''
to make clear that the waiver provision for extraordinary cases is
being deleted and replaced with an exemption-based criteria for
municipal advisor principals to use for requalification without
reexamination for the Series 50 examination. Similarly, as previously
mentioned, the word ``shall'' would be replaced with ``must'' to
promote
[[Page 49531]]
clarity; and proposed amendments would replace the reference to
``subparagraph'' (h)(ii) with ``paragraph'' (h)(ii) to create better
uniformity across Rule G-3.
Removal of Extraordinary Waiver Provisions Under Rule G-3(h)(ii)
Proposed amendments to Rule G-3(h)(ii) would remove references, in
their entirety, to the ability to obtain a waiver in extraordinary
cases for a former municipal advisor representative or municipal
advisor principal and would replace such language with a criteria-based
exemption for former municipal advisor representatives. The MSRB
believes that this standard set forth within the four corners of the
rule would provide greater flexibility to municipal advisor firms and
their associated persons while simultaneously providing greater
certainty for firms and such individuals who may wish to seek an
exemption from the obligation to requalify as a municipal advisor
representative by reexamination. At this time, the MSRB believes that
the objective nature of the criteria-based exemption is preferable to
the subjective nature of the waiver provisions in current Rule G-
3(h)(ii). Additionally, the removal of the ability to seek and obtain a
waiver for municipal advisor principals furthers municipal entity and
obligated person protection by ensuring, through requalification by
reexamination, individuals have demonstrated knowledge and skills
necessary to discharge the responsibilities of a municipal advisor
principal, including the vested authority for the supervision,
oversight and management of firms' municipal advisory activities and
that of its associated persons.\11\
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\11\ The MSRB has previously stated that the Series 54
examination is intended to ensure that a person seeking to qualify
as a municipal advisor principal satisfies a specified level of
competency and knowledge by measuring a candidate's ability to apply
the applicable federal securities laws, including MSRB rules to the
municipal advisory activities of a municipal advisor. See Exchange
Act Release No. 84341 (October 2, 2018), 83 FR 50708, 50710 (October
9, 2018) (Notice of Filing of a Proposed Rule Change To Amend MSRB
Rule G-3, on Professional Qualification Requirements, To Require
Municipal Advisor Principals To Become Appropriately Qualified by
Passing the Municipal Advisor Principal Qualification Examination)
(File No. SR-MSRB-2018-07). In contrast, the MSRB has previously
noted that the Series 50 examination ensures a minimum level of
knowledge of the job responsibilities and regulatory requirements by
passing the general qualification examination. See Exchange Act
Release No. 73708 (December 1, 2014), 79 FR 72225, 72227 (December
5, 2014) (Notice of Filing of a Proposed Rule Change Consisting of
Proposed Amendments to MSRB Rules G-1, on Separately Identifiable
Department or Division of a Bank; G-2, on Standards of Professional
Qualification; G-3, on Professional Qualification Requirements; and
D-13, on Municipal Advisory Activities) (File No. SR-MSRB-2014-08).
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Relatedly, proposed amendments to Supplementary Material .02, on
waivers, under Rule G-3 would retitle that paragraph to ``affirmation
notification'' and delete the entirety of that supplementary material,
which currently pertains to extraordinary waivers, and would replace it
with text that specifies how notice regarding use of the criteria-based
exemption would be required to be submitted to the MSRB.
The proposed rule change to amend Rule G-3(h)(ii) to establish the
criteria-based conditions that would be required to be met in order to
qualify for an exemption are described below.
Proposed Rule Change To Adopt Rule G-3(h)(ii)(A)-(I) To Establish
Conditions for Obtaining the Criteria-Based Exemption
The proposed rule change would amend Rule G-3(h)(ii) to prescribe
that an individual shall be exempt from the requirements of
subparagraph (d)(ii)(B) if the specified conditions under proposed Rule
G-3(h)(ii)(A)-(I) are met. Specifically, proposed amendments to adopt
Rule G-3(h)(ii)(A)-(I) would establish nine specified criteria-based
conditions that must be met in order for an individual (and the
municipal advisor firm with which such individual is associated \12\ or
seeks to be associated) to take advantage of the exemption.
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\12\ The MSRB notes that an individual who has associated with a
municipal advisor firm may not engage in any municipal advisory
activities, as defined under Rule D-13 and described in Section
15B(e)(4)(A)(i) and (ii) of the Act (15 U.S.C. 78o-4(e)(4)(A)(i) and
(ii)) and the rules and regulations promulgated thereunder (i.e.,
activities involving the provision of advice to or on behalf of a
municipal entity or obligated person with respect to municipal
financial products or the issuance of municipal securities or
undertaking a solicitation of a municipal entity or obligated
person), until such time that the individual has satisfied the
conditions set forth under the rule.
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The criteria-based conditions that would be required to be met in
order to qualify for an exemption are described below.
(1) The individual was previously qualified as a municipal advisor
representative by taking and passing the Series 50 examination.
(2) The individual maintained the municipal advisor representative
qualification for a period of at least three consecutive years while
associated with and engaging in municipal advisory activities on behalf
of one or more municipal advisor firm(s).
(3) Such qualification lapsed pursuant to proposed amended Rule G-
3(d)(ii)(B) and no more than one year has passed since such lapse in
qualification.
(4) The individual has not engaged in activities requiring
qualification as a municipal advisor representative \13\ during the
individual's lapse in qualification.
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\13\ See Rule G-3(d)(i)(A).
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(5) The individual is not subject to any events or proceedings that
resulted in a regulatory action disclosure report, a civil judicial
action disclosure report, customer complaint/arbitration/civil
litigation disclosure report, criminal action disclosure report or
termination disclosure report on SEC Form MA-I.\14\
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\14\ The MSRB included these types of disclosures in the
exemption criteria, as opposed to other types of disclosures
required by SEC Form MA-I, because these relate most closely to
violations of municipal advisor-related or investment-related
regulations, rules, or industry standards of conduct.
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(6) The individual has not previously obtained the exemption from
requalification by examination described in the proposed amended Rule
G-3(h)(ii).\15\
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\15\ Should an individual's municipal advisor representative
qualification lapse again after such person obtains the criteria-
based exemption, that individual would be required to requalify by
taking and passing the Series 50 examination.
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(7) Prior to engaging in municipal advisory activities on behalf of
the municipal advisor firm with which the individual is to associate
(or reassociate), as evidenced by the filing of SEC Form MA-I, the
municipal advisor firm provided, and the individual completed, CE
covering, at minimum, the subject areas of: (i) the principles of fair
dealing; (ii) the applicable regulatory obligations under Rules G-20,
on gifts and gratuities, G-37, on political contributions and
prohibitions on municipal securities business and municipal advisory
business, G-40, on advertising by municipal advisors, and G-8, on books
and records to be made and maintained; (iii) for non-solicitor
municipal advisors, the core conduct standards under Rule G-42,
including the fiduciary duty obligations owed to municipal entity
clients, or for solicitor municipal advisors, the core obligations of
Rule G-46; and (iv) any changes to applicable securities laws and
regulations, including applicable MSRB rules that were adopted since
the individual was last associated with a municipal advisor.
