[Federal Register Volume 88, Number 30 (Tuesday, February 14, 2023)]
[Notices]
[Pages 9560-9576]
[FR Doc No: 2023-03060]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96842; File No. SR-MSRB-2023-02]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change To Create New MSRB
Rule G-46, on Duties of Solicitor Municipal Advisors, and To Amend MSRB
Rule G-8, on Books and Records

February 8, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on January 31, 2023, the Municipal Securities
Rulemaking Board (``MSRB'' or ``Board'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared by the MSRB. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change to create
a new rule, MSRB Rule G-46, on duties of solicitor municipal advisors
(``Proposed Rule G-46'') and amend MSRB Rule G-8, on books and records
(``Proposed Amended Rule G-8'') (together, the ``proposed rule
change''). The MSRB requests that the proposed rule change be approved
with an implementation date to be announced by the MSRB in a regulatory
notice published no later than one month following the Commission
approval date, which implementation date shall be no later than twelve
months following the Commission approval date.
    The text of the proposed rule change is available on the MSRB's
website at https://msrb.org/2023-SEC-Filings, 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
Solicitor Municipal Advisor Activity
    There are two broad categories of municipal advisors--those that
provide certain advice to or on behalf of a municipal entity or
obligated person and those that undertake certain solicitations of a
municipal entity or obligated person on behalf of certain third-party
financial professionals.\3\ The first category of municipal advisors is
often referred to as non-solicitor municipal advisors, while the latter
is sometimes referred to as solicitors.\4\ Proposed Rule G-46 would
govern the conduct of these solicitors, more specifically defined as
``solicitor municipal advisors'' under Proposed Rule G-46(a)(vi).
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    \3\ Section 15B(e)(4) of the Exchange Act (15 U.S.C. 78o-
4(e)(4)) generally defines ``municipal advisor'' to mean a person
(who is not a municipal entity or an employee of a municipal entity)
that (i) provides advice to or on behalf of a municipal entity or
obligated person with respect to municipal financial products or the
issuance of municipal securities, including advice with respect to
the structure, timing, terms, and other similar matters concerning
such financial products or issues; or (ii) undertakes a solicitation
of a municipal entity. Notwithstanding the omission of the term,
``obligated person'' in connection with the undertaking of a
solicitation under Section 15B(e)(4)(A)(ii) of the Exchange Act (15
U.S.C. 78o-4(e)(4)(A)(ii)), the SEC has interpreted the definition
of ``municipal advisor'' to include a person who engages in the
solicitation of an obligated person acting in the capacity of an
obligated person. See Release No. 34-70462 (September 20, 2013), 78
FR 67467, at notes 138 and 408 (November 12, 2013) (File No. S7-45-
10) (``SEC Final MA Rule Adopting Release''). See also Exchange Act
Rule 15Ba1-1(d)(1)(i) (17 CFR 240.15Ba1-1(d)(1)(i)).
    \4\ Section 15B(e)(9) of the Exchange Act (15 U.S.C. 78o-
4(e)(9)) generally defines ``solicitation of a municipal entity or
obligated person'' to mean a direct or indirect communication with a
municipal entity or obligated person made by a person, for direct or
indirect compensation, on behalf of a broker, dealer, municipal
securities dealer, municipal advisor, or investment adviser . . .
that does not control, is not controlled by, or is not under common
control with the person undertaking such solicitation for the
purpose of obtaining or retaining an engagement by a municipal
entity or obligated person of a broker, dealer, municipal securities
dealer, or municipal advisor for or in connection with municipal
financial products, the issuance of municipal securities, or of an
investment adviser to provide investment advisory services to or on
behalf of a municipal entity. The SEC has interpreted this phrase
generally in a manner similar to the statutory definition. However,
it has also added two exceptions to the statutory definition for (i)
advertising by a dealer, municipal advisor or investment adviser and
(ii) solicitations of an obligated person where such obligated
person is not acting in the capacity of an obligated person or the
solicitation is not in connection with the issuance of municipal
securities or with respect to municipal financial products. See
Exchange Act Rule 15Ba1-1(n) (17 CFR 240.15Ba1-1(n)). Additionally,
the SEC has exempted from the municipal advisor definition a person
that undertakes a solicitation of a municipal entity or obligated
person for the purpose of obtaining or retaining an engagement by a
municipal entity or by an obligated person of a dealer or a
municipal advisor for or in connection with municipal financial
products that are investment strategies, to the extent such
investment strategies are not plans or programs for the investment
of the proceeds of municipal securities or the recommendation of and
brokerage of municipal escrow investments. See Exchange Act Rule
15Ba1-1(d)(1) (17 CFR 240.15Ba1-1(d)(1)) and 15Ba1-1(d)(3)(viii) (17
CFR 240.15Ba1-1(d)(3)(viii)).
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    While the Exchange Act \5\ permits a municipal advisor to conduct
such solicitations on behalf of a third-party broker, dealer or
municipal securities dealer (collectively and individually
``dealers''),\6\ MSRB Rule G-38, on solicitation of municipal
securities business, prohibits a dealer from providing or agreeing to
provide payment to third parties for solicitations of municipal
securities business made on behalf of the dealer.\7\ Additionally, as
discussed in the MSRB's Statement on Burden on Competition below,
according to MSRB data, it appears that a substantial number of
solicitations that would be subject to Proposed Rule G-46 involve a
solicitation on behalf of a third-party investment adviser to provide
investment advisory services to a municipal entity. Anecdotally, the
MSRB understands that such solicitations often occur in connection with
the solicitation of a public pension plan.\8\ For example, if a person
communicates with a public pension plan for the purpose of getting a
particular investment advisory firm hired by the plan to provide
investment advisory services to such plan, that person may be a
solicitor municipal advisor if such person is paid by the investment
advisory firm for the communication and if such person and the
investment advisory firm are not affiliated.
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    \5\ See Section 15B(e)(4) (15 U.S.C. 78o-4(e)(4)) and Section
15B(e)(9) of the Exchange Act (15 U.S.C. 78o-4(e)(9)).
    \6\ See 15 U.S.C. 78c(a)(4)(a) defining the term ``broker'' to
mean ``any person engaged in the business of effecting transactions
in securities for the account of others;'' see also 15 U.S.C.
78c(a)(5) defining the term ``dealer'' to mean ``any person engaged
in the business of buying and selling securities (not including
security-based swaps, other than security-based swaps with or for
persons that are not eligible contract participants) for such
person's own account through a broker or otherwise'' and 15 U.S.C.
78c(a)(30) generally defining the term ``municipal securities
dealer'' to mean any person (including a separately identifiable
department or division of a bank) engaged in the business of buying
and selling municipal securities for his own account, through a
broker or otherwise, subject to certain exclusions.
    \7\ The prohibition in Rule G-38 predates the regulation of
municipal advisors.
    \8\ See e.g., Third-Party Marketers Association: Letter from
Donna DiMaria, Chairman of the Board of Directors and Chair of the
3PM Regulatory Committee to the MSRB, dated June 16, 2021 (``3PM
I'').
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    As discussed below, MSRB data suggests that the number of municipal
advisors that engage in solicitations that may subject them to Proposed
Rule G-46 comprise a relatively small percentage of the municipal
advisors that are registered with the MSRB. However, notwithstanding
the relatively small size of such solicitation market, the MSRB
believes that it is important that the fundamental protections extended
to the municipal entity and obligated person clients of other MSRB
regulated entities are also extended to the municipal entities and
obligated persons with whom solicitor municipal advisors interact. For
example, as noted in the SEC Final MA Rule Adopting Release, the
solicitation of public pension plans in connection with investment
advisory services has been subject to multiple SEC enforcement

