Notice2024-10947
Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MSRB Rule G-27, on Dealer Supervision, To Adopt a New Residential Supervisory Location Classification
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
May 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 98 (Monday, May 20, 2024)</title>
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[Federal Register Volume 89, Number 98 (Monday, May 20, 2024)]
[Notices]
[Pages 43961-43969]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-10947]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100131; File No. SR-MSRB-2024-04]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Amend MSRB Rule G-27, on Dealer Supervision, To Adopt a New
Residential Supervisory Location Classification
May 14, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on May 10, 2024, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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
consisting of an amendment to MSRB Rule G-27, on supervision, to adopt
new Supplementary Material .04, on residential supervisory locations
(``RSLs''), to allow certain brokers, dealers, and municipal securities
dealers (``dealers'') that are members of a registered securities
association (``FINRA-member dealers'') \3\ to designate, as an RSL that
is a non-branch location,\4\ an associated person's private residence
where specified supervisory activities are conducted,\5\ which would
otherwise be classified as an office of municipal supervisory
jurisdiction (``OMSJ'') \6\ or a municipal branch office where certain
supervisory activities are conducted (``supervisory
[[Page 43962]]
municipal branch office''),\7\ if certain conditions are met (the
``proposed rule change''). Dealers that are not members of a registered
securities association (i.e., FINRA), including bank dealers,\8\ would
be ineligible from designating an associated person's private residence
as an RSL under the proposed rule change.
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\3\ The MSRB notes that the Financial Industry Regulatory
Authority (``FINRA'') is currently the only registered securities
association and will generally, as such, refer to FINRA specifically
in the filing when intending to clarify specific regulatory
obligations and/or applicable rule(s).
\4\ Pursuant to MSRB Rule G-27(g)(ii)(A) a location is excluded
from registration as a branch office--that is, it is deemed a non-
branch location--in the following instances: (i) a location
established solely for customer service and/or back office type
functions where no sales activities are conducted and that is not
held out to the public as a branch office; (ii) an associated
person's primary residence provided it is not held out to the public
as an office and certain other conditions are satisfied; (iii) a
location, other than a primary residence, that is used for municipal
securities activities for less than 30 business days in any one
calendar year and is not held out to the public as an office, and
which satisfies certain of the conditions set forth in the primary
residence exception; (iv) a location of convenience, where
associated persons occasionally and exclusively by appointment meet
with customers and is not held out to the public as an office; (v) a
location used primarily for non-securities activities and from which
the associated person(s) effects no more than 25 municipal
securities transactions in any one calendar year; (vi) the floor of
a registered national securities exchange; and (vii) a temporary
location established in response to the implementation of a business
continuity plan.
\5\ Proposed Supplementary Material .04(a).
\6\ Pursuant to MSRB Rule G-27(g)(i) a branch office is
classified as an OMSJ if any one of the following enumerated
activities occurs at the location: (i) order execution and/or market
making; (ii) structuring of public offerings or private placements;
(iii) maintaining custody of customers' funds and/or municipal
securities; (iv) final acceptance (approval) of new accounts on
behalf of the member; (v) review and endorsement of customer orders,
pursuant to subparagraph (c)(i)(G)(2); (vi) final approval of
advertising for use by persons associated with the dealer, pursuant
to MSRB Rule G-21(f); or (vii) responsibility for supervising the
municipal securities activities of persons associated with the
dealer at one or more other municipal branch offices of the dealer.
An office that is designated an OMSJ must have a registered
principal on-site and be inspected on an annual basis.
\7\ Pursuant to MSRB Rule G-27(g)(ii)(B), any location that is
responsible for supervising the municipal securities activities of
persons associated with the dealer at one or more non-branch branch
locations of the dealer is considered to be a municipal branch
office. A supervisory municipal branch office is generally deemed to
be an office that supervises other non-branch locations.
\8\ A bank dealer is defined under MSRB Rule D-8 as a municipal
securities dealer which is a bank or a separately identifiable
department or division of a bank. The MSRB will consider at a later
date whether or not to extend the ability to make RSL designations
to bank dealers after giving due consideration to how to
operationalize such an initiative.
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The MSRB has designated the proposed rule change as constituting a
``noncontroversial'' rule change under Section 19(b)(3)(A) \9\ of the
Exchange Act and Rule 19b-4(f)(6) \10\ thereunder, which renders the
proposal effective upon receipt of this filing by the Commission. The
MSRB proposes an operative date of June 1, 2024, for the proposed rule
change to conform with FINRA's Rule 3110.19 effective date.
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 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/2024-SEC-Filings">https://msrb.org/2024-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 proposed rule change is meant to more closely conform the
MSRB's dealer supervisory rule to FINRA's recently approved supervisory
requirements to help ensure a coordinated regulatory approach in the
area of dealer supervision and to enable FINRA to more efficiently
inspect those dealers that are subject to both self-regulatory
organizations, as well as to promote regulatory consistency for dealers
engaging in activities across asset classes. To that end, the MSRB is
proposing to amend MSRB Rule G-27 to adopt new Supplementary Material
.04, on residential supervisory locations, to allow dealers to
designate an associated person's private residences where specified
supervisory activities are conducted as non-branch locations, if
certain conditions are met. As such, these locations would not be
subject to a dealer's requirement to register, or notice file their
locations \11\ in the appropriate participating jurisdictions and/or
with self-regulatory organizations. Additionally, designated RSLs would
not be subject to an annual inspection of such offices or locations as
required of OSMJs and branch office locations. The specific compliance
obligations are addressed below.
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\11\ The Uniform Branch Office Registration Form (Form BR) is
the form used for branch office registration, notification, closing
or withdrawal. Broker-Dealers must use Form BR to register or notice
file their branch offices in the appropriate participating
jurisdictions and/or with self-regulatory organizations (SROs). More
specifically, firms must register each branch office with, among
others, FINRA and states that require branch registration.
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Background
MSRB Rule G-27(d) outlines the MSRB's current requirements for
dealers to conduct internal inspections (i.e., office inspections) of
their offices and locations. Currently, MSRB Rule G-27(d)(i)(A)
requires dealers to inspect every OMSJ \12\ and any supervisory
municipal branch office \13\ at least annually. MSRB Rules G-
27(d)(i)(B) and G-27(d)(i)(C) require dealers to inspect every non-
supervisory branch office \14\ at least every three years, and every
non-branch location on a regular periodic \15\ schedule. FINRA and the
Commission's Office of Compliance Inspections and Examinations (now the
Division of Examinations) staff have previously issued joint guidance
stating that office inspections must be conducted on-site at the
office.\16\
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\12\ See MSRB Rule G-27(g)(i).
