Notice2026-08993
Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Consisting of Amendments to MSRB Rule G-20 To Revise the MSRB's Gift and Gratuities Requirements To Preserve Alignment With Amendments to FINRA Rule 3220 and To Make Certain Technical Amendments
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 7, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 88 (Thursday, May 7, 2026)</title>
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[Federal Register Volume 91, Number 88 (Thursday, May 7, 2026)]
[Notices]
[Pages 24929-24937]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-08993]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105361; File No. SR-MSRB-2026-02]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change Consisting of Amendments to MSRB Rule G-20 To Revise the MSRB's
Gift and Gratuities Requirements To Preserve Alignment With Amendments
to FINRA Rule 3220 and To Make Certain Technical Amendments
May 4, 2026.
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 1, 2026 the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the MSRB. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB filed with the Commission a proposed rule change
consisting of amendments to MSRB Rule G-20, on gifts, gratuities, non-
cash compensation and expenses of issuance, to (i) revise the MSRB's
gift and gratuities requirements for brokers, dealers, and municipal
securities dealers (collectively, ``dealers'') and municipal advisors
(together with dealers, ``regulated entities'') to preserve alignment
with the Financial Industry Regulatory Authority (``FINRA'') amendments
to FINRA Rule 3220 \3\ (``FINRA's gift rule amendment''), and (ii) make
technical amendments to renumber certain rule provisions under MSRB
Rule G-20 to enhance the clarity of the rule (collectively, the
``proposed rule change'').
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\3\ See Exchange Act Release No. 104830 (Feb. 12, 2026), 91 FR
7570 (Feb. 18, 2026), File No. SR-FINRA-2025-003 (``FINRA Approval
Order''), available at <a href="https://www.sec.gov/files/rules/sro/finra/2026/34-104830.pdf">https://www.sec.gov/files/rules/sro/finra/2026/34-104830.pdf</a>.
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The MSRB has designated the proposed rule change as constituting a
``noncontroversial'' rule change under Section 19(b)(3)(A) \4\ of the
Exchange Act and Rule 19b-4(f)(6) \5\ thereunder, which renders the
proposal effective upon receipt of this filing by the Commission. The
operative date for the proposed rule change would be June 1, 2026, for
dealers that are FINRA members. However, a separate compliance date of
December 1, 2026, would apply for all municipal advisors as well as
dealers that are not FINRA members (``bank dealers'') \6\ with respect
to the proposed rule change. Until such compliance date for municipal
advisors and bank dealers, such regulated entities would be subject to
the existing provisions of MSRB Rule G-20, including, but not limited
to, the gift limit (i.e., $100 limit per person per year) and
overarching supervisory and recordkeeping requirements, as applicable.
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\4\ 15 U.S.C. 78s(b)(3)(A).
\5\ 17 CFR 240.19b-4(f)(6).
\6\ 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.
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The text of the proposed rule change is available on the MSRB's
website at <a href="https://msrb.org/2026-SEC-Filings">https://msrb.org/2026-SEC-Filings</a> and at the MSRB's
principal office.
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 intended to more closely harmonize the
MSRB's provisions relating to the giving of gifts and gratuities in
MSRB Rule G-20 to FINRA Rule 3220, as amended by FINRA's gift rule
amendment, in furtherance of promoting greater efficiency in complying
with MSRB Rule G-20 by clarifying certain regulatory obligations of
regulated entities without reducing the protection of investors and the
public interest and at the same time making them consistent with
current FINRA Rule 3220. MSRB Rule G-20 prohibits regulated entities
and their associated persons, in certain circumstances, from giving
directly or indirectly any thing or service of value, including
gratuities (hereinafter referred to as ``gifts''), in excess of $100
per year to any person in relation to the municipal securities or
municipal advisory activities of the recipient's employer.\7\ The rule
is meant to maintain the integrity of the municipal securities market,
including the bond issuance process, by ensuring the prevention of
improprieties and conflicts of interest that may arise associated with
the giving of gifts in relation to the business of the recipient's
employer.\8\
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\7\ MSRB Rule G-20 does not apply to gifts given by a regulated
entity to its own employees or partners.
\8\ MSRB Rule G-20(a).
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The MSRB believes the proposed rule change would enhance regulated
entities' understanding of their compliance obligations under MSRB Rule
G-20, including by avoiding regulatory inconsistency in the application
of MSRB and FINRA rules with respect to dealers that are FINRA members.
To that end, the MSRB is proposing to amend MSRB Rule G-20, consistent
with FINRA Rule 3220 as amended by FINRA's gift rule amendment, to (i)
increase the gift limit from $100 to $300 per person per year; (ii)
address how gifts incidental to normal business dealings should be
treated; (iii) revise valuation and aggregation requirements; (iv)
codify additional exceptions to which the gift limit and recordkeeping
requirements do not apply; (v) establish additional supervision and
recordkeeping requirements; and (vi) clarify that the rule does not
apply to gifts from a regulated entity to its own associated persons or
to individual retail customers. The proposed rule change would also
make technical amendments to renumber certain Supplementary Materials
for simplicity and better organization. The amendments are addressed
below.
Background
Current MSRB Rule G-20
The MSRB adopted MSRB Rule G-20 in 1978,\9\ alongside several other
rules
[[Page 24930]]
including the MSRB's baseline fair practice rule, MSRB Rule G-17, with
the purpose to ``codify basic standards of fair and ethical business
conduct for municipal securities professionals.'' \10\ Originally
applicable to dealers, MSRB Rule G-20 was amended in 2015 to extend its
provisions to municipal advisors.\11\ The rule functions to protect
against improprieties and conflicts of interest that may arise when a
regulated entity, or its associated persons, attempts to induce
organizations active in the municipal securities market to engage in
business with such regulated entity by means of gifts given to
employees of such organizations. However, MSRB Rule G-20 should not be
read in isolation from other MSRB fair practice rules, including MSRB
Rule G-17.
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\9\ See Exchange Act Release No. 15247 (Oct. 27, 1978), 43 FR
50526 (Oct. 30, 1978), File No. SR-MSRB-77-12.
\10\ See Exchange Act Release No. 14519 (Mar. 2, 1978), 43 FR
9672, 9672 (Mar. 9, 1978), File No. SR-MSRB-77-12.
\11\ See Exchange Act Release No. 76381 (Nov. 6, 2015), 80 FR
70271 (Nov. 13, 2015), File No. SR-MSRB-2015-09.
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In pertinent part, MSRB Rule G-20 currently prohibits a regulated
entity,\12\ and its associated persons, in certain circumstances, from
giving directly or indirectly gifts in excess of $100 per year to a
person other than an employee or partner of the regulated entity.\13\
This prohibition only applies if such gifts are in relation to the
municipal securities or municipal advisory activities of the employer
of the recipient of the payment or service.\14\ This general limitation
(hereinafter referred to as the ``gift limit''), currently set forth in
section (c) of MSRB Rule G-20, has remained fixed at $100 since MSRB
Rule G-20 was adopted in 1978.\15\
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\12\ See MSRB Rule G-20(b)(vii).
\13\ MSRB Rule G-20(c).