(8) Prior to engaging in municipal advisory activities on behalf of
the municipal advisor firm with which the individual is to associate
(or reassociate), as evidenced by the filing of an SEC Form MA-I, the
municipal advisor firm provided, and the individual reviewed the
compliance
[[Page 49532]]
policies and procedures of the municipal advisor firm.
(9) Upon satisfaction of the conditions set forth in the paragraphs
above, the municipal advisor firm filed a completed SEC Form MA-I with
the SEC with respect to such individual. Within 30 days of the
acceptance \16\ of a completed SEC Form MA-I identifying such
individual as engaging in municipal advisory activities on behalf of
the municipal advisor firm, the municipal advisor firm provided the
notification (``affirmation notification'') electronically to the MSRB
that the individual met the criteria in order to be exempt from the
requalification requirements of Rule G-3(d)(ii)(B) following a lapse in
qualification.
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\16\ The SEC does not make the form acceptance date publicly
available, but this information is made available to the form
submitter as part of the form filing process.
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The affirmation notification would be required to be on firm
letterhead and include the following information:
1. The municipal advisor firm's MSRB ID number;
2. The first and last name of the individual seeking to obtain the
exemption;
3. The individual's FINRA Central Registration Depository (CRD)
number if applicable;
4. The start date of the individual's association (or
reassociation) with the municipal advisor firm;
5. An affirmative statement that the municipal advisor has
undertaken a diligent effort to reasonably conclude that the individual
met the applicable requirements set forth in proposed amended Rule G-
3(h)(ii);
6. An affirmative statement attesting that the municipal advisor
firm provided both the requisite CE and the municipal advisor's
compliance policies and procedures to the individual for review along
with the date the individual completed the CE and review of the
municipal advisor's compliance policies and procedures provided by the
municipal advisor firm;
7. The date the municipal advisor firm filed SEC Form MA-I (and the
date of its acceptance) on behalf of the individual as required under
subparagraph (h)(ii)(I); and
8. A signature by the individual seeking to obtain the criteria-
based exemption and a signature by a municipal advisor principal of the
municipal advisor firm each attesting the accuracy of certain content
set forth in the affirmation notification. Specifically, the individual
must sign the affirmation notification attesting that the conditions
outlined in proposed amended Rule G-3(h)(ii)(A) through (H) were met.
And, a municipal advisor principal must sign the affirmation
notification, on behalf of the municipal advisor firm, attesting that,
based on the exercise of reasonable diligence, the conditions outlined
in proposed amended Rule G-3(h)(ii)(A) through (I) were met.\17\
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\17\ The MSRB notes that the respective individual and firm
signature requirements are intended to differentiate and confirm the
distinct responsibilities and obligations of the individual seeking
to obtain the criteria-based exemption and those of the municipal
advisor firm itself, as evidenced by the signature of a municipal
advisor principal on behalf of the municipal advisor firm.
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Additionally, the affirmation notification required to be provided
to the MSRB within 30 days of the acceptance of a completed SEC Form
MA-I, pursuant to subparagraph (h)(ii)(I) of this rule would be
required to be sent to <a href="/cdn-cgi/l/email-protection#24674b4954484d454a474164495756460a4b5643"><span class="__cf_email__" data-cfemail="b5f6dad8c5d9dcd4dbd6d0f5d8c6c7d79bdac7d2">[email protected]</span></a>, in accordance with proposed
amended Supplementary Material .02 of Rule G-3.
The conditions are designed to ensure that individuals seeking to
obtain the exemption (i.e., requalification without reexamination) have
and maintain the baseline level of knowledge and experience, and have
exhibited conduct aligned with being a fiduciary, which is in
furtherance of municipal entity and obligated person protection. The
MSRB believes that the criteria outlined above balance the goal of
providing reasonable regulatory flexibility with the demands of the
fiduciary standard applicable to municipal advisors. For example, the
requirement that individuals were duly qualified as a municipal advisor
representative for at least three consecutive years prior to, for
example, seeking other career opportunities in related capacities
(i.e., working for a dealer or municipal entity) or stepping away for
family obligations ensures that a reasonable level of professional
experience has been established before an individual can obtain the
exemption. In contrast, this period is not so long as to hinder the
ability, at a given point, for an individual to, for example,
temporarily engage in other meaningful roles within the municipal
securities industry or to step away due to family obligations.
At the same time, these conditions are designed to enhance an
individual's familiarity with regulatory and business developments that
occurred while they were not associated with a municipal advisor firm,
before reengaging in municipal advisory activities, but are not so
unduly burdensome as to hinder reassociation. The requirement to
provide the MSRB with notice of individuals who have obtained the
exemption (i.e., by submitting the affirmation notification to the
MSRB) is designed to facilitate transparency and provide an audit trail
regarding an individual's status as a municipal advisor representative.
The MSRB will use the affirmation notification, as described in the
proposed amended Rule G-3(h)(ii)(I), to help identify qualified
municipal advisor representatives and keep the list of such
representatives updated on the MSRB's website.\18\ Additionally, the
conditions pertaining to requisite filings with the SEC also provide an
audit trail and permit the entities charged with examination and
enforcement authority to confirm compliance with relevant obligations.
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\18\ The MSRB publishes a list of registered municipal advisors
and qualified municipal advisor professionals (available at: <a href="https://www.msrb.org/Municipal-Advisors">https://www.msrb.org/Municipal-Advisors</a>).
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Relatedly, technical amendments to Rule G-3(h) would retitle the
header from ``Waiver of Qualification Requirements'' to ``Waiver of and
Exemption from Qualification Requirements'' to promote clarity.
Technical amendments to Rule G-3(h)(ii) replace the introductory
sentence ``The requirements of paragraph (d)(ii)(A) and (e)(ii)(A) may
be waived by the Board in extraordinary cases for a municipal advisor
representative or municipal advisor principal'' with the new
introductory sentence ``An individual shall be exempt from the
requirements of subparagraph (d)(ii)(B) if all of the following
conditions are met'' for purposes of setting forth the enumerated
criteria outlined under the provision.
Finally, as previously mentioned, the proposed amendments to
Supplementary Material .02, on waivers, under Rule G-3 would retitle
the paragraph header from ``Waivers'' to ``Affirmation Notification''
and delete the entirety of that supplementary material, which currently
pertains to extraordinary waivers, and would replace it with text that
specifies how the firm would submit to the MSRB the affirmation
notification asserting that the criteria-based exemption has been met.