\13\ Pursuant to MSRB Rule G-27(g)(ii)(B), notwithstanding the
exclusions in MSRB Rule G-27(ii)(A), any location that is
responsible for supervising the municipal securities activities of
persons associated with the dealer at one or more non-branch branch
locations of the dealer is considered to be a municipal branch
office. A supervisory municipal branch location is generally deemed
to be an office that supervises other non-branch locations.
\14\ A non-supervisory branch office would generally be deemed a
location that is not charged with supervising the municipal
securities activities of persons associated with the dealer.
\15\ While MSRB rules do not explicitly establish a specific
timeframe for such regular periodic inspections, FINRA Rule 3110.13
sets out a general presumption that a non-branch location will be
inspected at least every three years, even in the absence of any red
flags, and if a FINRA-member dealer establishes a longer periodic
inspection schedule, such member must document in its written
supervisory and inspection procedures the factors used in
determining that a longer periodic inspection cycle is appropriate.
\16\ See FINRA Regulatory Notice 11-54, FINRA and the SEC Issue
Joint Guidance on Effective Policies and Procedures for Broker-
Dealer Branch Inspections, (November 30, 2011), available at <a href="https://www.finra.org/sites/default/files/NoticeDocument/p125204.pdf">https://www.finra.org/sites/default/files/NoticeDocument/p125204.pdf</a>.
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The proposed rule change would amend MSRB Rule G-27 to adopt new
Supplementary Material .04 that would treat an associated person's
private residence where specified supervisory activities are
conducted,\17\ subject to certain safeguards and limitations, as a non-
branch location (i.e., unregistered office). Because it would be
treated as a non-branch location, the RSL would be subject to
inspections on a regular periodic schedule instead of the annual
inspection currently required for every OMSJ and supervisory municipal
branch office. This proposed rule change would align with FINRA's
recently adopted amendments to FINRA Rule 3110 creating an RSL
designation.\18\ The proposed rule change is designed to promote
regulatory consistency for dealers that are both FINRA-member dealer
and MSRB registrants, allowing limited relief from their inspection
requirements under MSRB and FINRA rules under similar
circumstances.\19\
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\17\ See MSRB Rule G-27(g)(i)(D) through (G) and MSRB Rule G-
27(g)(ii)(B).
\18\ See Exchange Act Release No. 98980 (November 17, 2023), 88
FR 82447 (November 24, 2023) (File No. SR-FINRA-2023-006). See also
FINRA Regulatory Notice 24-02, Branch Office Registration,
Designation and Inspections, (January 23, 2024), available at
<a href="https://www.finra.org/sites/default/files/2024-01/Regulatory_Notice_24-02.pdf">https://www.finra.org/sites/default/files/2024-01/Regulatory_Notice_24-02.pdf</a>.
\19\ As previously noted, proposed MSRB Rule G-27 Supplementary
Material .04 would be applicable only to dealers that are also
FINRA-member dealers.
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Description of Proposed Rule Change
Conditions for Designation as a Residential Supervisory Location
(Proposed Supplementary Material .04(a) of MSRB Rule G-27)
FINRA Rule 3110.19(a) lists conditions for a FINRA-member dealer to
designate an office or location as an RSL.\20\ Proposed Supplementary
[[Page 43963]]
Material .04(a), on conditions for designation as a residential
supervisory location, of MSRB Rule G-27 would mirror the conditions set
forth in FINRA Rule 3110.19(a) for dealers to designate a location that
is the associated person's private residence where specified
supervisory activities are conducted as an RSL. Specifically, the
conditions that must be met for designation as an RSL under proposed
Supplementary Material .04(a) would include:
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\20\ While the MSRB does not define office, in FINRA's 2005
rulemaking initiative to establish a uniform definition of branch
office, FINRA noted that the language of the uniform definition
substantially mirrored the Commission's definition of ``office'' in
its books and records rules under the Exchange Act. Exchange Act
Rule 17a-3(g)(i), defines the term as any location where one or more
associated persons regularly conducts the business of handling funds
or securities or effecting any transactions in, or inducing or
attempting to induce the purchase or sale of, any security (17 CFR
240.17a-3). See NASD Notice to Members 05-67 (October 6, 2005),
available at <a href="https://www.finra.org/sites/default/files/NoticeDocument/p015121.pdf">https://www.finra.org/sites/default/files/NoticeDocument/p015121.pdf</a>.
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(i) only one associated person, or multiple associated persons who
reside at that location and are members of the same immediate family,
conduct business at the location; \21\
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\21\ Proposed Supplementary Material .04(a)(1), mirroring FINRA
Rule 3110.19(a)(1).
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(ii) the location is not held out to the public as an office; \22\
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\22\ Proposed Supplementary Material .04(a)(2), mirroring FINRA
Rule 3110.19(a)(2).
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(iii) the associated person does not meet with customers or
prospective customers at the location; \23\
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\23\ Proposed Supplementary Material .04(a)(3), mirroring FINRA
Rule 3110.19(a)(3).
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(iv) any sales activity that takes place at the location complies
with the conditions set forth under subparagraphs (g)(ii)(A)(2) or (3)
of MSRB Rule G-27; \24\
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\24\ Proposed Supplementary Material .04(a)(4), mirroring FINRA
Rule 3110.19(a)(4) with appropriate cross-reference changes to
applicable MSRB rule provisions.
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(v) neither customer funds nor securities are handled at that
location; \25\
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\25\ Proposed Supplementary Material .04(a)(5), mirroring FINRA
Rule 3110.19(a)(5).
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(vi) the associated person is assigned to a designated branch
office, in accordance with MSRB Rule G-27(g)(ii), on municipal branch
office,\26\ and such designated branch office is reflected on all
business cards, stationery, retail communications and other
communications to the public by such associated person; \27\
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\26\ Branch office for purposes of this Supplementary Material
is intended to be consistent with the term municipal branch office
under MSRB Rule G-27(g)(ii)(A).
\27\ Proposed Supplementary Material .04(a)(6), mirroring FINRA
Rule 3110.19(a)(6).
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(vii) the associated person's correspondence and communications
with the public are subject to the dealer's supervision in accordance
with MSRB Rule G-27; \28\
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\28\ Proposed Supplementary Material .04(a)(7), mirroring FINRA
Rule 3110.19(a)(7) with appropriate cross-reference change to the
applicable MSRB rule.