\14\ Id. For the purposes of Rule G-20, the definition of the
term ``employer'' includes a principal for whom the recipient of a
payment or service is acting as agent or representative. Id.
\15\ See supra note 10, 43 FR at 9673.
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MSRB Rule G-20 currently specifies certain types of gifts that are
not subject to the gift limit, provided that they do not give rise to
any apparent or actual material conflict of interest: \16\
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\16\ MSRB Rule G-20(d)(i)-(vi), respectively.
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(i) normal business dealings, which include occasional gifts of
meals or tickets to theatrical, sporting, and other entertainments that
are hosted by the regulated entity or its associated persons,\17\ and
the sponsoring by the regulated entity of legitimate business functions
that are recognized by the Internal Revenue Service as deductible
business expenses, provided that such gifts shall not be so frequent or
so extensive as to raise any question of propriety;
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\17\ Pursuant to MSRB Rule G-20, if the regulated entity or its
associated person(s) failed to host (i.e., accompany guests) such
types of events, then gifts of this kind would be subject to the
gift limit.
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(ii) transaction-commemorative gifts that are solely decorative
items commemorating a business transaction, such as a customary plaque
or desk ornament (e.g., Lucite tombstone);
(iii) de minimis gifts, such as pens, notepads or modest desk
ornaments;
(iv) promotional gifts of nominal value displaying the regulated
entity's corporate or other business logo \18\ and that are
substantially below the gift limit (considered of nominal value);
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\18\ Under current Supplementary Material .03, on promotional
gifts and other business logo, logos of a product or service being
offered by a regulated entity, for or on behalf of a client or an
affiliate of that regulated entity, would constitute an ``other
business logo'' under subsection (d)(iv).
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(v) bereavement gifts that are reasonable and customary for the
circumstances; and
(vi) gifts that are personal in nature given upon infrequent life
events (e.g., a wedding gift or a congratulatory gift for the birth of
a child).\19\
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\19\ Under current Supplementary Material .04, on personal
gifts, the rule, among other things, exempts personal gifts that are
not ``in relation to the municipal securities or municipal advisory
activities of the employer of the recipient'' from the gift limit.
The Supplementary Material states that, in determining whether a
gift is personal in nature, a number of factors will be considered
including, but not limited to, the nature of any pre-existing
personal or family relationship between the associated person giving
the gift and the recipient and whether the associated person or the
regulated entity with which he or she is associated paid for the
gift.
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MSRB Rule G-20 includes Supplementary Material, which provides
guidance relating to the valuation and the aggregation of gifts and to
the applicability of state laws. Supplementary Material .01, on
valuations of gifts, currently states that a gift's value should be
determined generally according to the higher of its cost or market
value, and that tickets to a sporting or other entertainment event
should use the higher of cost or face value. Supplementary Material
.02, on aggregations of gifts, currently states that regulated entities
must aggregate all gifts that are subject to the gift limit given by
the regulated entity and each associated person of the regulated entity
to a particular recipient over the course of a year.\20\
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\20\ A ``year'' is defined by the regulated entity (i.e.,
calendar year, fiscal year, or rolling basis beginning with the
first gift given to any particular recipient). See Supplementary
Material .02 to MSRB Rule G-20.
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As noted above, MSRB Rule G-20 does not conclusively exempt these
categories of gifts from the gift limit as such gifts must not give
rise to any apparent or actual material conflict of interest, even if
they otherwise fully meet the description of an exempt category of
gifts, consistent with a core purpose of the rule to protect against
improprieties and conflicts of interest that may arise when regulated
entities or their associated persons give gifts or gratuities in
relation to the municipal securities or municipal advisory activities
of the recipients' employers under Rule G-20(a). Furthermore, MSRB Rule
G-17, on conduct of municipal securities and municipal advisory
activities, applies to the activities of regulated entities, whether or
not another rule may apply to certain aspects of such activities.\21\
As such, the MSRB reminds regulated entities that MSRB Rule G-17 has
long been articulated as a rule that complements the other rules
centered on the protection of investors, municipal entities, obligated
persons and the public interest. Depending on the particular facts and
circumstances, a regulated entity may violate the fundamental fair-
dealing obligations of MSRB Rule G-17 if such regulated entity engages
in behavior that would constitute a deceptive, dishonest or unfair
practice, whether or not such behavior also constitutes a violation of
MSRB Rule G-20, as amended by this proposed rule change.
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\21\ For example, the MSRB has previously provided guidance
regarding payments for excessive or lavish entertainment expenses
that, depending on the specific facts, can constitute both a
violation of MSRB Rule G-20 and MSRB Rule G-17. See MSRB
Interpretation, Dealer Payments in Connection With the Municipal
Securities Issuance Process (Jan. 29, 2007), available at <a href="https://www.msrb.org/Dealer-Payments-Connection-Municipal-Securities-Issuance-Process">https://www.msrb.org/Dealer-Payments-Connection-Municipal-Securities-Issuance-Process</a>.
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With respect to the applicability of state or other laws, the MSRB
notes that regulated entities and their associated persons may be
subject to other duties, restrictions or obligations under state or
other laws and nothing within the rule shall be deemed to supersede any
more restrictive provision of state or other laws in this area.\22\
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\22\ Supplementary Material .05. The MSRB recognizes that the
federal government and many states and localities limit gifts to
government officials and their employees.
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FINRA's Gift Rule Amendment
FINRA's gift rule amendment, which was approved by the Commission
on February 12, 2026,\23\ and became effective March 30, 2026,\24\
makes the following revisions to FINRA Rule 3220:
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\23\ See FINRA Approval Order, supra note 3, 91 FR at 7570.
\24\ See FINRA Regulatory Notice 26-05 (Feb. 27, 2026),
available at <a href="https://www.finra.org/rules-guidance/notices/26-05">https://www.finra.org/rules-guidance/notices/26-05</a>.
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[[Page 24931]]
<bullet> raises the dollar amount of FINRA's gift limit from $100
to $300;
<bullet> provides FINRA the authority to grant exemptive relief
from the gift limit;
<bullet> codifies certain existing FINRA guidance, including
guidance regarding gifts incidental to business entertainment,
valuation of gifts, aggregation of gifts, personal gifts, bereavement
gifts, de minimis gifts and promotional or commemorative items,
donations due to federally declared major disasters; and
<bullet> adopts supervision requirements and additional
recordkeeping obligations.
Moreover, FINRA's gift rule amendment makes conforming changes to
the gift limit with respect to FINRA Rules 2310, 2320, 2341 and 5110,
on non-cash compensation.\25\
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\25\ See FINRA Approval Order, supra note 3, 91 FR at 7571.
FINRA's non-cash compensation provisions are codified as separate
rules, while the MSRB's non-cash compensation provisions are
codified within MSRB Rule G-20 (subsections G-20(g)(i)-(v)).