Timing for Completing the Requisite CE, Review of Compliance Policies
and Procedures, and Making the Requisite Form Filings
The MSRB has consistently stated that individuals should take and
pass the Series 50 examination before completing the necessary form
filings to become associated persons of municipal
[[Page 49533]]
advisor firms or before registering as municipal advisor firms.\19\ As
a result, an individual associating with a municipal advisor firm and
seeking to use the exemption should, in the following order:
---------------------------------------------------------------------------
\19\ See Question 17 of ``FAQs on Municipal Advisor Professional
Qualification and Examination Requirements'' (available at: <a href="https://www.msrb.org/sites/default/files/FAQ-MSRB-Series-50-Exam.pdf">https://www.msrb.org/sites/default/files/FAQ-MSRB-Series-50-Exam.pdf</a>).
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(i) take and complete the requisite CE (e.g., resources available
through trade associations or the MSRB, firm-developed materials, or
off-the-shelf purchased materials);
(ii) review the municipal advisor firm's compliance policies and
procedures;
(iii) have the municipal advisor firm complete SEC Form MA-I in
accordance with the instructions in the form and file the form
electronically with the SEC; and
(iv) submit the requisite affirmation notification to the MSRB
within 30 days of the acceptance of a completed SEC Form MA-I.
Whereas, solo-practitioners seeking to use the exemption should in
the following order:
(i) take and complete the requisite CE (e.g., resources available
through trade associations or the MSRB, firm-developed materials, or
off-the-shelf purchased materials);
(ii) review the developed compliance policies and procedures of the
municipal advisor firm;
(iii) complete SEC Form MA-I in accordance with the instructions in
the form and file the form electronically with the SEC;
(iv) complete SEC Form MA: Application For Municipal Advisor
Registration/Annual Update Of Municipal Advisor Registration/Amendment
of A Prior Application For Registration (``SEC Form MA'') in accordance
with the instructions in the form and file the form electronically with
the SEC; \20\
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\20\ Filing Form MA and Form MA-I is mandatory for municipal
advisor firms that are required to register with the SEC. See 17 CFR
240.15Ba1-2(a) and (b).
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(v) complete MSRB Form A-12, on registration, in accordance with
the instructions outlined in the MSRB Registration Manual \21\ and file
the form electronically with the MSRB; \22\ and
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\21\ The MSRB Registration Manual is available at <a href="https://www.msrb.org/sites/default/files/MSRB-Registration-Manual.pdf">https://www.msrb.org/sites/default/files/MSRB-Registration-Manual.pdf</a>.
\22\ Pursuant to Rule A-12, on registration, a municipal advisor
must register with the MSRB before engaging in municipal advisory
activities; prior to their MSRB registration, they must register
with the SEC and have such registration approved.
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(vi) submit the requisite affirmation notification to the MSRB
within 30 days of the acceptance of a completed SEC Form MA-I.
Proposed Amendments Related to G-8, on Books and Records To Be Made and
Maintained
Proposed amendments to Rule G-8, on books and records, would add
recordkeeping obligations designed to help facilitate and document
compliance with proposed amendments to Rule G-3. Specifically, the
proposed rule change would add new paragraph (C) to subsection (h)(vii)
of Rule G-8 requiring municipal advisor firms to make and maintain the
following records to evidence compliance with the requirements of Rule
G-3(h)(ii)(A)-(I):
<bullet> A record evidencing that the individual seeking to obtain
the exemption was previously duly qualified as a municipal advisor
representative (e.g., copy of the print-out of the individual exam
results \23\ or exam result certification letter provided by the MSRB);
---------------------------------------------------------------------------
\23\ See Question 11 of ``FAQs on Municipal Advisor Professional
Qualification and Examination Requirements'' (available at: <a href="https://www.msrb.org/sites/default/files/FAQ-MSRB-Series-50-Exam.pdf">https://www.msrb.org/sites/default/files/FAQ-MSRB-Series-50-Exam.pdf</a>) in
which the MSRB reminds individuals that the test center will provide
a print-out of individuals' exam results.
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<bullet> Documentation supporting the municipal advisor firm's
exercise of reasonable diligence in determining that the conditions
outlined in Rule G-3(h)(ii)(A) through (I) were met in making the
required affirmation notification in accordance with Rule G-
3(h)(ii)(I)(8) (e.g., copies of relevant SEC form filings reviewed;
records related to continuing education provided and completed;
compliance policies and procedures provided and reviewed; and
attestations or other documentation to support such a determination);
<bullet> A copy of the affirmation notification sent to the MSRB as
required by Rule G-3(h)(ii)(I); and
<bullet> A record evidencing that the affirmation notification was
made in the prescribed manner and within the required period of time as
described in Rule G-3(h)(ii)(I) (e.g., automatic email delivery
receipt).
As aforementioned, the proposed rule change outlining the specific
recordkeeping requirements supports the municipal advisor principal's
supervision, review and sign-off that the conditions for the exemption
have been met, which supports regulatory compliance.
Relatedly, technical amendments to Rule G-8(h)(vii) would retitle
the paragraph header from ``Records Concerning Compliance with
Continuing Education Requirements'' to ``Records Concerning Compliance
with Professional Qualification Requirements of Rule G-3'' to clarify
the broader recordkeeping obligations and documentation requirements
proposed in draft amendments to Rule G-8(h)(vii) that are accompanying
proposed rule changes to Rule G-3(h)(ii). The other technical changes
would reposition the word ``and'' and make other minor grammatical
changes to the items in the series to aid readability.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(A) of the Act,\24\ which authorizes the MSRB to
prescribe standards of training, experience, competence, and such other
qualifications as the Board finds necessary or appropriate for the
protection of municipal entities or obligated persons; and Section
15B(b)(2)(C) of the Act,\25\ which provides that the MSRB's rules
shall, among other things, be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination among
regulators, and, in general, to protect municipal entities, obligated
persons, and the public interest.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78o-4(b)(2)(A).
\25\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
Under Section 15B(b)(2)(A) of the Act,\26\ the proposed rule change
is appropriate and in the public interest because more efficient,
effective and flexible professional qualification requirements for
municipal advisor representatives will lead to a broader applicant pool
from which municipal advisor firms may hire. A broader municipal
advisor representative applicant pool is in the public interest and
will help protect municipal entities or obligated persons because such
pool can improve the quality of municipal advisor representative
candidates and increase diversity in the industry. By expanding the
potential number of municipal advisor representative candidates, a firm
may have greater choice in hiring qualified individuals. For example,
individuals that may disassociate with a municipal advisor firm may
determine to associate with a dealer in a public finance banker
capacity or to work for a municipal entity. Such individuals may
receive valuable and directly applicable experience from a different
vantage point in the industry that would augment their prior and future
experience as a municipal advisor
[[Page 49534]]
representative upon reassociating with a municipal advisor firm. This
difference in perspective and experience could put such municipal
advisor representative candidates in a position to provide more
informed advice than they may otherwise have provided.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78o-4(b)(2)(A).