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(viii) the associated person's electronic communications (e.g.,
email) are made through the dealer's electronic system; \29\
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\29\ Proposed Supplementary Material .04(a)(8), mirroring FINRA
Rule 3110.19(a)(8).
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(ix) (A) the dealer must have a recordkeeping system to make,
maintain, and preserve such records required to be made, maintained,
and preserved under applicable securities laws and regulations,
including applicable MSRB rules, and the dealer's own written
supervisory procedures under MSRB Rule G-27; (B) such records are not
physically or electronically maintained and preserved at the office or
location; \30\ and (C) the dealer has prompt access to such records;
\31\ and
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\30\ Under Regulation S-P, on privacy of consumer financial
information, dealers are required to have policies and procedures
addressing the protection of customer information and records. See
17 CFR 248.30.
\31\ Proposed Supplementary Material .04(a)(9), mirroring FINRA
Rule 3110.19(a)(9) with appropriate cross-reference change to the
applicable MSRB rule and minor non-substantive terminology changes
for consistency with MSRB rule language.
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(x) the dealer must determine that its surveillance and technology
tools are appropriate to supervise the types of risks presented by each
RSL, which may include but are not limited to: (A) firm-wide electronic
tools for recordkeeping, surveillance of email and correspondence,
electronic or other equally effective trade blotter review, regular
activity-based sampling reviews, and tools for visual inspections; (B)
tools specific to carrying out supervision of such RSL based on the
activities of associated persons assigned to the location, products
offered, and restrictions on the activity of the RSL; and (C) system
security tools such as secure network connections and effective
cybersecurity protocols.\32\
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\32\ Proposed Supplementary Material .04(a)(10), mirroring FINRA
Rule 3110.19(a)(10).
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The MSRB believes that its proposed rule change with respect to the
conditions for designation as an RSL recognizes modernization within
the municipal securities market with respect to hybrid work
arrangements while also balancing investor protection. In re-evaluating
the current paradigm of the OMSJ and municipal branch office model, the
MSRB believes that there are certain supervisory activities that can be
conducted outside of an OMSJ or municipal branch office while also
providing appropriate investor protection. The conditions set forth in
FINRA amended rules for designating an office or location as an RSL,
which the MSRB has incorporated into the proposed rule change, are in
furtherance of ensuring only certain supervisory activities are
undertaken at such offices or locations.\33\ Additionally, through
outreach and engagement, the MSRB has learned from dealers about the
significant technology advancements since the establishment of the
current OMSJ and municipal branch office definitions, so the MSRB
believes it is fitting for dealers to assess whether their technology
tools are appropriate to supervise the types of risk that could be
presented at an RSL.
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\33\ See supra note 18.
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The MSRB believes that adopting similar provisions to those of
FINRA will allow dealers to elect to designate an associated person's
private residence as an RSL while meeting their supervisory obligations
under MSRB rules and allowing dealers the ability to comply with
consistent regulations.
Dealer Ineligibility Criteria (Proposed Supplementary Material .04(b)
of MSRB Rule G-27)
FINRA Rule 3110.19(b) outlines the conditions that would render its
member firms ineligible from designating an office as an RSL, which
include, if the member firm: (i) is currently designated as a
restricted firm under FINRA Rule 4111; (ii) is currently designated as
a taping firm under FINRA Rule 3170; (iii) is currently undergoing, or
is required to undergo, a review under FINRA Rule 1017(a)(7) as a
result of one or more associated persons at such location; (iv)
receives a notice from FINRA, pursuant to FINRA Rule 9557, regarding
capital compliance related matters under Rules 4110, 4120 and 4130,
unless FINRA has otherwise permitted such activities in writing under
its rules; (v) is or becomes suspended by FINRA; (vi) has been a FINRA
member for less than 12 months; or (vii) is or has been found by the
Commission or FINRA to be in violation of office inspection obligations
under FINRA Rule 3110(c) within the past three years.
The MSRB believes that the aforementioned categories of
ineligibility are events or activities that are more likely to raise
investor protection concerns because they expressly account for dealers
that pose higher risks and, therefore, should be ineligible to utilize
the RSL designation. As such, proposed Supplementary Material .04(b),
on dealer ineligibility criteria, of MSRB Rule G-27 would provide that
a dealer is ineligible from designating an office or location as an RSL
if the dealer is not a FINRA-member dealer or if it fails to satisfy
the prescribed requirements relating to firm eligibility for such RSL
designation under FINRA Rule 3110.19(b). The
[[Page 43964]]
MSRB believes that maintaining regulatory consistency regarding RSL
designations will provide dealers with clear guidance on how and when
they are able to consider designating an office or location as an RSL.
Location Ineligibility Criteria (Proposed Supplementary Material .04(c)
of MSRB Rule G-27)
FINRA Rule 3110.19(c) lists the criteria that would render a
particular office or location that is an associated person's private
residence where specified supervisory activities are conducted
ineligible from designation as an RSL. Proposed Supplementary Material
.04(c), on location ineligibility criteria, of MSRB Rule G-27 would
mirror the conditions set forth in FINRA Rule 3110.19(c) for
ineligibility of particular offices or locations to be designated as an
RSL. Specifically, the conditions that would make an office ineligible
for the RSL designation under proposed Supplementary Material .04(c)
would include if one or more persons at that office or location:
(i) is a designated principal \34\ who has less than one year of
direct supervisory experience with the dealer, or with an affiliate or
subsidiary of the dealer that is registered as a dealer or investment
adviser; \35\
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\34\ MSRB Rule G-27(b)(ii)(C), on appropriate principals,
outlines the functional role and responsibilities, under the Rule,
that can be engaged in by a principal(s) (i.e., municipal securities
principal, municipal securities sales principal, general securities
principal or municipal fund securities limited principal) holding a
supervisory designation.
\35\ Proposed Supplementary Material .04(c)(1), mirroring FINRA
Rule 3110.19(c)(1).
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(ii) is functioning as a principal for a limited period without
being duly qualified under MSRB Rules G-3(b)(ii)(D), (b)(iv)(B)(4), or
(c)(ii)(D); \36\
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\36\ Proposed Supplementary Material .04(c)(2), mirroring FINRA
Rule 3110.19(c)(2) with appropriate cross-reference changes to
applicable MSRB rule provisions.