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While the MSRB has filed with the Commission this proposed rule
change to harmonize MSRB Rule G-20 with FINRA Rule 3220 as amended by
FINRA's gift rule amendment, significant portions of MSRB Rule G-20
would be unaffected by FINRA's gift rule amendment due to the MSRB's
earlier codification into MSRB Rule G-20 the substance of certain FINRA
interpretations that FINRA had not yet incorporated into FINRA Rule
3220 until FINRA's gift rule amendment.\26\ The MSRB notes that,
although FINRA's gift rule amendment provides authority for FINRA to
grant exemptive relief to FINRA Rule 3220, the proposed rule change
would not harmonize or align with FINRA through the inclusion of
corresponding provisions, for the reasons stated below. The proposed
rule change would align and harmonize both the substantive
requirements, as appropriate, and the text and organization with
FINRA's gift rule amendment where doing so does not negatively impact
the clarity of MSRB Rule G-20.
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\26\ See Exchange Act Release No. 52555 (Oct. 3, 2005), 70 FR
59106 (Oct. 11, 2005), File No. SR-MSRB-2005-02; Exchange Act
Release No. 76381 (Nov. 6, 2015), 80 FR 70271 (Nov. 13, 2015), File
No. SR-MSRB-2015-09.
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Description of Proposed Rule Change
Increase in Dollar Amount of Gift Limit
FINRA Rule 3220(a) prohibits a FINRA member or person associated
with a FINRA member from giving anything of value, including
gratuities, in excess of $300, which represents an increase to the
dollar amount of the gift limit from $100 to $300 effectuated by
FINRA's gift rule amendment. In determining the increase to the gift
limit, FINRA calculated the average annual rate of inflation since
1992, when the limit was set at $100.\27\ In response to comments
received by the Commission during the course of rulemaking with respect
to FINRA's gift rule amendment, FINRA modified its original proposal by
extrapolating this rate to account for ten years of future
inflation.\28\ FINRA stated that it believed the proposed, higher gift
limit would continue to permit the exchange of business courtesies
while helping to guard against excessiveness.\29\ FINRA also
articulated that a dollar limit, as opposed to, for example, a
principles-based approach, would provide certainty regarding the limit
for gifts and help facilitate broker-dealer compliance.\30\ The MSRB
agrees that this is an appropriate approach (i.e., a stated dollar
limit) in modernizing the MSRB's gift limit under MSRB Rule G-20.
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\27\ See Exchange Act Release No. 103226 (June 11, 2025), 90 FR
25674, 25675 (June 17, 2025), File No. SR-FINRA-2025-003 (``FINRA
Filing'').
\28\ See Exchange Act Release No. 103958 (Sept. 12, 2025), 90 FR
44855, 44856 (Sept. 17, 2025), File No. SR-FINRA-2025-003
(``Amendment 1'').
\29\ FINRA Filing, supra note 27, 90 FR at 25675.
\30\ Id.
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Thus, the proposed rule change would increase the gift limit under
MSRB Rule G-20(c) from $100 to $300, matching the increased limit under
FINRA's gift rule amendment.\31\ MSRB Rule G-20 has maintained a $100
gift limit since the late 1970s, in service of a purpose substantively
the same as the purpose of FINRA Rule 3220.\32\ The proposed rule
change would also mirror FINRA's gift rule amendment by making a
conforming amendment to MSRB Rule G-20(g)(i), increasing the dollar
amount of the gift limit in relation to non-cash compensation from $100
to $300.\33\
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\31\ Proposed amendment to Rule G-20(c), mirroring FINRA Rule
3220(a).
\32\ Compare MSRB Rule G-20(a) (``The purpose of this rule is to
maintain the integrity of the municipal securities market and to
preserve investor and public confidence in the municipal securities
market, including the bond issuance process. The rule protects
against improprieties and conflicts of interest that may arise when
regulated entities or their associated persons give gifts or
gratuities in relation to the municipal securities or municipal
advisory activities of the recipients' employers.''), with Amendment
1, supra note 28, 90 FR at 44855 (``[FINRA Rule 3220] is designed to
avoid improprieties, such as conflicts of interest, that may arise
when a [FINRA] member or associated person makes a gift to an
employee of another person, such as an institutional customer,
vendor, or counterparty with the hope of strengthening the business
relationship with them.'') (internal reference omitted).
\33\ Proposed amendment to Rule G-20(g)(i), mirroring FINRA non-
cash compensation rules referenced above (supra note 25).
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Amendments To Harmonize With New Supplementary Material to FINRA Rule
3220
FINRA previously issued guidance and interpretations regarding the
application of FINRA gifts rules in specific contexts. FINRA's gift
rule amendment incorporates and substantially codifies such guidance
and interpretations into supplementary material to FINRA Rule 3220. As
noted above, many of the interpretations, now codified as FINRA
supplementary material, were incorporated into MSRB Rule G-20 by way of
past filings. As a result, the proposed rule change does not require
significant wholesale changes to Rule G-20 to achieve harmony with
those specific FINRA supplementary materials. In contrast, some new
FINRA supplementary materials impose requirements not currently found
under MSRB Rule G-20, and the proposed rule change contains
corresponding proposed amendments. The proposed rule change's treatment
of each topic is detailed below.
Gifts Incidental to Business Entertainment or Normal Business Dealings
FINRA's interpretive guidance did not expressly exclude from its
gift limit gifts given during the course of a business entertainment
event, so FINRA sought to clarify that a gift given during the course
of a business entertainment event would be subject to the $300 limit on
gifts unless one of the requisite exclusions apply (i.e., the gift
given is a personal gift, of de minimis value, or a promotional/
commemorative item). FINRA's Rule 3220.01 expressly states that, unless
a gift qualifies as a personal gift under FINRA Rule 3220.04 or as a
gift of de minimis value or a promotional or commemorative item under
FINRA Rule 3220.06, a gift given during a business entertainment event
would be subject to the $300 gift limit and to the rule's recordkeeping
requirements.\34\ In its filing, FINRA further clarified the obligation
under FINRA Rule 3220.06 through an example--gifts of clothing or
electronics at a business entertainment event would be subject to its
gift limit. However, pens or note pads of de minimis value given during
such business
[[Page 24932]]
entertainment would not be subject to the gift limit provided the item
meets the requirements of 3220.06.\35\
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\34\ The cost of the business entertainment event itself would
not be included in the value of the gift. FINRA Filing, supra note
27, 90 FR at 25676.
\35\ See FINRA Filing, supra note 27, 90 FR at 25675-76.
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MSRB Rule G-20(d) lists gifts that are not subject to the gift
limit, including, among other things, ``normal business dealings'' as
described in MSRB Rule G-20(d)(i). The term normal business dealings
refers to occasional gifts of meals or tickets to theatrical, sporting,
and other entertainments that are hosted by the regulated entity or its
associated persons, and the sponsoring by the regulated entity of
legitimate business functions that are recognized by the Internal
Revenue Service as deductible business expenses; provided that such
gifts shall not be so frequent or so extensive as to raise any question
of propriety. The concept of normal business dealings included in MSRB
Rule G-20 effectively includes what is referred to in FINRA Rule 3220
as ``business entertainment.''
While MSRB Rule G-20 currently makes clear that normal business
dealings should not be so frequent or so extensive as to raise any
questions of propriety, the rule does not expressly state that gifts
given in the course of normal business dealings that are not among the
types of gifts excepted by the rule from the gift limit (e.g., gifts
that are not personal, de minimis or promotional in nature, as further
described below) would themselves be subject to the gift limit.