actions.\9\ The MSRB believes that the proposed rule change would serve
as an important bulwark against potential improper practices in the
municipal market and also would provide greater certainty and
transparency to solicitor municipal advisors regarding regulatory
expectations.
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    \9\ See SEC Final MA Rule Adopting Release, 78 FR at 67482.
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    From a practical perspective, any registered municipal advisor is
permitted to act as both a solicitor municipal advisor and a non-
solicitor municipal advisor. However, anecdotally, the MSRB understands
that relatively few non-solicitor municipal advisors also act as
solicitor municipal advisors.\10\ With respect to solicitations on
behalf of third parties to provide investment advisory services,
commenters have informed the MSRB that there are two ways in which a
solicitor municipal advisor typically may solicit a municipal entity:
(1) directly or (2) through an intermediary.\11\ They are discussed
below.
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    \10\ According to MSRB data shown in Table 1 below, 69 municipal
advisors indicated that they engage in both solicitation and non-
solicitation municipal advisory activity. However, it is unclear the
extent to which these municipal advisors actively engage in both
types of activity.
    \11\ See e.g., ``3PM I''. While these comments pertained
primarily to the solicitation of municipal entities, the MSRB does
not have reason to believe that the practice of soliciting obligated
persons, to the extent that such solicitations occur, would be
substantially different. The MSRB notes that the intermediary itself
may be a solicitor municipal advisor to the extent that the
intermediary makes a communication with an unaffiliated municipal
entity or obligated person, for compensation, on behalf of a third-
party dealer, municipal advisor, or investment adviser for the
purpose of obtaining or retaining an engagement by such municipal
entity or obligated person of a dealer or municipal advisor for or
in connection with municipal financial products or the issuance of
municipal securities, or of an investment adviser to provide
investment advisory services. See Section 15B(e)(9) of the Exchange
Act (15 U.S.C. 78o-4(e)(9)).
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Direct Solicitations
    A solicitor municipal advisor often first communicates with a staff
member of the solicited entity (i.e., the municipal entity or obligated
person) who handles investment manager research for the entity. This
individual generally is responsible for evaluating the solicitor
client's product/services to ensure they are appropriate for the entity
given the entity's investment policy statement guidelines and
restrictions. This first communication potentially is one of many that
may span years. Additionally, the solicitor municipal advisor's client
likely will have its own communications with the solicited entity,
which may include board presentations, meetings and discussions during
which the solicitor municipal advisor may or may not be present.
Indirect Solicitations Through an Intermediary
    A solicitor municipal advisor typically initially will solicit a
financial intermediary or an investment consultant (collectively
``intermediary'') who is hired by the solicited entity to conduct
searches and identify appropriate investment managers to meet a
municipal entity's specific need.\12\ Such intermediary itself may be a
solicitor municipal advisor.\13\ When a solicitor municipal advisor
first solicits the intermediary, the solicitor municipal advisor may
not necessarily know who the intermediary represents (i.e., whether the
intermediary represents municipal entities, obligated persons, other
private entities, or all of the above). Additionally, the solicitor
municipal advisor generally will not know whether the intermediary will
recommend the solicitor municipal advisor's client to the
intermediary's municipal entity client(s) (if any). As a result, at the
time of the first solicitation, a solicitor municipal advisor may not
know if it is indirectly soliciting a municipal entity. Moreover, the
solicitor municipal advisor's client (e.g., the investment adviser) may
engage in multiple subsequent communications with either the
intermediary and/or the intermediary's client (e.g., the municipal
entity or obligated person), during which the solicitor municipal
advisor may or may not be present. In some instances, the solicitor
municipal advisor may never meet or directly communicate with an
intermediary's municipal entity or obligated person client.
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    \12\ In the most common scenario, an intermediary will be an
investment consultant or will perform similar functions.
    \13\ See supra note 11.
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Proposed Rule G-46
Summary of Proposed Rule G-46
    Proposed Rule G-46 would establish the core standards of conduct
and duties of ``solicitor municipal advisors'' (as defined below) when
engaging in solicitation activities that would require them to register
with the SEC and the MSRB as municipal advisors. The proposed rule also
would codify certain statements in an MSRB notice issued in 2017
pertaining to the application of MSRB rules to solicitor municipal
advisors.\14\ Those statements relate to the obligation of solicitor
municipal advisors under MSRB Rule G-17, on conduct of municipal
securities and municipal advisory activities (the ``G-17 Excerpt for
Solicitor Municipal Advisors'').\15\ In addition to codifying much of
the substance of the G-17 Excerpt for Solicitor Municipal Advisors,
Proposed Rule G-46 also would add additional requirements that would
better align some of the obligations imposed on solicitor municipal
advisors with those applicable to: non-solicitor municipal advisors
under Rule G-42, on duties of non-solicitor municipal advisors;
underwriters under Rule G-17, on fair dealing, and; certain
solicitations undertaken on behalf of third-party investment advisers
under the SEC's marketing rule for investment advisers (the ``IA
Marketing Rule'' or ``IA Rule 206(4)-1'').\16\
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    \14\ See MSRB Notice 2017-08, Application of MSRB Rules to
Solicitor Municipal Advisors (May 4, 2017).
    \15\ See id. at 17-18.
    \16\ 17 CFR 275.206(4)-1.
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    In summary, the core provisions of Proposed Rule G-46 generally
would:
     Set forth definitions for terms used in the proposed rule;
     Require solicitor municipal advisors to provide to their
solicitor clients full and fair disclosure in writing of all of their
material conflicts of interest and material legal or disciplinary
events;
     Require solicitor municipal advisors to document their
relationships in writing(s), deliver such writing(s) to their solicitor
clients, and set forth certain minimum content that must be included in
such writing(s);
     Prohibit solicitor municipal advisors from making a
representation that the solicitor municipal advisor knows or should
know is either materially false or misleading regarding the capacity,
resources or knowledge of the solicitor client and require solicitor
municipal advisors to have a reasonable basis for any material
representations it makes to a solicited entity regarding the capacity,
resources or knowledge of the solicitor client;
     Require solicitor municipal advisors to disclose to
solicited entities material facts about the solicitation, including but
not limited to an obligation to disclose:
    [cir] Information about the solicitor municipal advisor's role and
compensation;
    [cir] The solicitor municipal advisor's material conflicts of
interest;
    [cir] Information regarding the solicitor client (i.e., the type of
information that is generally on Form MA or Form ADV, Part 2 and a
description of how the solicited entity can obtain a copy of the

solicitor client's Form MA or Form ADV, Part 2, as applicable);
     Set forth a dual disclosure standard with respect to
required disclosures to solicited entities:
    [cir] Generally, disclosures would be required to be made in
writing and delivered:
    [ssquf] At the time of the first communication to a solicited
entity (or in the case of an indirect solicitation, the first
communication to an intermediary of the solicited entity) on behalf of
a specific solicitor client; and
    [ssquf] If the solicitation results in a solicited entity engaging
a solicitor client for investment advisory services or municipal
advisory services, again at the time that engagement documentation
between the solicitor client and the solicited entity is delivered to
the solicited entity or promptly thereafter. Such disclosures may be
provided by either the solicitor client or the solicitor municipal
advisor, but must be made to an official of the solicited entity that,
among other things, the solicitor municipal advisor (or, the solicitor
client if the solicitor client provides such disclosures) reasonably
believes has the authority to bind the solicited entity by contract;
and
     Expressly prohibit solicitor municipal advisors from:
delivering an inaccurate invoice for fees or expenses and making
payments for the purpose of obtaining or retaining an engagement to
perform municipal advisory activities subject to exceptions specified
in the rule.
    Supplementary material to Proposed Rule G-46 generally would:
     Provide additional explanation regarding the MSRB's
expectations with respect to the reasonable basis a solicitor municipal
advisor must have for certain of its representations;
     Explain the relationship between a solicitor municipal
advisor's fair dealing obligations and a federal fiduciary duty for
municipal advisors;
     Explain the relationship between a municipal advisor's
obligations under Proposed Rule G-46 and Rule G-42; and
     Provide additional explanation applicable to a solicitor
municipal advisor's obligation to document its compensation arrangement
and make related disclosures.
    Provided below is a more detailed description of Proposed Rule G-
46.
Definitions
    Proposed Rule G-46(a) would set forth a set of definitions for
terms used in the rule. It would define the terms ``compensation,''
\17\ ``excluded communications,'' \18\ ``solicitation,'' ``solicited
entity,'' ``solicitor client,'' ``solicitor municipal advisor,'' and
``solicitor relationship.'' \19\ The most important of these
definitions, which are integral to understanding nearly all of the
provisions of Proposed Rule G-46 are discussed below.
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    \17\ Proposed Rule G-46(a)(i) generally would provide that
``compensation'' means any cash, in-kind or non-cash remuneration,
including but not limited to merchandise, gifts, travel expenses,
meals and lodging.
    \18\ Proposed Rule G-46(a)(ii) generally would provide that
``excluded communications'' means (A) advertising by a dealer,
municipal advisor, or investment adviser; (B) direct or indirect
communications with an obligated person if such obligated person is
not acting in the capacity of an obligated person; (C) direct or
indirect communications with an obligated person made for the
purpose of obtaining or retaining an engagement that is not in
connection with the issuance of municipal securities or with respect
to municipal financial products; and (D) direct or indirect
communications made for the purpose of obtaining or retaining an
engagement for or in connection with municipal financial products
that are investment strategies to the extent that those investment
strategies are not plans or programs for the investment of the
proceeds of municipal securities or the recommendation of and
brokerage of municipal escrow investments. The term ``excluded
communications'' is used in the term ``solicitation,'' which would
be defined in Proposed Rule G-46(a)(iii).
    \19\ Proposed Rule G-46(a)(vii) generally would provide that,
for purposes of the rule, a ``solicitor relationship'' is deemed to
exist when a municipal advisor enters into an agreement to undertake
a solicitation of a municipal entity or obligated person within the
meaning of Section 15B(e)(9) of the Act, 15 U.S.C. 78o-4(e)(9), and
the rules and regulations thereunder. The solicitor relationship
shall be deemed to have ended on the date which is the earlier of
(i) the date on which the solicitor relationship has terminated
pursuant to the terms of the documentation of the solicitor
relationship required by Proposed Rule G-46(c) or (ii) the date on
which the solicitor municipal advisor withdraws from the solicitor
relationship.
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    Proposed Rule G-46(a)(iii) generally would define the term
``solicitation'' to mean a direct or indirect communication with a
municipal entity or obligated person made by a solicitor municipal
advisor, for direct or indirect compensation, on behalf of a municipal
advisor or investment adviser that does not control, is not controlled
by, or is not under common control with the solicitor municipal advisor
for the purpose of obtaining or retaining an engagement by a municipal
entity or obligated person of a municipal advisor for or in connection
with municipal financial products or the issuance of municipal
securities or of an investment adviser to provide investment advisory
services to or on behalf of a municipal entity; provided, however, that
it does not include excluded communications, as defined in Proposed
Rule G-46(a)(ii). This definition is consistent with the defined term
``solicitation of a municipal entity or obligated person'' under
Section 15B(e)(9) of the Exchange Act,\20\ except to the extent that
the term ``solicitation'' under Proposed Rule G-46(a)(iii) does not
address solicitations undertaken on behalf of a third-party dealer. As
noted above, MSRB Rule G-38 generally prohibits a dealer from providing
or agreeing to provide payment to third parties for solicitations of
municipal securities business made on behalf of the dealer. As a
result, Proposed Rule G-46 assumes that such solicitations do not
occur.
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    \20\ 15 U.S.C. 78o-4(e)(9).
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    Proposed Rule G-46(a)(iv) generally would define the term
``solicited entity'' to mean any municipal entity or obligated person
(as those terms are defined in Section 15B(e)(8) and (e)(10) of the
Exchange Act \21\ and the rules and regulations thereunder) that the
solicitor municipal advisor has solicited, is soliciting or intends to
solicit within the meaning of Sections 15B(e)(4)(A)(ii) and (e)(9) of
the Act \22\ and the rules and regulations thereunder.
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    \21\ 15 U.S.C. 78o-4(e)(8) and 15 U.S.C. 78o-4(e)(10).
    \22\ 15 U.S.C. 78o-4(e)(4)(A)(ii) and 15 U.S.C. 78o-4(e)(9).
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    Proposed Rule G-46(a)(v) generally would define the term
``solicitor client'' to mean the municipal advisor or investment
adviser on behalf of whom the solicitor municipal advisor undertakes a
solicitation within the meaning of Sections 15B(e)(4)(A)(ii) and (e)(9)
of the Act \23\ and the rules and regulations thereunder. As noted
above, because of the prohibition set forth in MSRB Rule G-38, Proposed
Rule G-46 presumes that solicitors do not conduct paid solicitations on
behalf of third-party dealers. As a result, the term ``solicitor
client'' as defined in Proposed Rule G-46(a)(v) does not include
dealers as solicitor clients.
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    \23\ Id.
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    Proposed Rule G-46(a)(vi) generally would define the term
``solicitor municipal advisor'' to mean, for purposes of the rule, a
municipal advisor within the meaning of Section 15B(e)(4) of the Act
\24\ and other rules and regulations thereunder; provided, that it
shall exclude a person that is otherwise a municipal advisor solely
based on activities within the meaning of Section 15B(e)(4)(A)(i) of
the Act \25\ and the rules and regulations thereunder. Generally, this
means that a solicitor municipal advisor is any municipal advisor that
is not a non-solicitor municipal advisor.
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    \24\ 15 U.S.C. 78o-4(e)(4).
    \25\ 15 U.S.C. 78o-4(e)(4)(A)(i).
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Disclosure to Solicitor Clients
    Proposed Rule G-46(b) would require a solicitor municipal advisor
to provide