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(iii) is subject to a mandatory heightened supervisory plan under
the rules of a registered securities association, the Commission, or
state regulatory agency; \37\
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\37\ Proposed Supplementary Material .04(c)(3), mirroring FINRA
Rule 3110.19(c)(3) with minor non-substantive terminology changes.
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(iv) is statutorily disqualified as defined in Section 3(a)(39) of
the Exchange Act, unless such disqualified person has been approved to
associate with a dealer, without being subject to a mandatory
heightened supervision plan, by a registered securities association;
\38\
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\38\ Proposed Supplementary Material .04(c)(4), mirroring FINRA
Rule 3110.19(c)(4) with non-substantive terminology changes.
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(v) has an event in the prior three years that required a ``yes''
response to any item contained in Questions 14A(1)(a) and 2(a),
14B(1)(a) and 2(a), 14C, 14D and 14E on Form U4 (Uniform Application
for Securities Industry Registration or Transfer), or similar form by a
registered securities association; \39\ or
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\39\ Proposed Supplementary Material .04(c)(5), mirroring FINRA
Rule 3110.19(c)(5). The identified disclosures consist of Questions
14A(1)(a) and 2(a), 14B(1)(a) and 2(a), 14C, 14D and 14E on Form U4.
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(vi) has been notified in writing that such associated person is
now subject to any Investigation or Proceeding as such terms are
defined in the Explanation of Terms for the Form U4, by the Commission,
a self-regulatory organization, or state securities commission (or
agency or office performing like functions) (each, a ``Regulator'')
expressly alleging they have failed to reasonably supervise another
person subject to their supervision, with a view to preventing the
violation of any provision of the Securities Act, the Exchange Act, the
Investment Advisers Act, the Investment Company Act, the Commodity
Exchange Act, any state law pertaining to the regulation of securities
or any rule or regulation under any of such Acts or laws, or any of the
rules of the MSRB or other self-regulatory organization, including
FINRA. Notwithstanding, such office or location may be designated or
redesignated as an RSL subject to the requirements of this
Supplementary Material upon the earlier of: (i) the dealer's receipt of
written notification from the applicable Regulator that such
Investigation has concluded without further action; or (ii) one year
from the date of the last communication from such Regulator relating to
such Investigation.\40\
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\40\ Proposed Supplementary Material .04(c)(6) mirrors FINRA
Rule 3110.19(c)(6), with non-substantive terminology changes.
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Allowing dealers to designate offices or locations as an RSL and,
therefore, treat them as a non-branch location would make such RSL
subject to inspections on a regular periodic schedule, rather than an
annual inspection requirement required of OMSJs and other supervisory
municipal branch offices. Additionally, these offices or locations
would become unregistered offices. However, FINRA's Central
Registration Depository System provides access to information regarding
offices and locations (registered and unregistered), and the
affirmative requirement for FINRA-member dealers to provide a list of
RSL designation information would ensure this information is readily
accessible to regulators.\41\ In previous regulatory notices,\42\ it
has been stated that the potential for significant regulatory problems
exists when business is conducted at locations that are not subject to
regular examination by the member. While the MSRB recognizes that on-
site office inspections are only one factor in an overall reasonably
designed supervisory system, the ineligibility criteria recognize the
necessity for more direct oversight and frequency of examinations of
some offices. Therefore, the proposed rule change outlined below aligns
with FINRA's amendments establishing location ineligibility. The MSRB
believes that adopting similar provisions to those of FINRA will allow
dealers to elect to designate RSLs while still meeting their
supervisory obligations under MSRB rules.
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\41\ See Exchange Act Release No. 98980 (November 17, 2023) 88
FR 82447, 82452 (November 24, 2023) (File No. SR-FINRA-2023-006).
\42\ See NASD Notice To Members 88-11, Proposed Amendments to
Article III, Section 27 of the NASD Rules of Fair Practice Regarding
Supervision and the Definitions of ``Office of Supervisory
Jurisdiction'' and ``Branch Office,'' (February 8, 1988), available
at <a href="https://www.finra.org/rules-guidance/notices/88-11">https://www.finra.org/rules-guidance/notices/88-11</a>.
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Obligation To Provide List of RSLs to Registered Securities Association
(Proposed Supplementary Material .04(d) of MSRB Rule G-27)
Proposed Supplementary Material .04(d), on obligations to provide
RSL list, of MSRB Rule G-27 would fully mirror the provisions of FINRA
Rule 3110.19(d) and would require dealers electing to designate any
office or location of the dealer as an RSL to provide a current list of
all offices or locations designated as RSLs by the 15th day of the
month following each calendar quarter in the manner and format as
required by the registered securities association (i.e., FINRA). The
proposed amendments harmonize with FINRA's requirements to ensure
greater regulatory certainty.
Risk Assessment (Proposed Supplementary Material .04(e) of MSRB Rule G-
27)
FINRA Rule 3110.19(e) requires member firms, prior to designating
an office or location as an RSL, to develop a reasonable risk-based
approach to designating such office or location as an RSL, and conduct
and document a risk assessment for the associated person assigned to
that office or location. Proposed Supplementary Material .04(e), on
risk assessment, of MSRB Rule G-27 would mirror the provisions of FINRA
Rule 3110.19(e). Specifically, a
[[Page 43965]]
dealer would be required, prior to designating an office or location as
an RSL, to develop a reasonable risk-based approach to designating such
office or location as an RSL and conduct and document a risk assessment
for the associated person(s) assigned to that office or location. In
line with FINRA Rule 3110.19(e), proposed Supplementary Material .04(e)
of MSRB Rule G-27 would list certain factors, among others, that
dealers must consider in the risk assessment that include whether each
associated person at such office or location is subject to:
(i) customer complaints, taking into account the volume and nature
of the complaints; \43\
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\43\ Proposed Supplementary Material .04(e)(1), mirroring FINRA
Rule 3110.19(e)(1).
---------------------------------------------------------------------------
(ii) heightened supervision other than where such office or
location is ineligible for RSL designation under paragraph (c)(3) of
this Supplementary Material; \44\
---------------------------------------------------------------------------
\44\ Proposed Supplementary Material .04(e)(2), mirroring FINRA
Rule 3110.19(e)(2).
---------------------------------------------------------------------------
(iii) any failure to comply with the dealer's written supervisory
procedures; \45\
---------------------------------------------------------------------------
\45\ Proposed Supplementary Material .04(e)(3), mirroring FINRA
Rule 3110.19(e)(3).