---------------------------------------------------------------------------
Similarly, a broader applicant pool increases the likelihood of
greater diversity among municipal advisor representatives who can bring
new perspectives to their work and the advice that they provide to
their municipal entity and obligated person clients. Additionally, by
hiring well-qualified candidates, firms can build bench strength and
work to leverage institutional knowledge; thereby enhancing the
informed advice provided to a municipal advisor firm's municipal entity
and obligated person clients.
At the same time, the proposed rule change requires the
satisfaction of conditions that establish safeguards and ensure that
only qualified candidates may seek to obtain the criteria-based
exemption from requalification, thereby furthering municipal entity and
obligated person protection and the public interest. Specifically, the
stated criteria of at least three years of experience before
eligibility for the criteria-based exemption and no more than three
years since ceasing to be associated with a municipal advisor firm is
in furtherance of municipal entity and obligated person protection
because these criteria support individuals maintaining their baseline
level of experience and competence. The MSRB believes that the three-
year thresholds, as opposed to a longer or shorter period,
appropriately support the ability to establish a necessary and
meaningful level of proficiency as a municipal advisor representative
prior to obtaining the exemption. In contrast, while ensuring that such
regulatory flexibility is available for a limited period of time, on a
one-time basis, individuals retain the value of that established
proficiency and can more readily adapt to changes in market practices
or regulatory requirements upon reengaging in a municipal advisor
representative capacity.
Prevention of Fraudulent and Manipulative Acts and Practices
In accordance with Section 15B(b)(2)(C) of the Act,\27\ the
proposed rule change also would continue to prevent fraudulent and
manipulative acts and practices by ensuring that municipal advisor
representatives meet competence, training, experience and qualification
standards, and such protections would not be diminished by the proposed
rule change. As noted above, the stated criteria of at least three
years of experience before eligibility for the exemption and no more
than three years since ceasing to be associated with a municipal
advisor firm support individuals in maintaining their baseline level of
experience and competence. In addition, the proposed rule change would
require individuals seeking to obtain the exemption to, upon
associating (or reassociating) with a municipal advisor firm, receive
relevant and updated core training pertaining to regulatory obligations
under applicable securities laws and regulations, including MSRB rules,
which furthers the prevention of manipulative acts and practices. The
MSRB believes that the three-year thresholds coupled with the more
robust CE training requirements continue to support the establishment
of the necessary experience, competence, and training, which in turn
serves to help prevent fraudulent and manipulative practices and
protect municipal entities, obligated persons, and the public interest.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
Protection of Municipal Entities, Obligated Persons, and the Public
Interest
Consistent with Section 15B(b)(2)(C) of the Act \28\ and the above
discussion, the proposed rule change would continue to protect
municipal entities, obligated persons and the public interest because
municipal advisor representatives would be required to obtain CE
pertaining to specified topics and regulatory obligations under
applicable securities laws and regulations, including MSRB rules in
order to requalify as a municipal advisor professional. Additionally,
such individuals would not be able to obtain the criteria-based
exemption if they either engaged in activities requiring qualification
as a municipal advisor representative during their lapse in
qualification or they are subject to any events or proceedings that
resulted in a regulatory action disclosure report, a civil judicial
action disclosure report, customer complaint/arbitration/civil
litigation disclosure report, criminal action disclosure report or
terminations disclosure report on the SEC Form MA-I. These conditions
help ensure that basic municipal entity and obligated person
protections remain in place while also providing municipal advisor
representatives flexibility to pursue other meaningful roles within the
municipal securities industry or to step away for other reasons; and
benefits municipal advisor firms by providing the increased ability to
attract qualified talent.
---------------------------------------------------------------------------
\28\ Id.
---------------------------------------------------------------------------
As noted above, a broader municipal advisor representative
applicant pool is in the public interest and will help protect
municipal entities and obligated persons because it can improve the
quality of municipal advisor representative candidates and increase
diversity in the municipal advisory industry, all of which could
enhance the quality of advice provided to municipal entity and
obligated person clients.
Finally, the MSRB believes that the removal of the ability of a
municipal advisor representative or principal to apply to the Board
and, potentially, receive a waiver from the obligation to requalify by
reexamination would further protect municipal entities and obligated
persons. As discussed, the proposed rule change would replace such
ability with the criteria-based exemption. However, it would not extend
such exemption to municipal advisor principals because the MSRB
believes principals should be subject to additional regulatory
requirements given their supervisory, oversight, and management duties,
and the current criteria-based exemption does not contemplate such
rigor and heightened regulatory requirements. In practice, the MSRB has
not received or granted waiver requests for municipal advisor
principals. Requiring all municipal advisor principals to requalify by
reexamination following a lapse in qualification ensures municipal
entity and obligated person protection by necessitating that municipal
advisor principals satisfy a specified level of competency and
knowledge of the applicable securities laws and regulations, including
MSRB rules, in order to perform their duties.\29\
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\29\ As discussed in the section below regarding burden on
competition, current Rule G-3(e)(ii)(C) permits solo-practitioners
(or individuals associating or re-associating with a firm and
designated as a principal) who are qualified as municipal advisor
representatives to function as municipal advisor principals for up
to 120 days before having to take and pass the Series 54
examination. In concert with the proposed rule change, these
provisions would allow such individuals to start their own firm,
requalify as municipal securities representatives without
reexamination, and then qualify as municipal advisor principals.
---------------------------------------------------------------------------
Fostering Cooperation and Coordination
Proposed amendments to Rule G-8, on books and records, would add
specific recordkeeping obligations designed to help facilitate and
document compliance with proposed
[[Page 49535]]
amendments to Rule G-3. Specifically, the proposed amendments would add
a new paragraph (C) to subsection (h)(vii) of Rule G-8 that would
require municipal advisor firms to make and maintain records to
evidence their due diligence to ensure compliance with the criteria-
based exemption by individuals seeking to obtain the exemption, and of
the affirmation notification provided to the MSRB required by proposed
amendments to Rule G-3(h)(ii)(I). The MSRB believes that the proposed
rule change is consistent with Section 15B(b)(2)(C) of the Act \30\
because the specific documentation obligation and related books and
records obligations stemming from the proposed amendments to Rule G-
8(h)(vii)(C) would foster cooperation by providing examining
authorities with the necessary information to assist them in examining
for and evaluating compliance with the criteria-based exemption. The
MSRB further believes that the rigor of such review by examining
authorities for compliance with the prescribed recordkeeping
obligations would foster municipal entity and obligated person
protection because municipal advisor firms would take due care to
ensure compliance with the qualification standards under the criteria-
based exemption and that only such individuals that satisfy such
exemption are engaging in municipal advisor activities. Lastly, as
aforementioned, the MSRB believes that the proposed amendments to Rule
G-8(h)(vii)(C) would help create an audit trail to assist examination
and enforcement authorities in their examination for compliance with
the criteria-based exemption, fostering cooperation and coordination
between regulatory authorities.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
Promote Just and Equitable Principles of Trade
The technical amendments outlined throughout are consistent with
the provisions of Section 15B(b)(2)(C) of the Act \31\ in that they
promote just and equitable principles of trade by ensuring that Rules
G-3 and G-8 remain accurate, clear and understandable for the municipal
advisory community.