The proposed rule change would amend subsection G-20(d)(i), which
addresses normal business dealings (including occasional gifts of meals
or tickets to theatrical, sporting, and other entertainments that are
hosted by the regulated entity or its associated persons), by adding
language to explicitly state that a gift given during the course of a
normal business dealing is subject to the $300 gift limit unless it
qualifies for certain other exceptions prescribed under Rule G-20(d)
\36\ for gifts and gratuities not subject to the gift limit.\37\ This
language would align closely with FINRA Rule 3220.01.
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\36\ These exceptions would be limited to transaction-
commemorative gifts, de minimis gifts, promotional gifts and
personal gifts. See MSRB Rules G-20(d)(ii)-(iv), (vi), respectively.
\37\ See the final sentence of proposed MSRB Rule G-20(d)(i),
mirroring FINRA Rule 3220.01.
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Valuation of Gifts \38\
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\38\ Note that the gifts discussed in this section would not
ordinarily be considered normal business dealings, as discussed
above, since the gifts discussed in this section are not meals or
tickets to other events hosted by the regulated entity as legitimate
business functions. See ``Gifts Incidental to Business Entertainment
or Normal Business Dealings,'' supra.
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FINRA Rule 3220.02, as amended by FINRA's gift rule amendment,
requires that gifts (other than tickets to sporting or other events) be
valued at cost, exclusive of tax and delivery charges. This differs
from FINRA's previous interpretive guidance, which required that gifts
be valued at the higher of either cost or market value. In adopting
FINRA's gift rule amendment, FINRA stated that it believes that this
deviation from existing guidance is justified because the difficulty
and burdensome nature of determining the market value would result in
complexity and subjectivity in the valuation that would outweigh any
benefit.\39\ Otherwise, FINRA Rule 3220.02 codifies FINRA guidance and
interpretations by requiring the use of the higher of cost or face
value when valuing tickets to sporting or other events, and by
requiring that if gifts are given to multiple recipients, firms should
record the names of each recipient and calculate and record the value
of the gift on a pro rata per recipient basis for purposes of ensuring
compliance with the gift limit.\40\
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\39\ See FINRA Filing, supra note 27, 90 FR at 25676.
\40\ Id.
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Current Supplementary Material .01 of MSRB Rule G-20 largely
mirrors the requirements of FINRA Rule 3220.02 \41\ with the exception
of the change specific to the valuation of gifts. The proposed rule
change would amend this supplementary material to harmonize with FINRA
Rule 3220.02 to value gifts at cost with the exception of tickets to
sporting or other events, which as previously mentioned would continue
to be valued at the higher of cost or face value.\42\
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\41\ Proposed Supplementary Material .01, mirroring FINRA Rule
3220.02, would include minor, non-substantive changes to the title:
``Valuations of Gifts'' to ``Valuation of Gifts.'' The non-
substantive changes add clarity, improve organization and highlight
parallels with FINRA Rule 3220.02.
\42\ See Proposed Supplementary Material .01 of MSRB Rule G-20.
While the MSRB acknowledges the rationale for the change as
articulated by FINRA with respect to the difficulty in discerning
the market value of gifts, the MSRB reminds regulated entities that
MSRB Rule G-20(d) provides that gifts otherwise excepted from the
gift limit under section (d) must not give rise to any apparent or
actual material conflict of interest, and that the principles of
fair dealing under MSRB Rule G-17 also may apply, as described
above. See supra note 21 and accompanying text.
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Aggregation of Gifts
FINRA Rule 3220.03 requires the aggregation of all gifts given by
its members and each associated person of its members to a particular
recipient over the course of the year, and for its members to state in
their procedures whether they are aggregating all gifts given on a
calendar year, fiscal year, or on a rolling basis beginning with the
first gift to any particular recipient. FINRA Rule 3220.03 also states
that it does not apply to gifts that meet the requirements of certain
other provisions of FINRA's gift rule amendment (i.e., personal gifts,
de minimis gifts, promotional or commemorative items).
The requirement to aggregate all gifts given and in a consistent
manner over the course of a year aligns with existing Supplementary
Material .02 of MSRB Rule G-20, on aggregations of gifts; however,
Supplementary Material .02 of MSRB Rule G-20 does not currently require
regulated entities' policies and procedures to state the requisite time
frame over which all gifts would be aggregated. Therefore, the proposed
rule change would make conforming changes by expressly stating within
Supplementary Material .06, on supervision and recordkeeping, that
regulated entities' procedures must state the requisite time frame for
the aggregation (i.e., calendar year, fiscal year, or rolling
basis).\43\ The proposed rule change would further align and harmonize
with FINRA Rule 3220.03 by explicitly stating that the aggregation
requirements do not apply to gifts that meet the requirements of
section (d) and that are consistent with the requirements of
Supplementary Materials .03 and .05 of MSRB Rule G-20 (i.e.,
transaction-commemorative/promotional gifts, de minimis gifts,
bereavement gifts, personal gifts and donations due to federally
declared major disasters).\44\ The MSRB believes that operationalizing
the aggregation of gifts and gratuities would be aided by policies and
procedures that address the time frame for such aggregation.
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\43\ The requisite time frame for the aggregation of gifts has
been expressly incorporated into Proposed Supplementary Material
.06, on supervision and recordkeeping, which is discussed below, due
to the logical nature and fit of such policies and procedure
requirement.
\44\ Proposed Supplementary Material .02, mirroring FINRA Rule
3220.03. Proposed Supplementary Material .02 would also include
minor non-substantive changes to the title: ``Aggregations of
Gifts'' to ``Aggregation of Gifts.'' The non-substantive changes add
clarity, improve organization and highlight parallels with FINRA
Rule 3220.03.
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Personal Gifts
FINRA Rule 3220.04, on personal gifts, states that gifts that are
given for infrequent life events (e.g., a wedding gift or a
congratulatory gift for the birth of a child) are not subject to the
gift limit restrictions in FINRA Rule 3220(a) or the recordkeeping
requirements in
[[Page 24933]]
FINRA Rule 3220(c), provided the gifts are customary and reasonable,
personal in nature, and not in relation to the business of the employer
of the recipient.\45\ In determining whether a gift is personal in
nature and not in relation to the business of the employer of the
recipient, factors including the nature of any pre-existing personal or
family relationship between the person giving the gift and the
recipient and whether the associated person paid for the gift should be
considered. FINRA Rule 3220.04 also states that when its member bears
the cost of a gift, either directly or by reimbursing an associated
person, there is a presumption that the gift is not personal in nature
and instead is in relation to the business of the employer of the
recipient.
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\45\ FINRA has noted that the exception for personal gifts would
not apply to gifts given for events that occur frequently, or even
annually, such as birthdays. See FINRA Filing, supra note 27, 90 FR
at 25682.