---------------------------------------------------------------------------
(iv) any recordkeeping violations; \46\ and
---------------------------------------------------------------------------
\46\ Proposed Supplementary Material .04(e)(4), mirroring FINRA
Rule 3110.19(e)(4).
---------------------------------------------------------------------------
(v) any regulatory communications from a regulator indicating that
the associated person at such office or location may have failed
reasonably to supervise another person subject to their supervision,
including but not limited to, subpoenas, preliminary or routine
regulatory inquiries or requests for information, deficiency letters,
``blue sheet'' requests or other trading questionnaires, or
examinations.\47\
---------------------------------------------------------------------------
\47\ Proposed Supplementary Material .04(e)(5), mirroring FINRA
Rule 3110.19(e)(5). The aforementioned regulatory communications
could include but are not limited to, subpoenas, preliminary or
routine regulatory inquiries or requests for information, deficiency
letters, ``blue sheet'' requests or other trading questionnaires, or
examinations.
---------------------------------------------------------------------------
Additionally, pursuant to the proposed rule change and mirroring
FINRA Rule 3110.19(e), dealers designating an office as an RSL would be
required to take into account any higher-risk activities that take
place or a higher-risk associated person that is assigned to that
office or location. Finally, under the proposed rule change, dealers
would need to take into consideration any indicators of irregularities
or misconduct (i.e., ``red flags'') when designating an office or
location as an RSL and review such red flags in determining whether it
would be reasonable to maintain the RSL designation of such office or
location. Dealers would also need to consider evidencing steps taken to
address those red flags where appropriate.
The MSRB believes that aligning the proposed rule change with FINRA
amended rules would create regulatory certainty for dealers.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Exchange Act,\48\ 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.
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
In accordance with Section 15B(b)(2)(C) of the Exchange Act,\49\
the proposed rule change is designed to prevent fraudulent and
manipulative acts and practices because the RSL designation is intended
to provide a practical and balanced way for dealers to continue
effectively meeting the core regulatory obligation to establish and
maintain a system to supervise the activities of each associated person
that is reasonably designed to achieve compliance with applicable
securities laws and regulations and with applicable MSRB rules, which
directly serves investor protection. The MSRB has noticed that there
has been a shift towards adopting work from home models due to
carryover from the conditions associated with the COVID-19 pandemic,
and the criteria and conditions contained within the proposed rule
change is designed to accommodate this shift while also mitigating any
associated risks to investor protections. As such, the proposed rule
change is designed to minimize risks by limiting which offices or
locations can be considered an RSL while also setting conditions for
dealers designating an office or location as an RSL. The robust nature
of the criteria that must be satisfied and circumstances that would
make a location ineligible for RSL designation serve an important role
in preventing fraud and manipulative acts. For example, a location
cannot be designated as an RSL if the principal of the location has
less than one year of direct supervisory experience with the dealer or
its affiliates or subsidiaries, which is in furtherance of the Exchange
Act.\50\ In the same vein, the terms of the proposed rule change would
include important safeguards, such as requiring risk assessments in
connection with the RSL designation, which furthers the prevention of
manipulative acts and practices and the protection of investors,
municipal entities, obligated persons and the public interest. Dealers
are required to determine that their surveillance and technology tools
are appropriate to supervise RSL designations in furtherance of
preventing fraudulent and manipulative acts and practices.
---------------------------------------------------------------------------
\49\ 15 U.S.C. 78o-4(b)(2)(C).
\50\ Id.
---------------------------------------------------------------------------
By providing that such requirements for the use of the RSL
designation are applicable to the municipal securities activities of
dealers, in addition to other asset classes, the proposed rule change
promotes just and equitable principles of trade by ensuring all FINRA-
member dealers are subject to the same regulatory standard under both
FINRA and MSRB rules. This regulatory consistency would allow FINRA-
member dealers that are subject to FINRA and MSRB rules the ability to
utilize the RSL designation in a manner that achieves compliance with
both MSRB Rule G-27 and FINRA Rule 3110 without the burden or confusion
of differing regulatory requirements. The MSRB believes that the market
will benefit from similar supervisory requirements for municipal
securities as well as corporate securities that are subject to FINRA
rules. Additionally, the proposed rule change is intended to provide a
practical and balanced way for dealers to continue to effectively meet
their core regulatory obligation to establish and maintain a system to
supervise the activities of each associated person that is reasonably
designed to achieve compliance with applicable securities laws and
regulations, and with applicable MSRB rules, which directly serves
investors, municipal entities, obligated persons and public interest
protections. The MSRB believes that the proposed rule change would
facilitate transactions in municipal securities and remove impediments
to a free and open market because, by ensuring a consistent regulatory
framework for which dealers can avail themselves of RSL designations,
the proposed rule change would alleviate some of the operational
[[Page 43966]]
challenges dealers would otherwise experience, which will allow them to
more effectively allocate resources to the operations that facilitate
transactions in municipal securities and municipal financial products.
Finally, aligning the proposed rule change with amended FINRA Rule
3110 and thereby making such requirements specifically applicable to
FINRA-member dealers' municipal securities activities fosters
cooperation between regulators because it creates as close as possible
a uniform standard, with minimal distinction needed between the
treatment of municipal securities and other asset classes, enabling
FINRA and the Commission to more efficiently inspect FINRA-member
dealers subject to the rules of both self-regulatory organizations.
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) of the Exchange Act \51\ 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 Exchange
Act. The MSRB has considered the economic impact of the proposed rule
change and believes that the proposed rule change would not impose any
unnecessary or inappropriate burden on competition, as the proposed
rule change would align with the newly approved RSL designation under
FINRA Rule 3110. In addition, the proposed rule change would be applied
equally to all dealers that are FINRA-member dealers.\52\ Therefore,
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 Exchange Act.\53\
---------------------------------------------------------------------------
\51\ 15 U.S.C. 78o-4(b)(2)(C).
\52\ As previously mentioned, the MSRB will consider amendments
to MSRB Rule G-27 at a later date on whether the proposed rule
change should be extended to other dealers under MSRB rules, such as
bank dealers.