---------------------------------------------------------------------------
\31\ Id.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) of the Act \32\ requires that MSRB rules not
be designed to impose any burden on competition that is not necessary
or appropriate in furtherance of the purposes of the Act. Furthermore,
Section 15B(b)(2)(L)(iv) of the Act \33\ requires that rules adopted by
the MSRB not impose a regulatory burden on small municipal advisors
that is not necessary or appropriate in the public interest and for the
protection of investors, municipal entities, and obligated persons,
provided that there is robust protection of investors against fraud.
The MSRB does not believe that the proposed amendments to Rule G-3 and
Rule G-8 would impose any unnecessary or inappropriate burden or impact
on competition, as they would provide additional flexibility and
certainty to those seeking to associate with municipal advisor firms as
municipal advisor representatives and to municipal advisor firms,
thereby, enhancing the hiring of qualified, experienced individuals;
and they would also support evidencing compliance with the criteria-
based exemption.
---------------------------------------------------------------------------
\32\ Id.
\33\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
---------------------------------------------------------------------------
In determining whether the standards under Section 15B(b)(2)(C)
\34\ and (b)(2)(L)(iv) \35\ of the Act related to burden on competition
and burden on small municipal advisors have been satisfied, the MSRB
was guided by the Board's Policy on the Use of Economic Analysis in
MSRB Rulemaking.\36\ In accordance with this policy, the MSRB has
evaluated the potential impacts on competition of the proposed
amendments to Rule G-3 and Rule G-8. The proposed amendments to Rule G-
3 would create a criteria-based exemption for individuals to requalify
in a municipal advisor representative capacity without reexamination
after a lapse in qualification. The proposed rule change would remove
language from Rule G-3 that currently permits municipal advisor
professionals to seek a waiver from the MSRB from the requirement to
requalify by reexamination in extraordinary cases. Additionally, the
proposed rule change would make accompanying amendments to Rule G-8 to
establish books and records requirements related to the criteria-based
exemption. The proposed amendments to Rule G-3 and accompanying
amendments to Rule G-8 are intended to offer flexibility, provide
additional certainty, and eliminate the extraordinary nature of the
waiver process for individuals and municipal advisor firms without
reducing protection for municipal entity and obligated person clients
who expect that municipal advisor professionals have satisfied
professional qualification standards. Specifically, proposed amendments
to Rule G-3 would afford an individual whose qualification as a
municipal advisor representative has lapsed the opportunity to forego
requalification by reexamination if certain, specified conditions are
met.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78o-4(b)(2)(C).
\35\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
\36\ Policy on the Use of Economic Analysis in MSRB Rulemaking
is available at <a href="http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx">http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx</a>. In evaluating whether there was a burden on
competition, the Board was guided by its principles that required
the Board to consider costs and benefits of a rule change, its
impact on capital formation and the main reasonable alternative
regulatory approaches.
---------------------------------------------------------------------------
Although the proposed amendments to Rule G-3 and Rule G-8 would be
applied equally to all individuals seeking to associate with municipal
advisor firms and to all such municipal advisor firms, the MSRB
acknowledges potential burdens on competition for small or solo-
practitioner municipal advisor firms with respect to the exemption's CE
requirements and because the exemption does not extend to municipal
advisor principals. As a result, although all firms would benefit from
the proposed rule change for municipal advisor representatives, solo-
practitioners and smaller municipal advisor firms may experience a
smaller benefit than larger municipal advisor firms due to the fact the
exemption would not extend to those seeking to associate and function
in a principal-level capacity. However, as discussed in detail below,
the MSRB believes the proposed amendments to Rule G-3 and Rule G-8
would not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act \37\ or a
regulatory burden on small municipal advisors that is not necessary or
appropriate in the public interest and for the protection of investors,
municipal entities, and obligated persons, provided that there is
robust protection of investors against fraud.\38\
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78o-4(b)(2)(C).
\38\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
---------------------------------------------------------------------------
Benefits, Costs and Effect on Competition
The main benefit of proposed amendments to Rule G-3 and Rule G-8
would be to create a criteria-based exemption and related recordkeeping
requirements. The MSRB considered the economic impact associated with
the proposed amendments to Rule G-3 relative to the baseline, which is
the current extraordinary waiver provision and assessed incremental
changes in the benefits and costs in a proposed future state with a
criteria-based exemption for municipal advisor representatives.
[[Page 49536]]
The MSRB believes that the proposed rule change provides multiple
benefits to the eligible population of individuals seeking to associate
with municipal advisor firms as municipal advisor representatives, and
municipal advisor firms without impairing the protections afforded to
municipal entity and obligated person clients of municipal advisor
firms. First, by increasing the amount of time in which an individual
may maintain their qualification as a municipal advisor representative
without reexamination, the proposed rule change provides flexibility
for certain individuals to, for example, explore other career
opportunities in the municipal securities industry or to step away to
address life events, such as childcare or pursue higher education. As a
result, the criteria-based exemption provided by the proposed rule
change may increase demand for individuals seeking to reassociate in a
municipal advisor representative capacity without having to retake the
Series 50 examination.
The proposed rule change would require CE that includes coverage of
specific subject areas and regulatory topics, which would ensure the
most useful and up-to-date training is provided to individuals who wish
to take advantage of the proposed exemption, therefore benefiting
municipal entity and obligated person clients who may receive municipal
advisory services from the firms with which such persons are
associated. Furthermore, the proposed rule change reduces uncertainty
for individuals seeking to requalify by providing clarity on the
specific criteria needed to requalify without reexamination; and
therefore, expedites the period by which such individuals can begin to
engage in municipal advisory activities. In addition, municipal advisor
firms would be better positioned to assess a potential hire's
qualifications by evaluating the conditions specified in the proposed
rule change. Finally, while Rule G-3 does not currently require a
minimum number of years of past experience to reassociate with a
municipal advisor firm within the specified two-year period, the MSRB
believes establishing eligibility criterion of at least three
consecutive years of past experience to qualify for the criteria-based
exemption promotes municipal entity and obligated person protection by
ensuring individuals have an established baseline level of knowledge
and experience.
The MSRB believes there is the potential for one-time upfront costs
for municipal advisor firms related to revising CE training materials
and existing compliance policies and procedures to facilitate
compliance with the proposed amendments to Rule G-3 and Rule G-8.
However, these associated costs should be minor (see Table 1).