to a client full and fair disclosure in writing of all material
conflicts of interest and any legal or disciplinary event that would be
material to a reasonable solicitor client's evaluation of the solicitor
municipal advisor or the integrity of its management or advisory
personnel. The disclosures must be provided prior to or upon engaging
in municipal advisory activities.
    The proposed rule sets forth an alternative to providing a
narrative description of any such legal or disciplinary events by
permitting solicitor municipal advisors to reference such information
in certain other publicly available information if the conditions
specified in the rule are met. As a result, solicitor municipal
advisors that are also registered broker-dealers or investment advisers
would be permitted to identify the specific type of event and make
specific reference to the relevant portions of the solicitor municipal
advisor's Form BD or Form ADV if the solicitor municipal advisor
provides detailed information specifying where the client may
electronically access such forms.\26\ All other municipal advisors
would be permitted to identify the specific type of event and make
specific reference to the relevant portions of the solicitor municipal
advisor's most recent Forms MA or MA-I filed with the Commission if the
solicitor municipal advisor provides detailed information specifying
where the client may electronically access such forms.\27\
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    \26\ For example, a solicitor municipal advisor could direct a
solicitor client to FINRA's BrokerCheck system or the Investment
Adviser Public Disclosure website, as applicable; provided, that the
direction is accompanied by information as to how to retrieve the
firm's specific Form BD or Form ADV and specific reference to the
relevant portions of the applicable form.
    \27\ For example, a solicitor municipal advisor could direct a
solicitor client to the SEC's EDGAR system; provided, that the
direction is accompanied by information as to how to retrieve the
firm's specific form(s) and specific reference to the relevant
portions of the applicable form(s).
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Documentation of the Solicitor Relationship
    Proposed Rule G-46(c) would require a solicitor municipal advisor
to evidence each of its solicitor relationships by a writing or
writings created and delivered to the solicitor client prior to, upon
or promptly after the establishment of the solicitor relationship. The
writing(s) would be required to be dated and include, at a minimum:
     A description of the solicitation activities to be engaged
in by the solicitor municipal advisor on behalf of the solicitor client
(including the scope of the agreed-upon activities and a statement that
the scope of the solicitation is anticipated to include the
solicitation of municipal entities and/or obligated persons);
     The terms and amount of the compensation to be received by
the solicitor municipal advisor for such activities;
     The date, triggering event, or means for the termination
of the relationship, or, if none, a statement that there is none; and
     Any terms relating to withdrawal from the relationship.
    The proposed obligation to document the relationship is generally
consistent with a non-solicitor municipal advisor's obligation to
document its municipal advisory relationship with a client under Rule
G-42(c).\28\ The MSRB believes that this documentation obligation will
help ensure that the solicitor client has certain basic material
information about the engagement including the scope of agreed-upon
activities and information pertaining to compensation for such
activities. The MSRB also believes that this documentation obligation
will assist examining authorities in understanding the solicitation
arrangement and will provide them with necessary information to assist
in evaluating a solicitor municipal advisor's compliance with relevant
obligations.
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    \28\ Rule G-42(c) generally requires a municipal advisor to
evidence each of its municipal advisory relationships by a writing
or writings created and delivered to the municipal entity or
obligated person client prior to, upon or promptly after the
establishment of the municipal advisory relationship.
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    The MSRB understands that a solicitor may be asked to solicit a
broad range of entities on behalf of a client of the solicitor. These
entities may include municipal entities, obligated persons and
corporate entities that are not obligated persons. While the
solicitation of municipal entities and obligated persons generally
would require compliance with Proposed Rule G-46 (to the extent the
solicitation would make the solicitor a ``municipal advisor''), the
solicitation of an entity that is not a municipal entity or an
obligated person would not require such compliance. In order to promote
certainty as to the applicable regulatory scheme for any engagement,
the MSRB believes that it is imperative for any engagement to be
documented in a writing that clearly indicates whether the solicitation
of municipal entities and/or obligated persons is anticipated.
Information pertaining to termination of the relationship or withdrawal
from the relationship will similarly assist both solicitor clients and
examination and enforcement authorities in understanding the scope of
an engagement.
    Supplementary Material .04 would provide additional guidance with
respect to the obligation to document the terms and the amount of
compensation to be received. Specifically, it provides that the
documentation(s) must clearly describe the structure of the
compensation arrangement and the amount of compensation paid or to be
paid. For example, a solicitor municipal advisor that will be paid on
the basis of a flat or fixed fee would be required to disclose the
amount of the flat fee, if known and/or calculable at the time of the
documentation. If the precise dollar amount is not known at the time,
the documentation should disclose how such compensation will be
calculated. As another example, if the compensation arrangement calls
for a percentage of fees collected from the referred clients, then the
documentation should state so and describe what that percentage is.
Representations to Solicited Entities
    Proposed Rule G-46(d)(i) expressly would prohibit a solicitor
municipal advisor from making a representation that the solicitor
municipal advisor knows or should know is either materially false or
materially misleading due to the omission of a material fact about the
capacity, resources or knowledge of the solicitor client. This
prohibition is similar to a prohibition applicable to non-solicitor
municipal advisors under Rule G-42 except that, unlike with Rule G-42,
the prohibition for solicitor municipal advisors would not be limited
to representations that occur in response to requests for proposals or
qualifications or in oral presentations to a client or prospective
client for the purpose of obtaining or retaining an engagement for the
solicitor client.\29\ This is because the MSRB believes that all of the
solicitor municipal advisor's communications regarding the capacity,
resources or knowledge of the solicitor's clients are expected to be
for the purpose of

obtaining or retaining an engagement for their clients.
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    \29\ See Rule G-42(e)(i)(C) which prohibits non-solicitor
municipal advisors from making any representation or the submission
of any information that the municipal advisor knows or should know
is either materially false or materially misleading due to the
omission of a material fact about the capacity, resources or
knowledge of the municipal advisor, in response to requests for
proposals or qualifications or in oral presentations to a client or
prospective client, for the purpose of obtaining or retaining an
engagement to perform municipal advisory activities.
---------------------------------------------------------------------------

    Proposed Rule G-46(d)(ii) would require a solicitor municipal
advisor to have a reasonable basis for any material representations it
makes to a solicited entity regarding the capacity, resources or
knowledge of the solicitor client. The MSRB believes that solicited
entities should be entitled to rely on the material representations
made by solicitor municipal advisors, as regulated financial
professionals hired for the purpose of soliciting business on behalf of
their clients, with respect to the qualifications of their clients. The
MSRB further believes that such representations should have some
reasonable basis.\30\
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    \30\ The MSRB notes that this obligation bears some analogy to a
non-solicitor municipal advisor's duty of care obligation to have a
reasonable basis for any advice provided to or on behalf of a client
pursuant to Rule G-42, Supplementary Material .01. While a non-
solicitor municipal advisor provides advice to or on behalf of its
municipal entity and obligated person clients, a solicitor municipal
advisor solicits municipal entities and obligated persons on behalf
of its clients. In both cases, the municipal advisor would be
required to have a reasonable basis for what are likely to be the
core material statements the municipal advisor was hired to provide
to municipal entities and obligated persons.
---------------------------------------------------------------------------