---------------------------------------------------------------------------
The proposed rule change would amend MSRB Rule G-20(d)(vi) by
adding language that would explicitly require personal gifts to be
reasonable and customary. The MSRB believes that the combination of the
amended text of subsection G-20(d)(vi), which would provide an
exception for personal gifts and brief definition of the same, and the
corresponding Supplementary Material,\46\ which provides additional
clarification regarding the nature of personal gifts and the exception
for such gifts, would substantively align with the requirements of
FINRA Rule 3220.04.\47\ To harmonize with the recordkeeping exception
of FINRA Rule 3220.04, the proposed rule change would add language
within new Supplementary Material .06, on supervision and recordkeeping
requirements, stating that personal gifts are not subject to the
recordkeeping requirements under MSRB Rule G-8(h)(ii) by way of
incorporation into Supplementary Material .06 of MSRB Rule G-20.
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\46\ Proposed Supplementary Material .03 is renumbered from
Supplementary Material .04 of MSRB Rule G-20. This Supplementary
Material is substantively the same as current Supplementary Material
.04.
\47\ In addition, the MSRB agrees with FINRA's assessment that
the exception for personal gifts would not apply to gifts given for
events that occur frequently, or even annually, such as birthdays.
---------------------------------------------------------------------------
Bereavement Gifts
FINRA Rule 3220.05, on bereavement gifts, states that such gifts
that are customary and reasonable are not considered to be in relation
to the business of the employer of the recipient and, therefore, are
not subject to the gift limit. FINRA had long considered bereavement
gifts to be a type of personal gift because bereavement gifts are given
for infrequent life events. However, commenters raised concerns about
treating bereavement gifts as a type of personal gift. In response,
FINRA adopted 3220.05 to separate the supplementary material from that
on personal gifts.
MSRB Rule G-20(d)(v) states that bereavement gifts that are
reasonable and customary for the circumstances are not subject to the
gift limit provided they do not give rise to any apparent or actual
material conflict of interest.\48\ To further align and harmonize with
FINRA's gift rule amendment, the proposed rule change would amend
subsection (d)(v) of MSRB Rule G-20 by adding language explicitly
stating that bereavement gifts are not considered to be in relation to
the business of the employer of the recipient.\49\ The proposed rule
change would also add language within new Supplementary Material .06,
on supervision and recordkeeping requirements, stating that bereavement
gifts are not subject to the recordkeeping requirements under MSRB Rule
G-8(h)(ii) by way of incorporation into Supplementary Material .06 of
MSRB Rule G-20. The MSRB believes that clarification on the exclusions
under MSRB Rule G-20 will assist regulated entities in achieving
compliance objectives.
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\48\ See MSRB Rule G-20(d)(v). The material conflict of interest
caveat applies to all exceptions under MSRB Rule G-20(d).
\49\ Proposed MSRB Rule G-20(d)(v), harmonizing with FINRA Rule
3220.05.
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De Minimis Gifts and Promotional Gifts or Commemorative Items
FINRA Rule 3220.06(a) provides that gifts of de minimis value
(e.g., pens, notepads, or modest desk ornaments) or promotional items
of nominal value that display the member's logo (e.g., umbrellas, tote
bags, or shirts) are excepted from FINRA Rule 3220's gift limit and the
recordkeeping requirements under the rule, if the value of such gift or
item is substantially below the $300 gift limit. FINRA Rule 3220.06(b)
provides an exception from the gift limit and recordkeeping
requirements for customary and reasonable solely decorative items
commemorating a business transaction. FINRA noted it did not believe it
was necessary to explicitly limit the value of customary commemorative
items because such items must be solely decorative. Thus, the
restrictions under FINRA Rule 3220(a) would apply where the item is not
solely decorative, irrespective of whether the item was intended to
commemorate a business transaction.\50\
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\50\ FINRA expressed for example, providing an employee of an
organization with elaborate electronic equipment following the
closing of a transaction would be subject to the gift limit. See
FINRA Filing, supra note 27, 90 FR at 25677.
---------------------------------------------------------------------------
MSRB Rule G-20(d)(ii)-(iv) already provides corresponding
exceptions to the gift limit for gifts of de minimis value (e.g., pens,
notepads or modest desk ornaments),\51\ promotional items of nominal
value displaying the regulated entity's corporate or other business
logo (provided that the value be substantially below the $100 general
gift limit),\52\ and gifts that are solely decorative items
commemorating a business transaction, such as a customary plaque or
desk ornament (e.g., Lucite tombstone).\53\ To fully align these
provisions with FINRA's gift rule amendment, the proposed rule change
would amend MSRB Rule G-20(d)(iii) by adding a sentence explicitly
stating that the value of a gift must be substantially below the $300
gift limit for such gift to be considered of de minimis value, and
amend MSRB Rule G-20(d)(iv) to change the gift limit from $100 to $300
and add parenthetical examples of promotional gifts (e.g., umbrellas,
tote bags, or shirts).\54\ In conforming with FINRA's gift rule
amendment, the proposed rule change would add language to new
Supplementary Material .06, on supervision and recordkeeping, stating
that personal gifts are not subject to the recordkeeping requirements
under MSRB Rule G-8(h)(ii) by way of incorporation into Supplementary
Material .06 of MSRB Rule G-20. In addition, the proposed rule change
would renumber Supplementary Material .03, on promotional gifts and
``other business logo,'' to Supplementary Material .04.
---------------------------------------------------------------------------
\51\ See MSRB Rule G-20(d)(iii).
\52\ See MSRB Rule G-20(d)(iv). See also Proposed Supplementary
Material .04 of MSRB Rule G-20 (providing additional clarity
regarding the nature of promotional items and other business logos).
Proposed Supplementary Material .04 is substantively the same as
current Supplementary Material .03.
\53\ See MSRB Rule G-20(d)(ii).
\54\ The proposed rule change would amend MSRB Rule G-20(d)(iv),
to mirror FINRA Rule 3220.06, by updating the gift limit to $300 and
by adding parenthetical examples of promotional gifts. As previously
noted, the rule is consistent in all other respects.
---------------------------------------------------------------------------
Donations Due to Federally Declared Major Disasters
FINRA Rule 3220.07 codifies FINRA interpretive guidance stating
that donations to an employee of an institutional customer to provide
assistance to an individual in connection with a federally declared
[[Page 24934]]
major disaster, such as a wild fire, hurricane, tornado, earthquake, or
flood, are not considered to be in relation to the business of the
employer of the recipient and are therefore not subject to the gift
limit. The proposed rule change would add Supplementary Material .05 of
MSRB Rule G-20 and would directly mirror FINRA Rule 3220.07.\55\ The
MSRB agrees with FINRA that such donations are not in relation to the
business of the employer of the recipient, and therefore, should be
excluded from the gift limit and recordkeeping requirements under MSRB
Rule G-8(h)(ii).
---------------------------------------------------------------------------
\55\ Proposed Supplementary Material .05, to mirror FINRA Rule
3220.07.