\53\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
In determining whether these standards have been met, the MSRB was
guided by the MSRB's Policy on the Use of Economic Analysis in MSRB
Rulemaking.\54\ In accordance with this policy, the MSRB has evaluated
the potential impacts on competition of the proposed rule change. The
proposed rule change would amend MSRB Rule G-27 to provide a mechanism
for dealers to utilize the RSL designation under MSRB rules.\55\ The
proposed rule change is intended to align MSRB Rule G-27 with amended
FINRA Rule 3110, which established the option to treat an associated
person's private residence where supervisory activities are conducted
as a non-branch location, subject to safeguards and limitations. The
MSRB also believes the proposed rule change would be appropriate as
some dealers' business model and work environment continue to evolve
with ongoing technological advancements and the shift to remote working
may have accelerated since the COVID-19 pandemic.\56\
---------------------------------------------------------------------------
\54\ See Policy on the Use of Economic Analysis in MSRB
Rulemaking, available at <a href="https://www.msrb.org/Policy-Use-Economic-Analysis-MSRB-Rulemaking">https://www.msrb.org/Policy-Use-Economic-Analysis-MSRB-Rulemaking</a>. In evaluating whether there was any burden
on competition that is not necessary or appropriate in furtherance
of the purposes of the Exchange Act, the MSRB was guided by its
principles that required the MSRB to consider costs and benefits of
a rule change, its impact on efficiency, capital formation and
competition, and the main reasonable alternative regulatory
approaches. For those rule changes which the MSRB files for
immediate effectiveness under Section 19(b)(3)(A) of the Exchange
Act (15 U.S.C. 78s(b)(3)(A)), while not subject to the policy, the
MSRB usually focuses its examination exclusively on the burden of
competition on regulated entities, but may also include any
additional economic analysis that the MSRB believes may inform the
rulemaking process based on the facts and circumstances.
\55\ The proposed rule change would apply specifically to
dealers that are also FINRA-member dealers.
\56\ See Letter from Leslie M. Norwood, Managing Director and
Associate General Counsel, Head of Municipal Securities, Securities
Industry and Financial Markets Association, dated February 26, 2024,
at 5 available at <a href="https://www.msrb.org/sites/default/files/2024-02/SIFMA-Notice%202023-11.pdf">https://www.msrb.org/sites/default/files/2024-02/SIFMA-Notice%202023-11.pdf</a>, and Letter from H. Deane Armstrong, CCO,
Regional Brokers, Inc., dated February 26, 2024, at 1, available at
<a href="https://www.msrb.org/sites/default/files/2024-02/Regional-Brokers-Notice-2023-11.pdf">https://www.msrb.org/sites/default/files/2024-02/Regional-Brokers-Notice-2023-11.pdf</a>, responding to MSRB Notice 2023-11, Request for
Information on Impacts of MSRB Rules on Small Firms (December 4,
2023), available at <a href="https://www.msrb.org/sites/default/files/2023-12/2023-11.pdf">https://www.msrb.org/sites/default/files/2023-12/2023-11.pdf</a>.
---------------------------------------------------------------------------
Benefits
The MSRB believes that the proposed rule change would benefit
FINRA-member dealers by offering the option to treat an associated
person's private residence where specified supervisory activities are
conducted as a non-branch location, with the intention of minimizing
harm to issuers and investors who benefit from the current supervisory
framework. Specifically, the MSRB believes that the criteria for
dealers to designate an associated person's private residence where
specified supervisory activities are conducted as an RSL would
sufficiently safeguard against potential harm. The proposed rule change
would therefore lower costs for dealers that choose the RSL
designation, including reduced time and expenses related to on-site
office inspections, as well as reduced expenses for office leasing.\57\
---------------------------------------------------------------------------
\57\ While the MSRB cannot quantify the reduction in leased
premises, the MSRB understands through its outreach and engagement
with dealers that expenses from leasing office space have generally
decreased since the start of the pandemic.
---------------------------------------------------------------------------
In addition, even if dealers choose not to utilize the RSL
designation, dealers would still benefit from the alignment of MSRB
Rule G-27 with the recently amended FINRA Rule 3110. With an estimated
98% of MSRB-registered dealers subject to FINRA's supervision rules, a
discrepancy between MSRB Rule G-27 and the existing analogous FINRA
rules on supervision would create confusion, uncertainty and an
unnecessary burden for dealers and result in a less efficient
operation. By eliminating potential areas of inconsistency between MSRB
and FINRA rules, dealers would have a lower compliance burden and an
improved efficiency. A more efficient supervisory system for dealers
may ultimately also benefit issuers and investors whom the rules are
designed to protect, such as by ensuring dealers are able to focus
time, attention and resources on matters related to effecting
transactions in municipal securities and advancing a fair and efficient
market. The MSRB expects the benefits to accumulate over time.
Costs
Dealers would need to make a one-time revision to their policies
and procedures in accordance with the proposed rule change, including
accounting for a risk assessment, eligibility criteria and conditions,
written supervisory procedures as well as an effective supervisory
system. To clarify, the upfront costs to update policies and procedures
and associated training are primarily applicable to dealers that elect
to utilize the RSL designation, with such costs being proportionately
higher for smaller than larger dealers. However, the MSRB believes the
total upfront costs would still be manageable, with an estimated
incremental amount of $3,820 for the RSL designation, as shown in Table
1; therefore, the cost should not impose an onerous burden on these
dealers that choose this option. The MSRB believes the estimated one-
time upfront cost would be offset by the cumulative compliance cost
savings as a result of the consistency between MSRB Rule G-27 and FINRA
Rule 3110 over time, as well as the cumulative cost savings from the
convenience of RSL designation if a dealer chooses this option.\58\
---------------------------------------------------------------------------
\58\ For those dealers that opt for the RSL designation, the
changes may impose additional costs on acquiring information
technology compliance software and hardware upgrades to ensure
adequate supervisory functions remotely. However, dealers likely
already made these technology upgrades and incurred cost in
establishing supervisory controls appropriate to support mandatory
work-from-home orders and shift to hybrid work arrangements during
the COVID-19 pandemic. Therefore, the MSRB believes the incremental
costs for upgrading the information technology would be negligible.