    Supplementary Material .01 would provide guidance on compliance
with the reasonable-basis standard. Specifically, this supplementary
material would state that while a solicitor municipal advisor must have
a reasonable basis for the representations described in Proposed Rule
G-46(d), the solicitor municipal advisor is not required to actively
seek out every piece of information that may be relevant to such
representations. It further provides an example to help illustrate this
point.
Disclosures to Solicited Entities
    Proposed Rule G-46(e) would require a solicitor municipal advisor
to disclose to any solicited entity all material facts about the
solicitation in the manner specified in section (f) of the proposed
rule. This would include an obligation to disclose certain information
pertaining to the solicitor municipal advisor's: (i) role and
compensation; (ii) conflicts of interest; and (iii) client.
    Role and Compensation Disclosures. Proposed Rule G-46(e)(i) would
require a solicitor municipal advisor to disclose to any solicited
entity:
     The solicitor municipal advisor's name;
     The solicitor client's name;
     The type of business being solicited (i.e., municipal
advisory business or investment advisory services);
     The material terms of the solicitor municipal advisor's
compensation arrangement, including a description of the compensation
provided or to be provided, directly or indirectly, to the solicitor
municipal advisor for such solicitation; and
     Payments made by the solicitor municipal advisor to
another solicitor municipal advisor to facilitate the solicitation.
    Supplementary Material .04 would provide additional guidance with
respect to the obligation to disclose the material terms of the
solicitor municipal advisor's compensation arrangement. Specifically,
it would provide that Proposed Rule G-46(e)(i)(D) would require
disclosure of at least the same information as that required by
Proposed Rule G-46(c)(ii), to the extent material. However, Proposed
Rule G-46(e)(i)(D) also may require the disclosure of additional
information, depending on the facts and circumstances. For example, if
the solicitor municipal advisor receives indirect compensation for the
solicitation, information pertaining to the indirect compensation also
must be disclosed.
    Additionally, the solicitor municipal advisor would be required to
disclose the following statements:
     In connection with its solicitation activities as a
municipal advisor, a solicitor municipal advisor does not owe a
fiduciary duty under Section 15B(c)(i) of the Exchange Act or MSRB
rules to the entities that it solicits and is not required by those
provisions to act in the best interests of such entities without regard
to the solicitor municipal advisor's own financial or other interests.
However, in connection with such solicitation activities, a solicitor
municipal advisor is required to deal fairly with all persons,
including both solicited entities and the solicitor municipal advisor's
clients; and
     A solicitor municipal advisor's primary role is to solicit
the solicited entity on behalf of certain third-party regulated
entities and the solicitor municipal advisor will be compensated for
its solicitation services by the solicitor municipal advisor's
client.\31\
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    \31\ While the proposed rule text uses the defined term
``solicitor municipal advisor,'' to facilitate a more plain-language
disclosure, the MSRB expects that solicitor municipal advisors would
insert their name in place of the term ``solicitor municipal
advisor.''
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    These statements draw from analogous disclosures that underwriters
must make to their issuer clients pursuant to Rule G-17 \32\ but are
tailored to reflect the existence of a federal fiduciary duty for non-
solicitor municipal advisors and to make clear that a solicitor
municipal advisor's fair dealing obligations apply in connection with
its solicitation activities.\33\
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    \32\ These disclosures include an obligation to disclose that:
Rule G-17 requires an underwriter to deal fairly at all times with
both issuers and investors; unlike a municipal advisor, the
underwriter does not have a fiduciary duty to the issuer under the
federal securities laws and is, therefore, not required by federal
law to act in the best interests of the issuer without regard to its
own financial or other interests; and the underwriter's primary role
is to purchase securities with a view to distribution in an arm's-
length commercial transaction with the issuer and it has financial
and other interests that differ from those of the issuer. See MSRB
Interpretive Notice Concerning the Application of MSRB Rule G-17 to
Underwriters of Municipal Securities (March 31, 2021) (the ``G-17
Underwriter's Guidance'').
    \33\ See SEC MA Final Rule Adopting Release, 78 FR 67467 at note
100 (stating that ``. . . the fiduciary duty of a municipal advisor,
as set forth in Exchange Act Section 15B(c)(1), extends only to its
municipal entity clients'') (emphasis added); see also text
accompanying note 100 (stating that ``. . . the Exchange Act, as
amended by the Dodd-Frank Act, grants the MSRB regulatory authority
over municipal advisors and imposes a fiduciary duty on municipal
advisors when advising municipal entities'') (emphasis added);
Exchange Act Section 15B(b)(2)(L)(i) (15 U.S.C. 78o-4(b)(2)(L)(i))
(granting the MSRB authority to ``prescribe means reasonably
designed to prevent acts, practices, and courses of business as are
not consistent with a municipal advisor's fiduciary duty to its
clients'') (emphasis added). Because a solicitor municipal advisor's
clients are not the municipal entities that they solicit, but rather
the third parties that retain or engage the solicitor municipal
advisor to solicit such municipal entities, solicitor municipal
advisors do not owe a fiduciary duty under the Exchange Act or MSRB
rules to their clients (or the municipal entity) in connection with
such activity. See MSRB Notice 2017-08, at 10.
---------------------------------------------------------------------------

    Supplementary Material .02 would expound on the relationship
between Proposed Rule G-46 and the fair dealing obligation under Rule
G-17 and includes similar discussion regarding application of the
federal fiduciary duty to a solicitor municipal advisor's solicitations
of solicited entities. However, it specifies that solicitor municipal
advisors may be subject to fiduciary or other duties under state or
other laws and that nothing in Proposed Rule G-46 shall be deemed to
supersede any more restrictive provision of state or other laws
applicable to municipal advisory activities. Finally, Supplementary
Material .02 includes a cross reference to Supplementary Material .03
and would remind solicitor municipal advisors that, to the extent they
also engage in non-solicitor municipal advisory activity, the
requirements of Rule G-42 will apply with respect to such activity and
a federal fiduciary duty will apply with respect to the municipal
entity clients of the municipal advisor.
    Conflicts Disclosures. Proposed Rule G-46(e)(ii) would require a
solicitor municipal advisor to disclose any

material conflicts of interest,\34\ including but not limited to the
fact that, because the solicitor municipal advisor is compensated for
its solicitation efforts, it has an incentive to recommend its clients,
resulting in a material conflict of interest. The solicitor municipal
advisor also would be required to disclose any material conflicts of
interest, of which the solicitor municipal advisor is aware after
reasonable inquiry, that could reasonably be anticipated to impair the
solicitor municipal advisor's ability to solicit the solicited entity
in accordance with its duty of fair dealing. This obligation is
comparable to a non-solicitor municipal advisor's obligation under Rule
G-42 to disclose to its clients all material conflicts of interest,
including any conflicts, of which the municipal advisor is aware after
reasonable inquiry, that could reasonably be anticipated to impair the
municipal advisor's ability to provide advice to or on behalf of the
client in accordance with the standards set forth in the rule.\35\ It
also is comparable to the obligation under the IA Marketing Rule to
disclose that a promoter, due to the fact that it is compensated, has
an incentive to recommend the investment adviser it promotes, resulting
in a material conflict of interest.\36\ The MSRB believes that
disclosure of such conflict-of-interest information is key to assisting
a solicited entity in evaluating the solicitor municipal advisor's
statements and in determining whether to retain the solicitor's client.
For example, without a specific disclosure about a solicitor municipal
advisor's incentives, a solicitation creates a risk that the solicited
entity would mistakenly view the solicitor municipal advisor's
recommendation as being an unbiased opinion about the solicitor
client's ability to, for example, manage the solicited entity's assets,
and would rely on that recommendation more than the solicited entity
otherwise would if the solicited entity knew of the solicitor municipal
advisor's incentive.
---------------------------------------------------------------------------

    \34\ If a reasonable solicited entity would consider a
particular conflict of interest on the part of the solicitor
municipal advisor to be material to the decision to choose the
solicitor municipal adviser's client, then such conflict of interest
should be disclosed.
    \35\ See Rule G-42(b)(i)(F).
    \36\ See Investment Adviser Marketing, Release No. IA-5653 at
101 (Dec. 22, 2020), 86 FR 13024 (March 5, 2021) available at:
https://www.federalregister.gov/d/2020-28868/p-618.
---------------------------------------------------------------------------

    Solicitor Client Disclosures. Proposed Rule G-46(e)(iii) would
require a solicitor municipal advisor to provide to the solicited
entity the following information regarding the solicitor client:
     The type of information that is generally available on
Form MA (in the case of a municipal advisor client) or Form ADV, Part 2
(in the case of an investment adviser client); and
     A description of how the solicited entity can obtain a
copy of the solicitor client's Form MA or Form ADV, Part 2, as
applicable.
    These requirements are designed to help ensure that, at any early
stage, solicited entities are directed to important written information
about the entities the solicitor municipal advisor represents--
including, but not limited to, information about the disciplinary
history of the solicitor municipal advisor's clients. However, it does
not require solicitor municipal advisors to obtain a copy of these
documents and provide them to their solicited entities, nor does it
require a solicitor municipal advisor to disclose any specific
information about the client that is included in such forms.\37\
---------------------------------------------------------------------------

    \37\ However, solicitor municipal advisors should be mindful of
their general fair dealing obligations under Rule G-17 and of their
obligations related to certain of their representations under
Proposed Rule G-46(d). If a solicitor municipal advisor were to make
a representation regarding the capacity, resources or knowledge of
the solicitor's client that the solicitor municipal advisor knows or
should know is inaccurate based on a review of its client's Form MA
or Form ADV, that solicitor municipal advisor could be in violation
of Proposed Rule G-46.
---------------------------------------------------------------------------

Timing and Manner of Disclosures to Solicited Entities
    Proposed Rule G-46(f) would provide that any disclosures required
under section (e) of the proposed rule (pertaining to disclosures to
solicited entities) must be made in writing. The proposed rule also
would provide for a dual-disclosure requirement, such that
solicitations that result in a solicited entity engaging a solicitor
client would receive the requisite disclosures twice. Specifically,
they would receive the disclosures once at the time of the first
communication giving rise to the solicitation and again at the time
that engagement documentation pertaining to the solicited entity's
engagement of the solicitor client is delivered (or promptly
thereafter).
    Initial Disclosure at the Time of the First Communication. The
disclosures would be required to be delivered at the time of the first
communication (as that term is used in the definition of
``solicitation'') with a solicited entity on behalf of a specific
solicitor client.\38\ Specifically, the disclosures would be required
to be provided to the solicitor client representative with whom such
communication is made. In the case of an indirect solicitation--a
solicitation of an intermediary who represents a municipal entity or
obligated person--the disclosures must be provided to the intermediary
with whom such communication is made.\39\
---------------------------------------------------------------------------

    \38\ A solicitor municipal advisor would be expected to provide
separate disclosures for each of its engagements. For example,
assume that a solicitor municipal advisor solicits a municipal
entity on behalf of a municipal advisor client to provide municipal
advisory services to the municipal entity. One week later, the
solicitor municipal advisor solicits the municipal entity again--
this time to obtain an engagement for the solicitor municipal
advisor's investment advisory client to provide investment advisory
services to the municipal entity. The solicitor municipal advisor
would be expected to provide its disclosures to the municipal entity
again in connection with the second solicitation.
    \39\ For example, a solicitor municipal advisor presentation to
an investment consultant hired by a public pension plan may be an
indirect solicitation of that public pension plan. In such a case,
the disclosure would be provided to the investment consultant.
---------------------------------------------------------------------------