---------------------------------------------------------------------------
Supervision and Recordkeeping
Citing FINRA Rule 3110, on supervision, FINRA Rule 3220.08 requires
a supervisory system that is reasonably designed to achieve compliance
with Rule 3220.\56\ Specifically, FINRA Rule 3220.08 requires FINRA
members to have systems and procedures reasonably designed to ensure
that payments and gratuities in relation to the business of the
employer of the recipient given by the member firm and its associated
persons to employees of another person are: (1) reported to the firm;
(2) reviewed for compliance with Rule 3220; and (3) maintained in the
firm's records.\57\ FINRA Rule 3220.08 also requires procedures
reasonably designed to ensure that the person giving a gift or gratuity
is not the same person responsible for determining whether that gift or
gratuity is related to the business of the recipient's employer.
Finally, this provision restates that gifts described in FINRA Rule
3220.04, on personal gifts, FINRA Rule 3220.05, on bereavement gifts,
FINRA Rule 3220.06, on de minimis gifts and promotional or
commemorative items,\58\ and FINRA Rule 3220.07, on donations due to
federally declared major disasters, are not subject to the
recordkeeping requirements of the rule.\59\
---------------------------------------------------------------------------
\56\ Amendment 1, supra note 28, 90 FR at 44858.
\57\ Id.
\58\ FINRA has previously stated that its gift rule does not
apply to gifts of de minimis value (e.g., pens, notepads or modest
desk ornaments). See NASD Notice to Members 06-69, NASD Issues
Additional Guidance on Rule 3060 (Influencing or Rewarding Employees
of Others) (Dec. 4, 2006), available at <a href="https://www.finra.org/rules-guidance/notices/06-69">https://www.finra.org/rules-guidance/notices/06-69</a>.
\59\ Id.
---------------------------------------------------------------------------
The proposed rule change would add new Supplementary Material .06,
on supervision and recordkeeping, that substantively aligns with FINRA
Rule 3220.08 by mirroring the language that clarifies the nature of the
requirements necessary to achieve compliance with the rule.\60\ The
supervisory requirements expressly state that procedures must be
reasonably designed to ensure that the person giving the gift or
gratuity is not the same person responsible for determining whether the
gift or gratuity is in relation to the business of the recipient's
employer. However, this provision does not account for the uniqueness
of the regulatory framework for small municipal advisors. The proposed
rule change caveats this supervisory requirement by permitting
municipal advisors to carry out their compliance obligation in
accordance with Supplementary Material .03 of Rule G-44.\61\
Additionally, the proposed rule change adds language to clarify that
regulated entities are not required to maintain records of gifts not
subject to the general limitation of section (c) as described in
section (d) and that are consistent with the requirements of
Supplementary Materials .03 and .05 of this rule. The MSRB believes
aligning the substantive provisions that directly address the standards
necessary to achieve compliance is the most direct way to promote
regulatory harmonization and reduce compliance burdens for firms
subject to the rules of multiple regulators.
---------------------------------------------------------------------------
\60\ Proposed Supplementary Material .06, to mirror FINRA Rule
3220.08.
\61\ Pursuant to Supplementary Material .03 of MSRB Rule G-44, a
municipal advisor is permitted to tailor its written supervisory
procedures based on, among other things, an advisor's size.
---------------------------------------------------------------------------
The recordkeeping requirements would not apply to normal business
dealings, de minimis gifts, promotional or commemorative items,
personal gifts, bereavement gifts or donations due to federally
declared major disasters \62\ because such gifts, by their very nature,
should be infrequent or customary and reasonable for the circumstances,
depending on the nature of the gift in question. Although the MSRB is
not requiring records to be made and maintained related to normal
business dealings, the MSRB notes that regulated entities may determine
to implement recordkeeping requirements in this area as part of their
supervisory system to achieve compliance with the MSRB's gift rule. The
MSRB believes that a principles-based approach to recordkeeping
requirements for normal business dealings is a more prudent approach
given the application to both dealers and municipal advisors, and
additional, potentially unnecessary, administrative costs associated
with making and maintaining such records. As such, regulated entities
should decide whether records should be made and maintained, based on
the facts and circumstances specific to any given normal business
dealing. The MSRB notes that regulated entities should make such
determination in the context of their overall supervisory obligations
and in ensuring their supervisory system is reasonably designed to
achieve compliance with MSRB rules and other applicable securities laws
and regulations.
---------------------------------------------------------------------------
\62\ Proposed Supplementary Material .05, to mirror FINRA Rule
3220.07.
---------------------------------------------------------------------------
Gifts to a Regulated Entity's Associated Persons or Individual Retail
Investors
FINRA Rule 3220.09 states that FINRA Rule 3220 does not apply to
``gifts from a member to its own associated persons, or to gifts from a
member or an associated person to individual retail customers.''
Although the substance of this provision was already implied by the
text of FINRA Rule 3220, FINRA added Rule 3220.09 to clarify and
improve awareness and understanding of the scope of FINRA's gift rule
amendment.\63\ The proposed rule change would add new Supplementary
Material .07 to MSRB Rule G-20 directly mirroring FINRA Rule
3220.09.\64\
---------------------------------------------------------------------------
\63\ See FINRA Approval Order, supra note 3, 91 FR at 7574.
\64\ Proposed Supplementary Material .07, to mirror FINRA Rule
3220.09.
---------------------------------------------------------------------------
Minor Technical Language Changes
Finally, the proposed rule change would make a limited number of
non-substantive technical changes to rule language to improve
consistency and clarity. Current rule language inconsistently refers to
sections of MSRB Rule G-20 and its Supplementary Materials; the
proposed rule change would correct these inconsistencies. In addition,
the proposed rule change would make a technical amendment to renumber
existing Supplementary Material .05, on applicability of state or other
laws, to Supplementary Material .08.
Provision From FINRA's Gift Rule Amendment Omitted From Proposed Rule
Change
FINRA's gift rule amendment includes a new section within Rule
3220,\65\ which authorizes FINRA staff, pursuant to the FINRA Rule 9600
series, to conditionally or unconditionally grant an exemption from any
provision of FINRA Rule 3220 for good cause shown, after taking into
account all relevant factors and provided that such exemption is
consistent with the purposes of FINRA Rule 3220, the
[[Page 24935]]
protection of investors, and the public interest.\66\
---------------------------------------------------------------------------
\65\ FINRA Rule 3220(d).
\66\ Id.
---------------------------------------------------------------------------
The proposed rule change does not include a corresponding amendment
to MSRB Rule G-20 due to the unique regulatory structure under Section
15B of the Exchange Act,\67\ which requires the MSRB to undertake
rulemaking responsibilities while assigning examination and enforcement
authority to other regulators such as the Commission, FINRA and the
federal banking regulators. Any amendment to MSRB Rule G-20 to permit
regulated entities to seek exemptive relief would require a regulated
entity to submit its request to the appropriate regulator (i.e., not
the MSRB) for consideration and potential exemptive action under that
regulator's procedures. At such time as the appropriate regulators have
processes in place, or agree to put such processes in place, to
potentially receive, review and act on any such exemptive requests, the
MSRB could consider whether to adopt a further provision to MSRB Rule
G-20 to institute a similar exemptive relief mechanism.
---------------------------------------------------------------------------
\67\ 15 U.S.C. 78o-4.
---------------------------------------------------------------------------
Operative and Compliance Dates
As previously mentioned, the operative date for the proposed rule
change would be June 1, 2026, for dealers that are FINRA members.