[[Page 43967]]
Table 1--Estimate of Incremental Costs Based on 2024 Hourly Rates \59\
----------------------------------------------------------------------------------------------------------------
Number of
Cost components Hourly rate hours Cost per firm
----------------------------------------------------------------------------------------------------------------
Upfront Costs--RSL Classification:
(a) Revision of Policies and Procedures..................... $540 4.0 $2,160
(b) Outside Counsel Review.................................. 570 2.0 1,140
(c) Training................................................ 520 1.0 520
-----------------------------------------------
Subtotal................................................ .............. .............. 3,820
Annual Ongoing Costs For Firms Choosing the RSL Classification:
Due Diligence and Continuing Education...................... 520 3.0 1,560
----------------------------------------------------------------------------------------------------------------
The costs of annual ongoing compliance with the proposed rule
change would likely be minor. For those dealers that transact in
municipal securities only and choose the RSL designation in connection
with discharging their supervisory activities, the MSRB estimates about
$1,560 annually per dealer to conduct the required risk assessment,
submit a list of all locations designated as RSLs to FINRA on a
quarterly basis and ensure that a dealer is in compliance with the
eligibility requirements, including the office or location eligibility
for the RSL designation.\60\
---------------------------------------------------------------------------
\59\ The hourly rates data is gathered from the Commission's
filing on ``Amendments Regarding the Definition of ``Exchange'' and
``Alternative Trading Systems (ATSs) That Trade U.S. Treasury and
Agency Securities, National Market System (NMS) Stocks, and Other
Securities.'' See Exchange Act Release No. 94062 (January 26, 2022),
87 FR 15496, 15624 (March 18, 2022) (File No. S7-02-22) (``Proposed
Rule''). The Commission's economic analysis utilizes the Securities
Industry and Financial Markets Association, Management &
Professional Earnings in the Securities Industry--2013 Report for
the hourly rates of various financial industry market professionals.
To compensate for inflation, the data reflects the 2024 hourly rate
level after adjusting for the annual cumulative wage inflation rate
of 37% between 2013 and 2023, and another 4% between 2023 and 2024.
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 number of hours for each
task is based on the MSRB's internal estimate.
\60\ Dealers of various sizes may incur different amounts of
ongoing costs. Therefore, the $1,560 annually per firm represents an
estimate for a mid-sized firm (``mid-sized'' is defined by FINRA as
a firm with 151-499 registered representatives). The MSRB does not
believe the proposed rule change would impose costs on investors.
---------------------------------------------------------------------------
Finally, in response to comments received \61\ as to dealers that
have adopted a work-from-home model in response to the COVID-19
pandemic and utilized the previous relief granted by the MSRB,\62\ if
an associated person working from their private residence takes orders
(i.e., ``order entry'') that are then entered through a designated
municipal branch office or an electronic system established by the
dealer that is reviewable at the municipal branch office, such location
would continue to be excluded from the definition of municipal branch
office under MSRB Rule G-27(g)(ii)(A)(2)(g), provided that all other
conditions are met, and therefore would not require an on-site
principal or incur cost related to principal personnel. The MSRB does
not believe that the proposed rule change would impose any unnecessary
or inappropriate burden or impact on competition for these dealers
because the proposed rule change would not lessen any flexibility or
increase cost that existed pre-pandemic for such offices or locations
that were already otherwise excluded from the definition of non-branch
location due to the functional activities being carried out, for
example, order entry and other back-office work. On the other hand, if
an associated person is conducting order execution from their private
residence, especially if only in municipal securities, such office or
location would be burdened by needing the individual to be qualified as
a principal by taking and passing the Municipal Securities Principal
Qualification Examination and its activities supervised by another
principal at a separate office or location. This may disproportionately
affect smaller dealers that may have a higher proportion of these one-
person private residences. However, these dealers do have the choice to
revert to their pre-pandemic arrangement where order execution is
conducted only at a municipal branch office, not at an associated
person's private residence.
---------------------------------------------------------------------------
\61\ See infra note 64.
\62\ See Exchange Act Release No. 90621 (December 9, 2020), 85
FR 81254 (December 15, 2020).
---------------------------------------------------------------------------
Effect on Competition, Efficiency, and Capital Formation
The MSRB believes that the proposed rule change would neither
impose a burden on competition nor hinder capital formation, as the
proposed rule change is applicable to all FINRA-member dealers choosing
to avail themselves of the RSL designation and is not expected to erode
protection for investors and issuers. While upfront costs would be
relatively higher for smaller-size dealers than larger-size dealers,
the MSRB expects the total one-time upfront costs to be manageable for
dealers that elect to utilize the RSL designation. The MSRB believes it
is appropriate, in an environment with increased remote working
personnel, to allow some residential offices or locations to be treated
as non-branch locations. Since bank dealers are not covered in the
proposed rule change for now, to the extent that some of those 18 bank
dealers, as of 2023, would have chosen the RSL designation, had the
option been available to them, such bank dealers may be disadvantaged
in their competition with other dealers. The MSRB, however, believes
this disadvantage would be minimal because the MSRB understands through
its outreach and engagement with some bank dealers that bank dealers
generally have fewer OMSJs and branch offices or locations than other
dealers, so the use of the RSL designation may not be coveted for most
bank dealers when weighing the called for processes and documentation
requirements. The MSRB believes that the proposed rule change would
improve the municipal securities market's operational efficiency and
promote regulatory consistency. At present, the MSRB is unable to
quantitatively evaluate the magnitude of the efficiency gains or
losses, but believes the benefits accumulated over time would outweigh
the upfront costs of revising policies
[[Page 43968]]
and procedures and the annual ongoing costs of ensuring compliance.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were not directly solicited on the proposed rule
change.\63\ However, the MSRB did receive comments referencing the
proposed rule change in response to a request for information on the
impact of MSRB rules on small firms (the ``RFI'').\64\
---------------------------------------------------------------------------
\63\ Comments received in response to FINRA's recently adopted
amendments creating an RSL designation under FINRA Rule 3110.19 can
be found at <a href="https://www.sec.gov/comments/sr-finra-2023-006/srfinra2023006.htm">https://www.sec.gov/comments/sr-finra-2023-006/srfinra2023006.htm</a>.
\64\ See MSRB Notice 2023-11, Request for Information on Impacts
of MSRB Rules on Small Firms (December 4, 2023) available at <a href="https://www.msrb.org/sites/default/files/2023-12/2023-11.pdf">https://www.msrb.org/sites/default/files/2023-12/2023-11.pdf</a>.
---------------------------------------------------------------------------
The Securities Industry and Financial Markets Association
(``SIFMA'') stated in its response to the RFI that certain aspects of
the use of home offices and remote supervision create a
disproportionate burden on small firms.\65\ Specifically, SIFMA stated
that many firms utilized the temporary COVID-19 relief ``under which
entities were not required to designate the homes of employees working
alone from home as offices.'' \66\ Furthermore, SIFMA requested
guidance and relief that exempts a municipal branch office from being
named as an OMSJ if the orders taken or placed by that person are
entered through a designated municipal branch office or electronic
system that is reviewable at the municipal branch office. SIFMA went on
to request similar relief for municipal finance investment bankers
working remotely, and that such locations in which structuring and
underwriting activities occur be exempt from the OMSJ definition.