    Second Disclosure at the Time of the Solicitor Client's Engagement
with the Solicited Entity. If the solicitation results in a solicited
entity engaging a solicitor client for investment advisory services or
municipal advisory services, all disclosures required by Proposed Rule
G-46(e) would be required to be provided at the time that such
engagement documentation is delivered to the solicited entity or
promptly thereafter. This is the case even if there are no changes
between the initial set of disclosures and the second set of
disclosures.
    The second set of disclosures may be provided by either the
solicitor client or the solicitor municipal advisor. The MSRB believes
that this flexibility would permit, for example, a solicitor municipal
advisor's investment adviser client to provide the solicitor's
disclosures to the solicited entity at the time that the investment
adviser enters into an engagement with the solicited entity.\40\ These
disclosures would be required to be made to an official of the
solicited entity that: (1) the solicitor municipal advisor (or, the
solicitor client, if the solicitor client provides such disclosures)
reasonably believes

has the authority to bind the solicited entity by contract; \41\ and
(2) is not a party to a disclosed conflict.\42\ These two conditions
would not apply to the initial delivery of disclosures.
---------------------------------------------------------------------------

    \40\ The MSRB does not propose to require the engagement
documentation between the solicitor municipal advisor and its
solicitor clients to include an affirmative undertaking on the part
of the solicitor client to provide the solicitor's disclosures to a
solicited entity. However, a solicitor municipal advisor might seek
the inclusion of such language in its engagement documentation as
one means of seeking to comply with Proposed Rule G-46. As one
additional alternative, a solicitor municipal advisor might seek to
include in its engagement documentation with its solicitor clients a
requirement that the solicitor client provide to the solicitor
municipal advisor prompt notice that the solicitor client has been
engaged by the solicited entity. Proposed Rule G-46 would provide
solicitor municipal advisors flexibility in determining how to
deliver the second set of disclosures.
    \41\ Solicitor municipal advisors would be expected to adopt
reasonable policies and procedures to support the reasonable belief
that the solicited entity representative has the authority to bind
the solicited entity. However, consistent with the flexible approach
to supervision under Rule G-44, on supervisory and compliance
obligations of municipal advisors, the reasonable policies and
procedures of one firm may reasonably differ from that of another's.
As one example only, solicitor municipal advisors could seek to
incorporate into their written agreements with their solicitor
clients a condition that such disclosures provided on behalf of the
solicitor municipal advisor must be provided to a solicited entity
representative that the solicitor client reasonably believes has the
authority to bind the solicited entity.
    \42\ To the extent a solicitor municipal advisor relies on its
client to pass on its second set of disclosures, the solicitor
municipal advisor may wish to provide its clients with a list of
persons associated with the solicited entity who are a party to a
conflict to help ensure that the solicitor client does not pass on
the disclosures to such persons.
---------------------------------------------------------------------------

    The MSRB believes that this dual or bifurcated approach would help
ensure that the person that is initially solicited receives this key
information in time to consider it in connection with the initial
solicitation. However, because such person(s) may not have the
authority to bind the solicited entity by contract (particularly where
such person is an intermediary between the solicitor and the solicited
entity), the MSRB would require that the disclosures are provided again
at the time of the engagement between the solicited entity and the
solicitor client (or promptly thereafter). The MSRB believes that any
risk associated with the first disclosures not being passed on to a
knowledgeable person with the authority to bind the solicited entity in
contract would be mitigated by requiring that the disclosures are
provided again at the time of the engagement--this time, to someone who
does have such authority. Additionally, the MSRB understands that
solicitations may sometimes span years. Particularly in such instances,
the MSRB believes that it is important that the solicited entity
receives the disclosures again at the time of the solicitor client's
engagement with the solicited entity.
Specified Prohibitions
    Proposed Rule G-46(g) expressly would prohibit a solicitor
municipal advisor from:
     Delivering an invoice for fees or expenses for municipal
advisory activities that is materially inaccurate in its reflection of
the activities actually performed or the personnel that actually
performed those activities; and
     Making payments for the purpose of obtaining or retaining
an engagement to perform municipal advisory activities, subject to
three specified exceptions discussed further below.
    Exceptions for Payments to Obtain or Retain an Engagement.
Solicitor municipal advisors would be prohibited from making payments
for the purpose of obtaining or retaining an engagement to perform
municipal advisory activities other than:
     Payments to an affiliate for a direct or indirect
communication with a municipal entity or obligated person on behalf of
the solicitor municipal advisor where such communication is made for
the purpose of obtaining or retaining an engagement to perform
municipal advisory activities;
     Reasonable fees paid to another municipal advisor
registered as such with the Commission and the MSRB for making a
communication for the purpose of obtaining or retaining an engagement
to perform municipal advisory activities; and
     Payments that are permissible ``normal business dealings''
as described in Rule G-20, on gifts, gratuities, non-cash compensation
and expenses of issuance.
    These specified prohibitions are modeled on similar prohibitions
applicable to non-solicitors under MSRB Rule G-42(e)(i) and to a lesser
degree would align with certain prohibitions applicable to underwriters
under the G-17 Underwriter's Guidance.\43\
---------------------------------------------------------------------------

    \43\ See Rule G-42(e)(i); see also G-17 Underwriter's Guidance
at section titled, ``Underwriter Compensation and New Issue
Pricing.''
---------------------------------------------------------------------------

Supplementary Material
    Proposed Rule G-46 would set forth four supplementary material
sections:
     Providing additional explanation regarding the MSRB's
expectations with respect to the reasonable basis a solicitor municipal
advisor must have for the representations described in Proposed Rule G-
46(d); \44\
---------------------------------------------------------------------------

    \44\ See supra discussion titled ``Representations to Solicited
Entities.''
---------------------------------------------------------------------------

     Explaining the relationship between a solicitor municipal
advisor's fair dealing obligations and the applicability of a federal
fiduciary duty for municipal advisors; \45\
---------------------------------------------------------------------------

    \45\ See supra discussion titled ``Disclosures to Solicited
Entities.''
---------------------------------------------------------------------------

     Explaining the relationship between a municipal advisor's
obligations under Proposed Rule G-46 and Rule G-42; and
     Providing additional detail regarding a solicitor
municipal advisor's compensation documentation and disclosure
obligations.\46\
---------------------------------------------------------------------------

    \46\ See supra discussion titled ``Documentation of the
Solicitor Relationship'' and ``Disclosures to Solicited Entities.''
---------------------------------------------------------------------------

    Supplementary Material .03 explains that municipal advisors should
be mindful that one may be, simultaneously, both a solicitor municipal
advisor for purposes of Proposed Rule G-46 and a non-solicitor
municipal advisor for purposes of Rule G-42. For example, a municipal
advisor may provide ``advice'' as defined in Rule G-42 to a municipal
entity (the ``advisory engagement'') and separately may act as a
solicitor municipal advisor with respect to that same municipal entity
or another municipal entity as contemplated in Proposed Rule G-46 (the
``solicitor municipal advisor engagement''). As a result, the municipal
advisor would be subject to Rule G-42 with respect to the advisory
engagement and would be subject to Proposed Rule G-46 with respect to
the solicitor municipal advisor engagement. Municipal advisors should
evaluate the activity undertaken with respect to each engagement to
determine which rule governs and ensure the written supervisory
procedures required under Rule G-44 reflect such.
Proposed Amendments to MSRB Rule G-8
    Proposed amendments to Rule G-8 would add specific recordkeeping
obligations designed to help facilitate and document compliance with
Proposed Rule G-46. Specifically, they would add new subsection (viii)
\47\ requiring solicitor municipal advisors to make and keep the
following books and records:
---------------------------------------------------------------------------

    \47\ Today the MSRB also filed a proposed rule change to amend
MSRB Rule G-40, on advertising by municipal advisors, and amend MSRB
Rule G-8 by adding subparagraph (h)(viii) to the rule.
---------------------------------------------------------------------------

     Evidence that the disclosures required by Proposed Rule G-
46(b) were made in the manner required by that section;
     A copy of each writing or writings required by Proposed
Rule G-46(c);
     Documentation substantiating the solicitor municipal
advisor's reasonable basis for believing its representations as
described in Proposed Rule G-46(d) (e.g., a checklist confirming that
an investment adviser client's Form ADV was reviewed); and
     Evidence that the disclosures required by Proposed Rule G-
46(e) were made in the manner described in Proposed Rule G-46(f) (e.g.,
automatic email delivery receipt).

2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2) of the Exchange Act,\48\ which provides that the
Board shall propose and adopt rules to effect the purposes of this
title with respect to transactions in municipal securities effected by
brokers, dealers, and municipal securities dealers and advice provided
to or on behalf of municipal entities or obligated persons by brokers,
dealers, municipal securities dealers, and municipal advisors with
respect to municipal financial products, the issuance of municipal
securities, and solicitations of municipal entities or obligated
persons undertaken by brokers, dealers, municipal securities dealers,
and municipal advisors.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78o-4(b)(2).
---------------------------------------------------------------------------

    Section 15B(b)(2)(C) of the Exchange Act \49\ 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.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

Prevention of Fraudulent and Manipulative Acts and Practices
    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Exchange Act \50\ because the proposed rule
change would help prevent fraudulent and manipulative acts and
practices. It would do so by expressly prohibiting solicitor municipal
advisors from making a representation that the solicitor municipal
advisor knows or should know is either materially false or misleading
regarding the capacity, resources or knowledge of the solicitor client.
It also would require solicitor municipal advisors to have a reasonable
basis for any material representations the solicitor municipal advisor
makes to a solicited entity regarding the capacity, resources or
knowledge of the solicitor client. The proposed rule change also
expressly would prohibit solicitor municipal advisors from delivering
an inaccurate invoice for fees or expenses. The MSRB believes that the
express prohibition of such conduct--all of which could be forms of
fraudulent and manipulative acts and practices themselves--would help
prevent fraudulent and manipulative acts and practices. Finally, the
proposed rule change would provide that solicitor municipal advisors
would be prohibited from making payments for the purpose of obtaining
or retaining an engagement to perform municipal advisory activities
subject to specified exceptions. Among other things, this would
effectively require solicitor municipal advisors to use only associated
persons or other regulated solicitor municipal advisors to obtain
business on their behalf. This would help ensure that only regulated
persons--who are subject to rules designed to prevent fraudulent and
manipulative acts and practices--may engage in solicitation activities
on behalf of a solicitor municipal advisor.
---------------------------------------------------------------------------

    \50\ Id.
---------------------------------------------------------------------------