Additionally, under the criteria individuals and municipal advisor
firms must meet to obtain the exemption, there may be additional
ongoing cost components to firms associated with conducting due
diligence when rehiring a previously qualified municipal advisor
representative and administering the specified CE required to meet the
exemption. The MSRB estimates the aforementioned cost components at
approximately four hours incrementally (see Table 1), given that some
current costs already exist associated with CE and performing due
diligence in the baseline state. However, for municipal advisor firms
that do not hire an individual with a lapsed qualification, there would
be minimal additional costs incurred. Lastly, individuals who are away
from the industry for more than three years would be required to take
and pass the Series 50 examination again under the proposed rule
change, as the waiver request provisions, available only in
extraordinary cases, would no longer be available. However, given the
limited use of the waiver process currently,\39\ the MSRB does not
believe the elimination of this option would have a significant impact
on individuals seeking to reassociate in a municipal advisor
representative capacity.
---------------------------------------------------------------------------
\39\ To date, the MSRB has received only two waiver requests.
The two requests were specific only to waiving the Series 50
examination (i.e., not a Series 54 examination waiver request), with
one of the waivers being received following the publication of MSRB
Notice 2022-13. See MSRB Notice 2022-13 (Request for Comment on
Draft Amendments to Create an Exemption for Municipal Advisor
Representatives from Requalification by Examination) (``RFC'')
(December 1, 2022) (available at: <a href="https://msrb.org/sites/default/files/2022-11/2022-13.pdf">https://msrb.org/sites/default/files/2022-11/2022-13.pdf</a>).
\40\ The hourly rate data was gathered from the 2013 SEC's Final
Rule on Registration of Municipal Advisors. See Exchange Act Release
No. 70462 (September 20, 2013), 78 FR 67594, 67609 (November 12,
2013) (File No. S7-45-10). The data reflects the 2023 hourly rate
level after adjusting for the annual wage inflation rate of 2%
between 2013 and 2021. See The Federal Reserve Bank of St. Louis
Employment Cost Index: Wages and Salaries Private Industry
(available at: <a href="https://fred.stlouisfed.org/series/ECIWAG">https://fred.stlouisfed.org/series/ECIWAG</a>). The MSRB
uses a blended hourly rate in each category of costs when a task can
be performed by different levels of professionals. For example,
while the revision of compliance policies and procedures can be
conducted by either an in-house attorney (average hourly rate $521)
or outside counsel (average hourly rate $550), the MSRB chooses the
blended hourly rate of $536 for this analysis. Similarly, for
training, the MSRB uses the average rate for a Chief Compliance
Officer and a compliance attorney; and for ongoing costs, the MSRB
uses the hourly rate for a compliance attorney. The number of hours
for each task is based on the MSRB's internal estimate.
[GRAPHIC] [TIFF OMITTED] TN31JY23.151
[[Page 49537]]
Reasonable Alternative Approaches and Effects on Competition
One alternative the MSRB considered was to update the qualification
requirements of Rule G-3(d)(ii)(B) \41\ by changing the existing time
for when a person ceases to be associated with a municipal advisor firm
from two to five years, instead of from two to three years as currently
proposed. Although neither the alternative nor the proposed rule change
would permit the granting of a waiver regardless of the time period,
individuals would be given greater flexibility when making decisions to
temporarily cease their association with municipal advisor firms and
can have certainty that they can reassociate with a more limited
compliance burden for themselves and the municipal advisor firms.\42\
Moreover, a five-year absence from the municipal advisory business
could result in a more significant gap in knowledge and experience, and
an individual who returns after such an absence may not be fully aware
of the latest regulatory and industry changes. The MSRB believes those
individuals who cease to engage in municipal advisory activities for
more than three years may benefit from retaking the Series 50
examination, which is designed to ensure a baseline level of knowledge
exists about rules and regulations, and the regulatory framework in
which such individuals operate, as well as to protect municipal entity
and obligated person clients who may rely on advice from qualified
municipal advisor representatives.
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\41\ As previously mentioned, Rule G-3(d)(ii)(B) currently
provides, ``Any person who ceases to be associated with a municipal
advisor for two or more years at any time after having qualified as
a municipal advisor representative in accordance with subparagraph
(d)(ii)(A) shall take and pass the Municipal Advisor Representative
Qualification Examination prior to being qualified as a municipal
advisor representative, unless a waiver is granted pursuant to
subparagraph (h)(ii) of this rule.''
\42\ As noted above, an individual may obtain the criteria-based
exemption under the proposed rule change only once.
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Another alternative the MSRB considered was, instead of requiring
CE to include coverage of specific subject areas and topics, an
individual would complete catch-up CE for the relevant time period such
person ceased association with a municipal advisor firm in order to
satisfy the exemption's criteria. The MSRB determined that this
alternative would be challenging for solo-practitioners looking to
establish a municipal advisor firm because such individuals would not
have previous training materials readily available, potentially
creating a burden on competition between a solo-practitioner and
individuals seeking to join (or reassociate with) existing firms. The
MSRB notes that while such solo-practitioners may not have developed CE
training materials addressing all of the prescribed subject matters;
such firms would be able to utilize ``off-the-shelf content'' or widely
available industry educational materials (to the extent such materials
meet the requirements set forth in the proposed rule change), which
would be a less burdensome approach than creating new CE materials.\43\
Thus, the MSRB has deemed the proposed rule change as superior to
potential alternative approaches, including for small municipal advisor
firms or solo-practitioners.
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\43\ The MSRB has previously noted that the CE requirements for
municipal advisors affords municipal advisors the flexibility to
deliver CE in the most convenient and effective manner possible
based on the firms' business model. In addition, the MSRB noted
industry trade associations may be a good source of CE training
materials, in addition to podcasts, webinars and educational
materials developed by the MSRB. See Exchange Act Release No. 80327
(March 29, 2017), 82 FR 16449, 16454 (April 4, 2017) (Notice of
Filing of a Proposed Rule Change to Rule G-3, on Professional
Qualification Requirements, and Rule G-8, on Books and Records, To
Establish Continuing Education Requirements for Municipal Advisors
and Accompanying Recordkeeping Requirements) (File No. SR-MSRB-2017-
02).
---------------------------------------------------------------------------
As previously noted, while an individual and a firm seeking to
associate such an individual in the capacity of a municipal advisor
principal may receive fewer benefits, still, all municipal advisor
firms would benefit from the proposed rule change allowing individuals
to requalify in the capacity of municipal advisor representatives.\44\
The MSRB acknowledges that there may be a potential burden on
competition on solo-practitioners or small municipal advisor firms
because the criteria-based exemption does not extend to municipal
advisor principals. Specifically, individuals seeking to act as a
municipal advisor principal would still have to take and pass the
Series 54 examination in order to engage in principal-level activities.
Rule G-3(e)(ii)(C) affords temporary relief to an individual (and the
municipal advisor firm with which such individual associates) who is
qualified as a municipal advisor representative, but is functioning in
the capacity of a municipal advisor principal, for a period of 120 days
after becoming designated as a municipal advisor principal, to take and
pass the Series 54 examination. As a result, all such persons,
including those persons seeking to be solo-practitioners and seeking to
associate with small (or larger) municipal advisor firms would be able
to function in the principal-level capacity for a limited period of
time before having to take and pass the Series 54 examination.