Similarly, Regional Brokers, Inc. (``Regional Brokers'') expressed
concern that with the COVID-19 relief ending, many home offices will be
required to be designated as an OMSJ due to order taking or market
making occurring at such offices.\67\ As a result, Regional Brokers
stated that one-person OMSJ's would be burdened by needing the
individual to be qualified as a principal whose activities would need
to be supervised by another principal at a separate location.
---------------------------------------------------------------------------
\65\ See Letter from Leslie M. Norwood, Managing Director and
Associate General Counsel, Head of Municipal Securities, Securities
Industry and Financial Markets Association, dated February 26, 2024,
at 5.
\66\ Id. The MSRB notes that the COVID-19 relief, among other
things, clarified, under MSRB Rule G-27(g)(ii)(A)(7) that a
temporary location established in response to the implementation of
a business continuity plan is not deemed a municipal branch office.
Hence, the COVID relief did not create a new exemption with respect
to the classification of locations.
\67\ Letter from H. Deane Armstrong, CCO, Regional Brokers,
Inc., dated February 26, 2024, at 1.
---------------------------------------------------------------------------
The MSRB notes that primary residences in which orders are entered
through a designated municipal branch office or an electronic system
established by the dealer that is reviewable at the municipal branch
office are excluded from the definition of municipal branch office, if
other conditions are met and, as such, among other things, do not
require an on-site principal.\68\ In addition, the MSRB highlights that
order execution, market making, and structuring are functional
activities related to effecting a transaction in municipal securities
that the proposed rule change does not seek to address or include
within the RSL designation. FINRA also addressed similar comments in
its filing regarding expanding the RSL designation to order execution
and noted that the RSL designation is meant to carve out supervisory
activities only and declined to expand its proposal to include other
activities. As such, the MSRB reminds dealers that the proposed rule
change is meant to ensure regulatory consistency in the area of
supervision and to facilitate the enforcement thereof, so the MSRB
would not be inclined at this point to consider additional amendments
to MSRB Rule G-27 in this regard.
---------------------------------------------------------------------------
\68\ MSRB Rule G-27(g)(ii)(A)(2)(g) outlines the requirements
for the primary residence exclusion from the definition of a
municipal branch office and MSRB Rule G-27(b)(iv) prescribes the
locations in which there must be one or more appropriately
registered principals.
---------------------------------------------------------------------------
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A) \69\ of the Exchange Act and Rule
19b-4(f)(6) \70\ thereunder, the MSRB has designated the proposed rule
change as one that effects a change that: (i) does not significantly
affect the protection of investors or the public interest; (ii) does
not impose any significant burden on competition; and (iii) by its
terms, does not become operative for 30 days after the date of the
filing, or such shorter time as the Commission may designate. A
proposed rule change filed under Rule 19b-4(f)(6) normally does not
become operative until 30 days after the date of filing.\71\ However,
Rule 19b-4(f)(6)(iii) \72\ permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest.\73\ The MSRB has requested that the
Commission designate the proposed rule change operative on June 1,
2024,\74\ as specified in Rule 19b-4(f)(6)(iii).\75\
---------------------------------------------------------------------------
\69\ 15 U.S.C. 78s(b)(3)(A).
\70\ 17 CFR 240.19b-4(f)(6).
\71\ Id.
\72\ 17 CFR 240.19b-4(f)(6)(iii).
\73\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its
intent to file a proposed rule change, along with a brief
description and text of such proposed rule change, at least five
business days prior to the date of filing, or such shorter time as
designated by the Commission.
\74\ See SR-MSRB-2024-04.
\75\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
The MSRB notes that the proposed rule change is based on, and
materially conforms with, the Commission's recent approval of FINRA
Rule 3110.19 (Residential Supervisory Location), which has an effective
date of June 1, 2024.\76\ The MSRB requests that the Commission waive
the requirement that the proposed rule change, by its terms, not become
operative for 30 days after the date of the filing as set forth in Rule
19b-4(f)(6)(iii) \77\ in order to align with the operative date of
FINRA Rule 3110.19. The MSRB states that the proposed rule change is
meant to more closely conform the MSRB's dealer supervisory rule to
FINRA's recently approved supervisory requirements to help ensure a
coordinated regulatory approach in the area of dealer supervision and
to enable FINRA and the Commission to more efficiently inspect those
dealers that are subject to both self-regulatory organizations, as well
as to promote regulatory consistency for dealers engaging in activities
across asset classes. For dealers that are both FINRA-member dealers
and MSRB registrants, the MSRB believes that the proposed rule change
will allow limited relief from their inspection requirements under MSRB
and FINRA rules under similar circumstances.
---------------------------------------------------------------------------
\76\ See Exchange Act Release No. 98980 (Nov. 17, 2023), 88 FR
82447 (Nov. 24, 2023) (File No. SR-FINRA-2023-006). See also FINRA
Regulatory Notice 24-02, Branch Office Registration, Designation and
Inspections (Jan. 23, 2024), available at <a href="https://www.finra.org/sites/default/files/2024-01/Regulatory_Notice_24-02.pdf">https://www.finra.org/sites/default/files/2024-01/Regulatory_Notice_24-02.pdf</a>.
\77\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest. An
operative date of June 1, 2024 will alleviate operational challenges
and confusion for dealers that are both FINRA-member dealers and MSRB
registrants by allowing the proposed rule change to become operative on
the same date that FINRA Rule 3110.19
[[Page 43969]]
takes effect. Accordingly, the Commission hereby waives the 30-day
operative delay specified in Rule 19b-4(f)(6)(iii) and designates the
proposed rule change to be operative on June 1, 2024.\78\
---------------------------------------------------------------------------
\78\ For the purpose of waiving the 30-day operative delay for
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
---------------------------------------------------------------------------
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 Exchange Act.
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 Exchange 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#f587809990d8969a9898909b8186b5869096db929a83"><span class="__cf_email__" data-cfemail="1361667f763e707c7e7e767d6760536076703d747c65">[email protected]</span></a>. Please
include File Number SR-MSRB-2024-04 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-MSRB-2024-04. 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="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-2024-04 and should be submitted on
or before June 10, 2024.
For the Commission, pursuant to delegated authority.\79\
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\79\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10947 Filed 5-17-24; 8:45 am]
BILLING CODE 8011-01-P
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