Fostering Cooperation and Coordination
    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Exchange Act \51\ because it would foster
cooperation and coordination with persons engaged in regulating
transactions in municipal securities and municipal financial products.
It would do so by requiring solicitor municipal advisors to document
their relationships in writing that includes certain minimum content
that is vital to the solicitor municipal advisor, its clients and
applicable regulators in understanding the material terms of an
engagement--including the scope of agreed-upon activities, information
pertaining to compensation for such activities and whether the
solicitation of municipal entities and/or obligated persons is
anticipated. This documentation obligation would help promote certainty
as to the applicable regulatory scheme for any engagement since only
solicitations of municipal entities and obligated persons would be
subject to Proposed Rule G-46, whereas other solicitations may fall
within the jurisdiction of the rules of other regulators (e.g., the
Commission or the Financial Industry Regulatory Authority). The MSRB
believes that this documentation obligation (and related books and
records obligations stemming from the proposed amendments to Rule G-8)
would assist examining authorities in understanding the solicitation
arrangement and would provide them with necessary information to assist
in evaluating a solicitor municipal advisor's compliance with relevant
obligations. The MSRB further believes that the proposed amendments to
Rule G-8 (with the ensuing application of existing Rule G-9 on records
preservation) would help create an audit trail to assist examination
and enforcement authorities in their examination for compliance with
these prohibitions, fostering cooperation and coordination between
regulatory authorities.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

Protection of Municipal Entities, Obligated Persons, and the Public
Interest
    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Exchange Act \52\ because it would protect
municipal entities, obligated persons, and the public interest. It
would do so by requiring solicitor municipal advisors to disclose in
writing all of their material conflicts of interest and material legal
or disciplinary events to the entities that determine whether to hire
such solicitor municipal advisors. The MSRB believes that this
requirement would increase solicitor municipal advisor accountability
and discourage conduct inconsistent with a solicitor municipal
advisor's obligations because such conduct would be required to be
disclosed in information provided to clients, thereby incentivizing
firms to refrain from such conduct or risk not retaining an engagement.
The MSRB also believes that such requirement would simultaneously
provide prospective clients with valuable information that is directly
relevant to their solicitor municipal advisor hiring decisions.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The proposed rule change also would protect municipal entities and
obligated persons by better aligning the obligations owed by solicitor
municipal advisors to their clients with those applicable to non-
solicitor municipal advisors to their clients under Rule G-42. Like
non-solicitor municipal advisors, solicitor municipal advisors would be
required to: disclose their material conflicts of interest; \53\
document their relationships in writing; \54\ and refrain from certain
conduct such as making certain materially false or misleading
representations,\55\ delivering a materially inaccurate invoice,\56\
and making certain payments for the purpose of obtaining or retaining
an

engagement.\57\ These Rule G-42 provisions protect municipal entities
by assisting non-solicitor municipal advisors in complying with, or
helping prevent breaches of, applicable obligations such as the duty of
fair dealing, which is owed under Rule G-17 by all municipal advisors
to all persons. These protections also would be provided to municipal
entities and obligated persons solicited by solicitor municipal
advisors. Additionally, as municipal advisors are permitted to engage
in both solicitor municipal advisor activity and non-solicitor
municipal advisor activity, the MSRB believes that the promotion of
consistent standards among these municipal advisors, where applicable,
is appropriate since the municipal entities and obligated persons
solicited by solicitor municipal advisors and the municipal entity and
obligated person clients of non-solicitor municipal advisors may
reasonably expect a certain baseline level of conduct from all
municipal advisors. More specifically, the MSRB believes that the
proposed rule change would protect municipal entities and obligated
persons by requiring solicitor municipal advisors to disclose to
solicited entities all material facts about the solicitation including
certain information pertaining to the solicitor municipal advisor's:
(i) role and compensation; (ii) conflicts of interest; and (iii)
client. The MSRB believes that the role disclosures would help ensure
that solicited entities (which are municipal entities and obligated
persons) understand the role of a solicitor municipal advisor. The MSRB
also believes that such disclosures would help to clarify potential
confusion about the difference between a solicitor municipal advisor
and other municipal advisors since they owe very different obligations
to municipal entities. The proposed compensation disclosures are
designed to help ensure that solicited entities have important
information about how a solicitor municipal advisor is compensated to
help inform the solicited entity's analysis of the nature and extent of
a solicitor municipal advisor's incentive to recommend that a solicited
entity hire a specific solicitor client. Finally, the MSRB believes
that disclosure related to the solicitor municipal advisor's client
would protect municipal entities, obligated persons and the public
interest by ensuring that--at any early stage-- solicited entities are
directed to disclosures about the entities the solicitor municipal
advisor represents including, but not limited to, information about the
disciplinary history of the solicitor municipal advisor's clients.
---------------------------------------------------------------------------

    \53\ See Rule G-42(b)(i)(F).
    \54\ See Rule G-42(c) and Proposed Rule G-46(c).
    \55\ See Rule G-42(e)(i)(C) and Proposed Rule G-46(d)(i).
    \56\ See Rule G-42(e)(i)(B) and Proposed Rule G-46(g)(i).
    \57\ See Rule G-42(e)(i)(E) and Proposed Rule G-46(g)(ii).
---------------------------------------------------------------------------

    Section 15B(b)(2)(L)(iv) of the Exchange Act \58\ requires that
rules adopted by the Board not impose a regulatory burden on small
municipal advisors that is not necessary or appropriate in the public
interest and for the protection of investors, municipal entities, and
obligated persons, provided that there is robust protection of
investors against fraud. The MSRB believes that the proposed rule
change is consistent with Section 15B(b)(2)(L)(iv) of the Exchange Act
\59\ because the proposed rule change would impose on all municipal
advisors, including small municipal advisors, only the necessary and
appropriate regulatory burdens needed to promote compliance with the
proposed rule change. The proposed rule change represents a balanced
approach to prescriptive standards with flexibility for large and small
municipal advisors alike. For example, the MSRB believes that the
flexibility to provide certain disclosures to a solicited entity via a
third party (i.e., the solicitor's client) could be particularly
helpful for small municipal advisors who may be less likely to be
involved in subsequent communications with a solicited entity and,
therefore, may need to rely on their clients to pass along certain
disclosures at the time of the solicitor client's engagement. Finally,
the MSRB seeks to harmonize standards, where appropriate, among those
applicable to solicitor municipal advisors, non-solicitor municipal
advisors and Commission-registered investment advisers such that those
that engage in conduct that would make them two or more of the above
could leverage some of the existing processes to comply with relevant
obligations under a comparable regime. The MSRB believes that this will
minimize the regulatory burden on all solicitor municipal advisors,
including small municipal advisors.
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
    \59\ Id.
---------------------------------------------------------------------------

    The MSRB also believes that the proposed rule change is consistent
with Section 15B(b)(2)(G) of the Exchange Act,\60\ 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 proposed rule change would require solicitor municipal
advisors to make and keep current evidence that the disclosures
required by Proposed Rule G-46 were made in the manner required by the
proposed rule change, a copy of the writing(s) documenting the
relationship, and documentation substantiating the solicitor municipal
advisor's reasonable basis belief regarding its representations. The
MSRB believes that the proposed amendments to Rule G-8 related to
recordkeeping (with the ensuing application of existing Rule G-9 on
records preservation) would promote compliance and facilitate
enforcement of Proposed Rule G-46, other MSRB rules, and other
applicable securities laws and regulations.
---------------------------------------------------------------------------

    \60\ 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 Act \61\ requires that MSRB rules not
be designed to impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. The MSRB
believes that Proposed Rule G-46 on the duties of solicitor municipal
advisors and Proposed Amended Rule G-8 on recordkeeping obligations
would not impose any new burden on competition and, in fact, may
relieve a burden on competition. The MSRB considered the economic
impact associated with the proposed rule change, including a comparison
to reasonable alternative regulatory approaches, relative to the
baseline.\62\ The MSRB believes that the proposed rule change would not
place a burden on competition as it would apply a regulatory regime to
all solicitor municipal advisors similar to the regime that currently
exists for non-solicitor municipal advisors under Rule G-42 and Rule G-
8 on recordkeeping, and for underwriters under the Rule G-17
Underwriter's Guidance. Additionally, it would promote clearer
regulatory requirements and expectations, enhancing the transparency
and protection for recipients of solicitations and ensuring fair
dealings between the market participants.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 78o-4(b)(2)(C).
    \62\ See Policy on the Use of Economic Analysis in MSRB
Rulemaking, available at http://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx. In evaluating whether there was a
burden on competition, the Board was guided by its principles that
required the Board to consider costs and benefits of a rule change,
its impact on capital formation and the main reasonable alternative
regulatory approach.
---------------------------------------------------------------------------

    Furthermore, Section 15B(b)(2)(L)(iv) of the Act \63\ 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. The MSRB believes the proposed rule change
would apply equally to all solicitor municipal advisors, and on an
ongoing year-by-year basis, the additional regulatory burden imposed
would be proportional to each solicitor municipal advisory firm's size
and business activities and hence would not affect competition.
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.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
---------------------------------------------------------------------------

    The purpose of amending Rule G-8 and proposing Proposed Rule G-46
would be to codify certain statements on the obligations of solicitor
municipal advisors currently outlined in the G-17 Excerpt for Solicitor
Municipal Advisors. Further, Proposed Rule G-46 would better align the
duty and obligations of solicitor municipal advisors with those for
underwriters under Rule G-17, for non-solicitor municipal advisors
under Rule G-42, and for solicitors that undertake certain
solicitations on behalf of investment advisers under the SEC's
investment adviser regime.
    The core standards applicable to non-solicitor municipal advisors
and underwriters under MSRB Rule G-42 and Rule G-17 are highlighted in
a standalone rule for non-solicitor municipal advisors and a standalone
interpretation that was filed with and approved by the SEC,
respectively. In contrast, the G-17 Excerpt for Solicitor Municipal
Advisors was issued in a notice that largely summarized existing rules
and obligations applicable to solicitor municipal advisors and the
standards set forth in the G-17 Excerpt for Solicitor Municipal
Advisors were not as robust as the standards set forth in the proposed
rule change. The proposed rule change is intended to enhance the
consistency of regulatory standards and should therefore remove burdens
to competition by providing clear expectations for all solicitor
municipal advisors.
    In conjunction with Proposed Rule G-46, the proposed amendments to
Rule G-8 would add specific language relating to solicitor municipal
advisors, which would facilitate recordkeeping compliance associated
with Proposed Rule G-46 and help ensure solicitor municipal advisor
accountability.
    In contrast to the regulation of underwriters and non-solicitor
municipal advisors, the MSRB currently does not have any explicit
standards regarding documentation of a solicitor municipal advisor's
engagement. Nor does it have express standards regarding solicitor
municipal advisor disclosures of conflicts of interest. The MSRB
believes that a Proposed Amended Rule G-8 and a codified Proposed Rule
G-46 would result in informed, clearer regulatory standards and
expectations for all solicitor municipal advisors, which would not
impose a burden on competition because the rule would apply to all
solicitor municipal advisors equally. In addition, Proposed Amended
Rule G-8 and Proposed Rule G-46 would better align the obligations
imposed on solicitor municipal advisors with those applicable to non-
solicitor municipal advisors under Rule G-42, underwriters under the G-
17 Underwriter's Guidance, and investment advisers or their promoters
under the IA Marketing Rule.\64\
---------------------------------------------------------------------------