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\44\ The MSRB notes, pursuant to Rule G-3(e)(ii), on
qualification requirements, the Series 50 examination is a pre-
requisite to becoming qualified as a municipal advisor principal.
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Municipal advisor principals are subject to additional regulatory
standards given their supervisory, oversight and management duties and
the MSRB believes that requiring all municipal advisor principals to
requalify by reexamination following a lapse in qualification helps to
ensure municipal entity and obligated person protection. Specifically,
notwithstanding the fact that small municipal advisor firms may
experience a smaller benefit than larger firms, the MSRB believes that
reexamination is necessary for all individuals seeking to function in a
principal-level capacity. The process of reexamination ensures that the
specified level of competency and knowledge of the applicable
securities laws and regulations, including MSRB rules, is sufficiently
demonstrated. Accordingly, in light of these considerations, the MSRB
believes the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act \45\ or a regulatory burden on small municipal
advisors that is not necessary or appropriate in the public interest
and for the protection of investors, municipal entities, and obligated
persons, provided that there is robust protection of investors against
fraud.\46\
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\45\ 15 U.S.C. 78o-4(b)(2)(C).
\46\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
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At present, the MSRB cannot evaluate the magnitude of the
efficiency gains or losses quantitatively, but believes the overall
benefits accumulated over time for market participants would outweigh
the minimal upfront and ongoing costs associated with the proposed
amendments to Rule G-3 and Rule G-8. The proposed amendments to Rule G-
3 would make it easier for individuals seeking to requalify as
municipal advisor representatives to reassociate with a municipal
advisor firm and for municipal advisor firms to recruit experienced
professionals. In addition, the increased number of skilled
professionals furthers capital formation because municipal entity and
obligated person clients would have ranging areas of expertise to
select from when utilizing the services of municipal advisor
representatives. Finally, the MSRB believes the proposed amendments to
Rule G-3 and Rule G-8 improve the municipal securities
[[Page 49538]]
market's operational efficiency and promote regulatory certainty by
providing individuals with a specific exemption process to requalify as
municipal advisor representatives and to begin engaging in municipal
advisory activities on behalf of municipal advisor firms.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
As previously mentioned, the MSRB sought public comment on draft
amendments to Rule G-3 in an RFC published on December 1, 2022.\47\ The
MSRB received three comment letters in response to the RFC.\48\ The
comments are summarized below by topic and MSRB responses are provided.
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\47\ See supra note 38.
\48\ See Letters from Chris Charles, President, Wulff, Hansen &
Co. (``Wulff Hansen Letter''), dated December 29, 2022; Susan
Gaffney, Executive Director, National Association of Municipal
Advisors (``NAMA Letter''), dated January 30, 2023; and Leslie M.
Norwood, Managing Director and Associate General Counsel, Securities
Industry and Financial Markets Association (``SIFMA Letter''), dated
January 30, 2023. All comment letters are available at <a href="https://www.msrb.org/sites/default/files/2023-03/All-Comments-to-Notice-2022-13.pdf">https://www.msrb.org/sites/default/files/2023-03/All-Comments-to-Notice-2022-13.pdf</a>.
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General Support for the Proposed Rule Change
All three commenters agreed with the MSRB's assertion that the
proposed rule change would benefit, more than burden, municipal advisor
firms and would provide increased regulatory flexibility and certainty
for municipal advisor representatives and municipal advisor firms.
Commenters generally agreed with the requirements for obtaining the
criteria-based exemption, including the three-year-minimum-maximum
thresholds, as well as the obligation that a municipal advisor firm
submit a notice to the MSRB affirming an individual's eligibility for
the exemption by having met the criteria enumerated in the proposed
rule change.
Continuing Education Criteria
The draft amendments reflected in the RFC would have required that
upon associating with a municipal advisor firm, an individual would
complete CE consistent with the requirements of current Rule G-
3(i)(ii)(B) for the period of time since the individual was last
associated with a municipal advisor firm (``CE catch-up requirement''),
as part of the criteria-based exemption. In response, NAMA requested
clarification on the proposed CE catch-up requirements. NAMA also
sought clarification as to how such CE catch-up requirement would be
expected to be delivered. NAMA specifically questioned how a solo-
practitioner starting their own municipal advisor firm could obtain the
exemption since there would be no prior, firm-administered continuing
education to deliver to satisfy the CE catch-up requirement.\49\ SIFMA
also commented that requiring an individual to merely catch up on a
firm's previously administered continuing education upon re-entry to
the industry may, in practice, result in repetitive, outdated, or
confusing information.\50\
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\49\ NAMA Letter at 3-4.
\50\ SIFMA Letter at 2.
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In response, the MSRB revised the proposal to make the exemption's
CE criteria more practicable and streamlined, so that it is not
dependent on previously administered CE. As reflected in the proposed
rule change, CE would be required to include coverage of specified
subject areas and topics, set forth in the proposal, rather than
mandating the completion of previously issued CE for the period of time
since the individual seeking to obtain the criteria-based exemption was
last associated with a municipal advisor firm.
The MSRB believes that these revisions provide a more practical
approach for an individual to comply with the CE requirements in order
to qualify for the criteria-based exemption, in that it allows
municipal advisor firms to ensure the most useful and up-to-date CE is
provided to the individual. At the same time, the revisions would be
more workable for solo-practitioners, particularly those establishing a
new firm that's never been registered. Since such firms were not
previously in existence, they would not have previous CE to provide to
take advantage of the draft criteria-based exemption. The revisions,
reflected in the proposed rule change, permit such individuals to take
advantage of the criteria-based exemption and mitigates the potential
for a burden on competition that may otherwise exist between solo-
practitioners and those seeking to associate (or reassociate) with an
established municipal advisor firm. Finally, the revised approach would
permit municipal advisor firms to tailor the required CE training
materials to the individual seeking the criteria-based exemption,
consistent with the enumerated topic areas in the proposed rule change,
to better ensure the most relevant information is covered.
Mechanics of Exemption Requirements
The draft amendments reflected in the RFC would have required that,
prior to the individual engaging in municipal advisory activities on
behalf of the municipal advisor firm, the firm file a completed SEC
Form MA-I on behalf of the individual seeking to obtain the exemption
and provide electronic notification to the MSRB that the individual has
met the criteria to be exempt from the qualification requirements under
the rule.
NAMA commented that further clarification would be beneficial as to
timing for completing the CE requirements, when SEC Form MA-I is to be
filed, and when the relevant affirmation notification is due to the
MSRB.\51\ In addition, NAMA suggested that a compliance resource
explaining how a solo-practitioner can initially enter or re-enter the
municipal securities industry before formally completing the requisite
forms to establish a municipal advisor firm (and to associate such
individual with the municipal advisor firm) would be beneficial.