However, a separate compliance date of December 1, 2026, would apply
for all municipal advisors as well as bank dealers with respect to the
proposed rule change. Until such compliance date for municipal advisors
and bank dealers, such regulated entities would be subject to the
existing provisions of MSRB Rule G-20, including, but not limited to,
the gift limit (i.e., $100 limit per person per year) and overarching
supervisory and recordkeeping requirements, as applicable.
The delayed compliance date for all municipal advisors and bank
dealers is designed to provide such regulated entities sufficient time
to revise their policies and procedures and their recordkeeping and
related processes to ensure efficient and effective compliance with the
new requirements of the proposed rule change without creating
unnecessary burdens or disruption. While FINRA member firms should have
come into compliance with the comparable policies and procedures under
FINRA Rule 3220 in connection with their other securities market
activities, non-dealer municipal advisors, as well as bank dealers,
would need time to make any necessary changes.
Exchange Act Section 15B(b)(2)(L)(iv) directs the MSRB to adopt
rules with respect to municipal advisors that do 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.\68\ In response to a
request for information published by the MSRB in 2023 seeking input on
the impacts of MSRB rules on small firms (the ``Small Firm RFI''),\69\
one commenter noted ``[m]any firms do seek outside counsel or
compliance professionals to assist with their compliance programs.
These costs may represent the price of doing business, but place
greater financial and administrative burdens on smaller firms. The cost
of external compliance review and/or development and maintenance of
written supervisory procedures (`WSP')/policies and procedures, etc.,
are typically not based on the size of the firm, but rather a fixed
cost to firms. That proportionately places greater costs on small
firms.'' \70\ This commenter also asked that the MSRB confer with small
municipal advisors to discuss how small municipal advisors ``approach
reviewing new/updated rules, making changes to their WSPs, and
implementing compliance and supervisory procedures.'' \71\
---------------------------------------------------------------------------
\68\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
\69\ MSRB Notice 2023-11, Request for Information on Impacts of
MSRB Rules on Small Firms (Dec. 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>.
\70\ See Letter from Susan Gaffney, Executive Director, National
Association of Municipal Advisors, p. 2 (Feb. 26, 2024), available
at <a href="https://www.msrb.org/sites/default/files/2024-02/NAMAsmallfirmFEB2024.pdf">https://www.msrb.org/sites/default/files/2024-02/NAMAsmallfirmFEB2024.pdf</a>.
\71\ Id. at 4.
---------------------------------------------------------------------------
Focusing across both dealer and municipal advisor firms, another
commenter on the Small Firm RFI ``. . . urge[d] the Board to consider
how its potential rule changes would affect all market participants,
including smaller BDs, and to write rules which do not impose
unreasonable compliance standards on any market participant, big or
small. This is especially important with respect to implementation
periods for regulatory changes. In many cases, it may reasonably take
smaller firms more time to implement rule changes than larger firms due
to fewer resources available for the task. We urge the Board to
consider the effects of its rule amendments on those firms that would
be particularly challenged and to gauge implementation times to ensure
all firms are able to be fully compliant on a rule's effective date.''
\72\
---------------------------------------------------------------------------
\72\ See Letter from Michael Decker, Senior Vice President, Bond
Dealers of America, p.2 (Feb. 26, 2024), available at <a href="https://www.msrb.org/sites/default/files/2024-02/BDA-Notice-2023-11.pdf">https://www.msrb.org/sites/default/files/2024-02/BDA-Notice-2023-11.pdf</a>.
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The MSRB believes that providing additional time to come into
compliance with the new supervisory and recordkeeping requirements in
the proposed rule change is responsive to these concerns and
suggestions.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Exchange Act,\73\ 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.
---------------------------------------------------------------------------
\73\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
In accordance with Section 15B(b)(2)(C) of the Exchange Act,\74\
the proposed rule change is designed to prevent fraudulent and
manipulative acts and practices. Although the proposed rule change
would increase the gift limit, it continues to protect investors and
preserve public confidence in the municipal securities market because
the proposed rule change would also put into place additional
provisions strengthening supervision and recordkeeping requirements
designed to prevent fraudulent acts and manipulative practices.\75\ For
example, the proposed rule change would require policies and procedures
to be reasonably designed to ensure that the associated person giving a
gift is not also the person responsible for the determination of
whether the gift in question is in relation to the municipal securities
or municipal advisory activities of the employer of the gift's
recipient. Not only is the proposed rule change consistent with the
explicit purpose of MSRB Rule G-20, but also increased harmonization
[[Page 24936]]
with the corresponding FINRA provisions is intended to provide a
practical and balanced way for regulated entities 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. Furthermore, the proposed rule
change clarifies the supervisory obligations of regulated entities and
provides greater flexibility to design and implement necessary policies
and procedures.
---------------------------------------------------------------------------
\74\ Id.
\75\ MSRB Rule G-20(a) (stating that the purpose of MSRB Rule G-
20 is to preserve investor and public confidence in the municipal
securities market, including the bond issuance process).
---------------------------------------------------------------------------
By aligning the requirements of MSRB Rule G-20 with FINRA's gift
rule amendment, the proposed rule change promotes just and equitable
principles of trade by ensuring all regulated entities are subject to
the same regulatory standard under both FINRA and MSRB rules. This
regulatory consistency would allow regulated entities that are subject
to FINRA and MSRB rules to more efficiently design and implement
policies and procedures to ensure compliance with both MSRB Rule G-20
and with FINRA's gift rule amendment without the burden or confusion of
differing regulatory requirements. The MSRB believes that the proposed
rule change would alleviate some of the operational challenges
regulated entities would otherwise experience due to regulatory
uncertainty--regulated entities would be able to more effectively
allocate resources to the operations that facilitate transactions in
municipal securities, and thereby, removing impediments to a free and
open market.
Finally, aligning MSRB Rule G-20 with FINRA's gift rule amendment
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 regulated entities
subject to the rules of both self-regulatory organizations.
In addition, Section 15B(b)(2)(L)(iv) of the Exchange Act provides
that MSRB rules may 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.\76\ While the proposed rule change would burden some small
municipal advisors, the MSRB believes that any such burden is
outweighed by the need to maintain the integrity of the municipal
securities market by extending to municipal advisors the same
regulatory obligations by which dealers have to operate with respect to
the protection of investors and the public interest. The MSRB believes
that clarifying the narrow exclusions to the gift limit would reduce
the chances of potential violations of the public trust by having rules
of the road on how municipal advisors engage with elected officials and
other market participants involved in the issuance of municipal
securities. Moreover, municipal advisors having to state in their
procedures whether they are aggregating all gifts on a calendar year,
fiscal year, or on a rolling basis beginning with the first gift to any
particular recipient ensures gifts are not given so frequently that
they unduly influence the awarding of municipal advisor business.
Finally, both the delayed compliance date for proposed Supplementary
Material .06 with respect to supervisory and recordkeeping requirements
and the exception for municipal advisors to certain supervisory
requirements via reliance on Supplementary Material .03 of MSRB Rule G-
44 would serve to reduce the regulatory burden on small municipal
advisors in a manner consistent with Section 15B(b)(2)(L)(iv) of the
Exchange Act.\77\
---------------------------------------------------------------------------
\76\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
\77\ Id.