    \64\ See 17 CFR 275.206(4)-1.
---------------------------------------------------------------------------

    For all solicitor municipal advisors, the evaluation baseline is
Rule G-17 which applies to all municipal advisors (solicitor and non-
solicitor alike) and requires municipal advisors to deal fairly with
all persons and not engage in any deceptive, dishonest, or unfair
practice and the G-17 Excerpt for Solicitor Municipal Advisors which
applies to solicitor municipal advisors. Another baseline for
consideration is the IA Marketing Rule \65\ for investment advisers, a
merged rule that replaces the former advertising and cash solicitation
rules for investment advisers. Thus, for a subgroup of solicitor
municipal advisors who undertake solicitations on behalf of an
investment adviser that is already subject to the requirements, the
burden for compliance is already in place partially, as these solicitor
municipal advisors are presumably already complying with the conditions
outlined by the IA Marketing Rule. Finally, for a subset of municipal
advisory firms who conduct both solicitation and non-solicitation
business activities, the baseline is comprised of Rule G-17 and Rule G-
42 on duties of non-solicitor municipal advisors.
---------------------------------------------------------------------------

    \65\ Id.
---------------------------------------------------------------------------

    The MSRB also evaluated reasonable alternative regulatory
approaches. In one alternative, the MSRB would create a new Rule G-46
for solicitor municipal advisors, but the text of the rule would state
that solicitors should follow the SEC's IA Marketing Rule. The main
benefit of this would be to completely harmonize between MSRB and SEC
rules for solicitor municipal advisors who solicit municipal entities
and obligated persons for investment advisory services. However, this
alternative would reduce alignment with MSRB Rule G-42 for solicitor
municipal advisors who are also non-solicitor municipal advisors and
are obligated to comply with Rule G-42. Since all municipal advisors
are permitted to engage in both solicitation activity and non-
solicitation activity, the MSRB deems Proposed Rule G-46 superior to
this alternative as it would be a tailored rule for solicitor municipal
advisors that aligns with Rule G-42 where appropriate and aligns with
the IA Marketing Rule where appropriate. Therefore, the MSRB believes
that the approach taken in Proposed Rule G-46 for solicitor municipal
advisors is warranted under the Exchange Act.
Benefits
    The main benefit of Proposed Amended Rule G-8 and Proposed Rule G-
46 would be to codify certain statements and provide clarification on
regulatory obligations for solicitor municipal advisors with regard to
their duties. By aligning Proposed Rule G-46 with Rule G-42, Rule G-17
and the IA Marketing Rule \66\ where appropriate, Proposed Amended Rule
G-8 and Proposed Rule G-46 would enhance the consistency of regulatory
standards, thereby removing burdens to competition because it would
provide clear expectations for all solicitor municipal advisors that
are generally consistent with the standards under the comparative
rules.
---------------------------------------------------------------------------

    \66\ 17 CFR 275.206(4)-1.
---------------------------------------------------------------------------

    For example, Proposed Rule G-46 would make clear the types of
disclosures that a solicitor municipal advisor would be expected to
make to solicited entities in order to ensure that such entities have
access to material information to inform their decisions pertaining to
whether to retain the solicitor municipal advisor's client(s). This
information also would assist these solicited entities in evaluating
the solicitor municipal advisor's potential conflicts of interest
associated with making such solicitations. Additionally, by codifying
much of the G-17 Excerpt for Solicitor Municipal Advisors with
additional requirements, Proposed Rule G-46 expressly would prohibit
solicitor municipal advisors from making certain false or materially
misleading representations about their clients and would require them
to have a reasonable basis for similar representations in order to help
ensure the protection of the municipal entities and obligated persons
solicited by such solicitor municipal advisors.

    Furthermore, the codification of certain existing requirements and
the expansion of those standards in the proposed rule change would
enhance transparency for the recipients of the new disclosures that
would be required by the proposed rule change and promote clearer
regulatory obligations for solicitor municipal advisors. The proposed
rule change also would provide protection for municipal entities and
obligated persons of solicitations, further promoting fair dealings
between the market participants. As mentioned above, the additional
requirements also would align some of the obligations imposed on
solicitor municipal advisors with those applicable to non-solicitor
municipal advisors under Rule G-42 and underwriters under the G-17
Underwriter's Guidance as well as those applicable to certain
endorsements and testimonials in connection with certain investment
adviser advertisements under the SEC's investment adviser regime. This
alignment would level the playing field by applying somewhat similar
obligations for different regulated entities and increasing the
efficiency for regulatory entities tasked with examining and enforcing
such requirements and regulated entities seeking compliance. In
particular, Proposed Rule G-46 would require solicitor municipal
advisors to document their relationships in writing to the solicitor
client, which would be instrumental in assisting examining authorities
and other regulators to determine the relevant regulatory regime
applicable to a solicitor municipal advisor's solicitation.
Costs
    The MSRB acknowledges that solicitor municipal advisors likely
would incur costs, relative to the baseline state, to meet the
standards of conduct and duties contained in the proposed rule change.
These changes may include the one-time upfront costs related to setting
up and/or revising policies and procedures, as well as the ongoing
costs such as compliance costs associated with maintaining and updating
disclosures. Solicitor municipal advisors also may have additional
costs associated with additional record-keeping.
    For the upfront costs, it is possible that solicitor municipal
advisors may need to seek the appropriate advice of in-house or outside
legal and compliance professionals to revise policies and procedures in
compliance with Proposed Amended Rule G-8 and Proposed Rule G-46.
Solicitor municipal advisors also may incur costs related to standards
of training in preparation for the implementation of Proposed Amended
Rule G-8 and Proposed Rule G-46. Assuming solicitor municipal advisors
currently already have policies and procedures in place in relation to
the G-17 Excerpt for Solicitor Municipal Advisors, the upfront costs
for Proposed Amended Rule G-8 and Proposed Rule G-46 should be
incremental. Furthermore, the upfront costs may be lower for solicitor
municipal advisors that are also non-solicitor municipal advisors as
they presumably are already complying with similar Rule G-8 and Rule G-
42 requirements. Similarly, such costs may be lower for solicitor
municipal advisors who are soliciting on behalf of investment advisory
business and therefore presumably are already complying with the IA
Marketing Rule.\67\
---------------------------------------------------------------------------

    \67\ 17 CFR 275.206(4)-1.
---------------------------------------------------------------------------

    For the ongoing costs, solicitor municipal advisors may incur
compliance costs related to each solicitation, including costs
pertaining to creating and maintaining books and records. Firms may
have to make changes to their current recordkeeping practices in order
to satisfy the additional requirements of Proposed Amended Rule G-8 and
Proposed Rule G-46 for the specific disclosures to a solicited entity
as outlined above, such as the creation of disclosures for all material
information regarding the role and compensation of the solicitor
municipal advisor; documentation of the relationship between a
solicitor municipal advisor and its solicitor client; disclosure of
material conflicts of interest; and certain payments made by a
solicitor municipal advisor to another solicitor municipal advisor.
    Table 1 below shows the number of solicitor municipal advisory
firms registered with the MSRB as of the end of January 2022. The table
groups together solicitor municipal advisor only firms (meaning those
firms that indicated to the MSRB that they engage in solicitation
activity only and not non-solicitation municipal advisory activity) and
separately groups together those solicitor municipal advisor firms that
indicated to the MSRB in Form A-12 that they engage in both
solicitation and non-solicitation municipal advisory activities (e.g.,
under some engagements, they conduct solicitations of municipal
entities and/or obligated persons whereas pursuant to other
engagements, they provide covered advice to municipal entities and/or
obligated persons). Table 1 also illustrates the type of solicitation
activity in which solicitor municipal advisory firms registered with
the MSRB engage (i.e., solicitations for investment advisory business
versus other solicitations), as reported by solicitor municipal
advisory firms on Form A-12.\68\
---------------------------------------------------------------------------

    \68\ Pursuant to MSRB Rule A-12, on registration, all municipal
advisors, including solicitor municipal advisors, must register with
the MSRB prior to engaging in any municipal advisory activity. Form
A-12 is the single, consolidated form for registrants to provide the
MSRB with registration information required under Rule A-12. Among
other things, Form A-12 is used to: register with the MSRB, update
registration information following a change to any information
contained in the form and affirm registration information on an
annual basis. The data in Tables 1 and 2 below regarding the number
and breakdown of solicitor municipal advisor firms and the types of
activities in which they engage is derived from Form A-12 data
submitted to the MSRB.
---------------------------------------------------------------------------

    Table 2 illustrates preliminary estimates for both the upfront and
ongoing compliance costs assuming implementation of Proposed Amended
Rule G-8 and Proposed Rule G-46 for each solicitor municipal advisory
firm in its respective group who chooses to continue their solicitation
business practice in the future state.\69\ As of January 2022, there is
a total of 86 municipal advisory firms registered with the MSRB who
indicated solicitation business activities on Form A-12, with 17 of
those firms indicating that they engage solely in solicitation
activities and the remaining 69 firms indicating they engage in both
solicitation and non-solicitation municipal advisory activities.\70\ Of
the