Relatedly, SIFMA requested that the MSRB consider compliance resources
to assist regulated entities (and their associated persons) in
understanding the relevant professional qualification and CE
requirements, particularly for firms dually registered as a dealer and
municipal advisor.\52\
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\51\ NAMA Letter at 1.
\52\ SIFMA Letter at 2.
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In response, the MSRB revised the proposal (as reflected in the
proposed rule change) to address the timing and sequence of satisfying
the exemption's criteria, the filing of SEC Form MA-I (and SEC Form MA,
as applicable), and the submission of the affirmation notification to
the MSRB. Additionally, the MSRB anticipates publishing a compliance
resource in close proximity to the compliance date of the rule in
response to comments from NAMA and SIFMA, which would highlight the
regulatory obligations for municipal advisors and dealers with respect
to professional qualification standards, CE requirements, and related
registration matters.
Greater Harmonization With FINRA Rules and Related Requirements for
Broker-Dealers
SIFMA and NAMA expressed the desire for greater harmonization
between the criteria set forth in the draft amendments and the
qualification maintenance provisions available to broker-dealers,
specifically those under FINRA rules, to reduce regulatory burdens for
individuals who serve in
[[Page 49539]]
multiple registered capacities.\53\ The standards related to
qualification maintenance for dealers (and their associated persons)
were adopted by the MSRB in October 2022.\54\ However, there are
currently no such prescribed qualification maintenance standards \55\
(e.g., required annual CE or requisite hours) for municipal advisor
representatives equivalent to the prescribed qualification maintenance
standards for municipal securities professionals of dealers.
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\53\ SIFMA Letter at 1-2; NAMA Letter at 5.
\54\ See Exchange Act Release No. 95684 (September 7, 2022), 87
FR 56137 (September 13, 2022) (File No. SR-MSRB-2022-07).
\55\ See Rules G-3(a)(ii)(C), G-3(b)(ii)(C), G-3(b)(iv)(B)(3),
G-3(c)(ii)(C) and G-3(i)(i)(C) for qualification maintenance
standards applicable to dealers.
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The proposed rule change seeks to provide municipal advisor
representatives with greater flexibility than they have today, which
also will provide some parity with the flexibility afforded to dealers.
However, the MSRB is mindful of the distinctions between dealers and
municipal advisors, including the differences in the applicable
qualification maintenance standards as well as the application of a
federal fiduciary duty for municipal advisors, but not dealers. After
careful consideration, the MSRB continues to believe that the proposed
rule change reflects the appropriate balance of flexibility for
individuals seeking to requalify without reexamination and for their
associated municipal advisor firms with the MSRB's municipal entity
protection mandate, as well as the fiduciary duty owed by municipal
advisors to their municipal entity clients. The MSRB does not believe
that further harmonization with the maintenance qualification standard
for dealers (and their associated persons) is appropriate given the
distinct nature of municipal advisory activities, including the
fiduciary duty owed by municipal advisors to municipal entity clients.
In contrast, while dealers are obligated under Rule G-17 to deal fairly
with all persons, including municipal entities and obligated persons,
they generally engage in arm's-length transactions with such clients
and have financial and other interests that may differ from them;
therefore, the MSRB believes the three-year mandatory experience
requirement and three-year maximum out-of-the-industry requirement
recognize the uniqueness of the regulatory framework. Hence, the MSRB
determined not to revise the draft proposal to be more consistent with
qualification maintenance standards available to dealers.
Application of Exemption to Municipal Advisor Principals
Commenters expressed a belief that the criteria-based exemption
from requalification by reexamination should be extended to include
municipal advisor principals.\56\ After careful consideration, the MSRB
continues to believe that such relief should not be extended to
municipal advisor principals because the supervisory, oversight and
management duties of municipal advisor principals make an exemption
from requalification by reexamination inappropriate. Even if such an
exemption were contemplated, it would require additional, more
stringent criteria than those proposed for municipal advisor
representatives to appropriately reflect the heightened
responsibilities of a municipal advisor principal. This would result in
two different standards and thus additional regulatory complexity in
this area.
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\56\ NAMA Letter at 4-5; SIFMA Letter at 2; and Wulff Hansen
Letter at 3.
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However, as noted above in relation to the impact of the proposal
on solo-practitioners and small municipal advisor firms, solo-
practitioners (and individuals associating or re-associating with a
firm and designated as a principal) may avail themselves of the
provisions under current Rule G-3(e)(ii)(C), which in concert with the
proposed rule change, make it possible for a solo-practitioner to start
their own firm, requalify as a municipal advisor representative without
reexamination and function as a municipal advisor principal for a
limited period of time (i.e., 120 days) before having to take and pass
the Series 54 examination. Relatedly, for an individual who was once
qualified as a municipal advisor principal and who is associating or
re-associating with a municipal advisor firm and is expected to take on
a principal-level role at the firm, such individual would be able to
function in the principal-level capacity for the aforementioned limited
period of time before having to take and pass the Series 54
examination.
Other Comments Considered
Wulff Hansen objected to the criterion that would have prohibited
an individual seeking the exemption from engaging in municipal advisory
activities during a lapse in qualification. Wulff Hansen noted that
such a prohibition does not recognize that the SEC permits certain
individuals to engage in municipal advisory activities without
registration because they qualify for an exclusion or exemption from
registration requirements, for example, the underwriter exclusion, as
prescribed under Section 15B(e)(4)(C) of the Act (15 U.S.C. 78o-
4(e)(4)(C)).\57\ In response to this comment, the revisions reflected
in the proposed rule change clarify that an individual must not have
engaged in activities requiring qualification as a municipal advisor
representative during the individual's lapse in qualification.
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\57\ Wulff Hansen Letter at 1.
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Wulff Hansen also suggested that the MSRB retain the ability to
grant waivers for individuals in highly exceptional circumstances that
do not qualify for the criteria-based exemption set forth in the draft
amendments.\58\ The MSRB believes that retention of such a waiver
process is unnecessary in light of how few waiver requests the Board
has received.\59\ Additionally, as discussed above, the MSRB believes
that municipal advisor principals should be required to take and pass
the requisite qualification examination in light of the heightened
responsibilities performed by such persons. Finally, the MSRB believes
that retention of such a waiver provision would result in less
objective and predictable requalification standards than those provided
for in the proposed rule change.
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\58\ Id. at 2.
\59\ Supra note 37.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period of up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet<ls-thn-eq> Send an email to <a href="/cdn-cgi/l/email-protection#0b797e676e26686466666e657f784b786e68256c647d"><span class="__cf_email__" data-cfemail="3240475e571f515d5f5f575c4641724157511c555d44">[email protected]</span></a>. Please
include File Number SR-MSRB-2023-05 on the subject line.
[[Page 49540]]
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-2023-05. 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 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-2023-05 and should be submitted on
or before August 21, 2023.
For the Commission, pursuant to delegated authority.\60\
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\60\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-16109 Filed 7-28-23; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.