---------------------------------------------------------------------------
The MSRB also believes that the proposed rule change is consistent
with Section 15B(b)(2)(G) of the Exchange Act,\78\ which provides that
the MSRB's rules shall prescribe records to be made and kept by
municipal securities brokers, municipal securities dealers, and
municipal advisors and the periods for which such records shall be
preserved. The MSRB believes that the proposed rule change related to
recordkeeping requirements under MSRB Rule G-20 coupled with existing
obligations under MSRB Rule G-8 would promote compliance with and
facilitate enforcement of the proposed rule change by clarifying the
records that must be preserved. The proposed rule change would also
improve recordkeeping by specifying that gifts that are normal business
dealings, de minimis gifts, promotional or commemorative items,
personal gifts, bereavement gifts or donations due to federally
declared major disasters are not subject to the recordkeeping
requirements.
---------------------------------------------------------------------------
\78\ 15 U.S.C. 78o-4(b)(2)(G).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) of the Exchange Act \79\ requires that MSRB
rules not be designed to impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Exchange Act. In
addition, Section 15B(b)(2)(L)(iv) of the Exchange Act \80\ provides
that MSRB rules may 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. In determining whether the standards have been met, the MSRB was
guided by the MSRB's Policy on the Use of Economic Analysis in MSRB
Rulemaking.\81\ In accordance with this policy, the MSRB evaluated the
potential impacts on competition 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 amendments to FINRA Rule 3220, on
influencing or rewarding employees of others. In addition, the proposed
rule change would be applied equally to all regulated entities (i.e.,
dealers and municipal advisors).
---------------------------------------------------------------------------
\79\ 15 U.S.C. 78o-4(b)(2)(C).
\80\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
\81\ 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)), including information facility rule
fillings, 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.
---------------------------------------------------------------------------
Based on the MSRB's analysis, the potential benefits of the
proposed rule change would outweigh the potential costs of the change.
The proposed rule change benefits dealers by aligning the gift limit in
MSRB Rule G-20 with FINRA Rule 3220 that accounts for past and future
inflationary increases. This consistency supports the development of
uniform compliance processes and systems across both MSRB-regulated
entities and FINRA-member firms. Currently, the $100 gift limit in MSRB
[[Page 24937]]
Rule G-20 was established in 1978 by the MSRB and by FINRA in 1992
without accounting for the inflation rate. The proposed amendments
ensure that the gift limit remains the same between corresponding MSRB
and FINRA rules to reduce unnecessary compliance burdens for firms. If
the MSRB and FINRA maintained differing gift limits it may needlessly
complicate and confuse the gifting process. In addition, the proposed
rule change would increase the gift limit from $100 to $300 which would
benefit regulated entities that engage in gift giving as part of the
process to develop relationships and goodwill while also maintaining
the protections for investors and public interest. Additionally, to
align with the FINRA Rule 3220 changes when necessary, the proposed
rule change includes supplementary material regarding gifts incidental
to business entertainment, donations due to federally declared major
disasters, supervision and recordkeeping and gifts to associated
persons or individual retail customers.
The MSRB acknowledges that regulated entities would likely incur
minor costs because of the proposed rule change, relative to the
baseline state (current state). Regulated entities would be expected to
incur one-time, upfront costs related to revising policies and
procedures and training. The MSRB expects the proposed rule change to
cost regulated entities $4,229 as a one-time, upfront cost to review
and implement the changes along with any needed staff training.\82\ The
MSRB does not expect any material incremental ongoing costs for
compliance-related tasks, including recordkeeping.
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\82\ The MSRB estimates three hours for a compliance manager at
$393 per hour (3 x $393 = $1,179) to revise the firm policies and
procedures, and one hour for in-house compliance counsel to review
and edit any changes as needed (1 x $463 = $463). Staff also
anticipates review by an outside legal counsel at $630 per hour (1 x
$630 = $630), review and sign off by a director of compliance at
$610 per hour (1 x $610 = $610), General Counsel at $780 per hour
(0.5 x $780 = $390) and the chief compliance officer at $693 per
hour (0.5 x $693 = $347). Lastly, staff anticipates one hour of
training and education conducted by the director of compliance at
$610 per hour (1 x $610 = $610). Therefore, staff estimates that the
total upfront costs would be $4,229 ($1,179 + $463 + $630 + $610 +
$390 + $347 + $610 = $4,229).
The hourly-rate data is gathered from a variety of Commission
filings compiled by the MSRB for usage in economic analysis. The
Commission's economic analysis utilizes the Securities Industry and
Financial Markets Association's ``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 2025 hourly rate level after
adjusting for the annual cumulative wage inflation rate of 47.3%
between 2013 and 2025. See The Federal Reserve Bank of St. Louis
Employment Cost Index: Wages and Salaries: Private Industry Workers,
available at <a href="https://fred.stlouisfed.org/series/ECIWAG">https://fred.stlouisfed.org/series/ECIWAG</a>. The MSRB
estimates the number of hours for each task based on MSRB's
consultation with regulated entities' compliance officers.
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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 regulated entities and the
ongoing costs should be proportional to entity size, and the upfront
costs are relatively minor for all regulated entities. The proposed
amendments to MSRB Rule G-20 would improve the municipal securities
market's operational efficiency and promote regulatory harmony with
FINRA's gift rules. At present, the MSRB is unable to quantitatively
evaluate the magnitude of the efficiency gains or losses but believes
the benefits from mostly aligning MSRB Rule G-20 with FINRA Rule 3220
would outweigh the upfront costs of revising policies and procedures,
as well as the ongoing compliance and recordkeeping costs to regulated
entities. The MSRB recognizes that small dealers, municipal advisors
and especially sole proprietors may not employ full-time compliance
staff and that the overall cost of ensuring compliance with the
requirements of the proposed rule change may be proportionally higher
for these smaller firms. Still, the MSRB expects the upfront costs to
be minor for all firms and the ongoing costs should be proportional to
the size of each regulated entity.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received on the
proposed rule change.\83\
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\83\ Comments received in response to FINRA's gift rule
amendment can be found at <a href="https://www.sec.gov/comments/sr-finra-2025-003/srfinra2025003.htm">https://www.sec.gov/comments/sr-finra-2025-003/srfinra2025003.htm</a>.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Exchange Act \84\ and
Rule 19b-4(f)(6) \85\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Exchange Act.
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\84\ 15 U.S.C. 78s(b)(3)(A).
\85\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the 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#5624233a337b35393b3b333822251625333578313920"><span class="__cf_email__" data-cfemail="d6a4a3bab3fbb5b9bbbbb3b8a2a596a5b3b5f8b1b9a0">[email protected]</span></a>. Please
include File Number SR-MSRB-2026-02 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-2026-02. 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 filing 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-2026-02 and should be submitted on or before May 28, 2026.
For the Commission, pursuant to delegated authority.\86\
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\86\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-08993 Filed 5-6-26; 8:45 am]
BILLING CODE 8011-01-P
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