17 municipal advisory firms engaging solely in solicitation activities,
16 firms (9 + 7) indicate solicitation activities made on behalf of
investment advisory business and one firm indicates solicitation
activities only made on behalf of non-investment advisory business. Of
the 69 municipal advisory firms engaging in both solicitation and non-
solicitation activities, 47 firms (20 + 27) indicate solicitation
activities made on behalf of investment advisory business and 22 firms
indicate solicitation activities only made on behalf of non-investment
advisory business.
---------------------------------------------------------------------------

    \69\ Hourly rate data are gathered from the 2021 SEC's
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,'' 17 CFR parts 232, 240, 242, and 249. The SEC'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 2013 professional wage rates are adjusted for an
inflation rate of 17.45 percent based on the Bureau of Labor
Statistics data on Consumer Price Index for all Urban Consumers
(CPI-U) between September 2013 and September 2021'' (Page 452). The
MSRB added an additional five percentage points for relevant roles
mentioned by the SEC and captured in SIFMA's 2013 Report to account
for an increase in salary inflation for 2022. The inflation-adjusted
effective hourly wage rates for in-house attorneys are estimated at
$465 ($380 x 1.2245), $594 ($485 x 1.2245) for chief compliance
officers, $347 ($283 x 1.2245) for compliance managers, and $490
($400 x 1.2245) for outside counsel.
    \70\ As previously mentioned, the MSRB utilized Form A-12 data
for the economic analysis provided. Of note, the MSRB identified
that between FY 2021-Q2 (January-March) and FY 2022-Q2 there was a
11.7% decline in the total number of registered municipal advisory
firms. The number of solicitor municipal advisory firms, including
firms with both solicitation and non-solicitation activities, also
decreased from 105 to 86 firms during the same period.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN14FE23.014

[GRAPHIC] [TIFF OMITTED] TN14FE23.015

BILLING CODE 8011-01-C
    As previously  mentioned, the incremental costs for the subgroup of
solicitor municipal advisory firms soliciting on behalf of investment
advisory business may be lower than other solicitor municipal advisory
firms to the extent that such solicitor municipal advisors engage in
solicitations that are subject to the IA Marketing Rule.\72\ These
solicitor municipal advisors are presumed to have policies and
procedures consistent with, although not necessarily identical to, some
of the requirements under Proposed Amended Rule G-8 and Proposed Rule
G-46. In addition, the MSRB assumes that municipal advisory firms that
engage in both solicitation and non-solicitation activities are
currently in compliance with Rule G-8 and Rule G-42 with respect to
their non-solicitation municipal advisory activities. The MSRB believes
these firms may be able to leverage some of their existing Rule G-8 and
Rule G-42 policies and procedures, resulting in a potentially lower
upfront cost for implementing Proposed Amended Rule G-8 and Proposed
Rule G-46 as compared to municipal advisory firms that engage in
solicitation activities only. For example, municipal advisory firms
that engage in both solicitation and non-solicitation activities are
likely accustomed to documenting their relationships in an engagement
letter and may be able to leverage their existing supervisory and
compliance framework to extend it to their solicitation activities.
---------------------------------------------------------------------------

    \71\ The MSRB uses the higher hourly rate in each category of
costs. For example, while the revision of policies and procedures
can be conducted by either an in-house attorney (average hourly rate
$465) or outside counsel (average hourly rate $490), the MSRB
chooses the higher hourly rate for this analysis to be aggressive in
the cost estimate. Similarly, for both the training and the ongoing
compliance cost per each solicitation, the task can be performed by
either a Chief Compliance Officer (average hourly rate of $594), an
in-house compliance attorney (average hourly rate $465) or an in-
house compliance manager (average hourly rate $347), and the MSRB
chooses the Chief Compliance Officer rate for the training and the
compliance attorney rate for the ongoing compliance cost in the
estimates.
    \72\ 17 CFR 275.206(4)-1.
---------------------------------------------------------------------------

Effect on Competition, Efficiency, and Capital Formation
    The MSRB believes that Proposed Amended Rule G-8 and Proposed Rule
G-46 would neither impose a burden on competition nor hinder capital
formation, as the proposed rule changes bring a similar regulatory
regime to solicitor municipal advisors that currently exists for non-
solicitor municipal advisors under Rule G-8 on

recordkeeping and Rule G-42 and for underwriters under the G-17
Underwriter's Guidance. The MSRB believes that the proposed rule change
would improve the municipal securities market's operational efficiency
by providing solicitor municipal advisors with a clearer understanding
of regulatory obligations, as well as enhancing the transparency and
protection for recipients of the solicitations, further promoting fair
dealings between market participants.
    At present, the MSRB is unable to quantitatively evaluate the
magnitude of the efficiency gains or losses, but believes the overall
benefits accumulated over time for market participants would outweigh
the upfront costs of revising policies and procedures and ongoing
compliance and recordkeeping costs by solicitor municipal advisors.
    Finally, the proposed rule change would apply equally to all
solicitor municipal advisors. Therefore, the MSRB does not expect that
Proposed Amended Rule G-8 and Proposed Rule G-46 would impose a burden
on competition with respect to solicitor municipal advisory services,
as the upfront costs are expected to be relatively minor for all
solicitor municipal advisory firms while the ongoing costs are expected
to be proportionate to the size and business activities of each
solicitor municipal advisory firm. In fact, the proposed rule change
may relieve a burden on competition. 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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The MSRB solicited comment on the proposed rule change in two
requests for comment. The MSRB first sought comment on a draft of Rule
G-46 in a request for comment that was published in March 2021 (the
``First Request for Comment'').\73\ The MSRB again sought comment on a
revised draft of Rule G-46 that was published in December 2021 (the
``Second Request for Comment'').\74\
---------------------------------------------------------------------------

    \73\ See MSRB Notice Request for Comment on Fair Dealing
Solicitor Municipal Advisor Obligations and New Draft Rule G-46
(March 17, 2021) available at: https://msrb.org/sites/default/files/2021-07.pdf.
    \74\ See MSRB Notice 2021-18, Second Request for Comment on Fair
Dealing Solicitor Municipal Advisor Obligations and New Draft Rule
G-46 (December 15, 2021) available at: https://msrb.org/sites/default/files/2021-18.pdf.
---------------------------------------------------------------------------

    The MSRB received three comment letters in response to the First
Request for Comment \75\ and another three comment letters in response
to the Second Request for Comment.\76\ The comments are summarized
below by topic and MSRB responses are provided.
---------------------------------------------------------------------------

    \75\ Comments were received in response to the First Request for
Comment from: National Association of Municipal Advisors: Letter
from Susan Gaffney, Executive Director, dated June 17, 2021 (``NAMA
I''); Securities Industry and Financial Markets Association: Letter
from Leslie M. Norwood, Managing Director and Associate General
Counsel, dated June 17, 2021 (``SIFMA I''); and 3PM I, supra note 8.
Comment letters are available here.
    \76\ Comments were received in response to the Second Request
for Comment from: National Association of Municipal Advisors: Letter
from Susan Gaffney, Executive Director, dated March 15, 2022 (``NAMA
II''); Securities Industry and Financial Markets Association: Letter
from Leslie M. Norwood, Managing Director and Associate General
Counsel, dated March 15, 2022 (``SIFMA II''); and Third-Party
Marketers Association: Letter form Donna DiMaria, Chairman of the
Board of Directors and Chair of the 3PM Regulatory Committee, dated
March 15, 2022 (``3PM II''). Comment letters are available here.
---------------------------------------------------------------------------

    As described above, Proposed Rule G-46 would establish the core
standards of conduct and duties of solicitor municipal advisors when
engaging in certain solicitation activities. The proposed rule also
would codify certain statements from the G-17 Excerpt for Solicitor
Municipal Advisors and add additional requirements that would better
align some of the obligations imposed on solicitor municipal advisors
with those applicable to: non-solicitor municipal advisors under Rule
G-42; underwriters under Rule G-17; and certain solicitations
undertaken on behalf of third-party investment advisers under the IA
Marketing Rule.
Harmonization With Other Rules
    Commenters were supportive of harmonization efforts between the
standards set forth in the requests for comment and those applicable to
other regulated entities. In response to the First Request for Comment,
commenters urged even more harmonization with those standards,\77\ in
particular Rule G-42 since issuers would be familiar with the
requirements applicable to municipal advisors and greater conformance
with those standards would permit issuers to receive disclosures in a
format with which they may already be familiar.\78\
---------------------------------------------------------------------------

    \77\ See NAMA I at 1-2; see generally SIFMA I.
    \78\ See NAMA I at 1-2.
---------------------------------------------------------------------------

    The MSRB made a number of refinements to draft Rule G-46, as
reflected in the proposed rule change. Key changes are discussed in the
context of the MSRB's summary of comments and responses thereto below.
Applicability of Fiduciary Duty
    In the First Request for Comment, the MSRB did not specifically
include any draft text regarding the application of a fiduciary duty to
solicitor municipal advisors. However, the MSRB sought comment as to
whether such a statement would be helpful to solicited entities.
Commenters generally supported adding a clear statement to the rule
text indicating that solicitor municipal advisors do not owe a federal
fiduciary duty to either their clients or the municipal entities and
obligated persons that they solicit.\79\ They also advocated for a
similar mandatory disclosure to solicited entities.\80\ While one
commenter did not see an appreciable benefit to requiring any such
disclosure, this commenter did not raise any objections to such
disclosure either.\81\
---------------------------------------------------------------------------

    \79\ See SIFMA I at 1-2.
    \80\ See NAMA I at 1 and SIFMA I at 4.
    \81\ See 3PM I at 7.
---------------------------------------------------------------------------

    In response, in the Second Request for Comment, the MSRB revised
draft Rule G-46 to add additional supplementary material to the draft
rule. This supplementary material expressly stated that solicitor
municipal advisors must comply with their fair dealing obligations
pursuant to Rule G-17 on fair dealing, but that they do not owe a
fiduciary duty to their municipal entity and obligated person clients
in connection with their solicitation activities. The MSRB also revised
the draft rule text to require a similar disclosure to be provided to
the solicitor municipal advisor's solicited entities. The substance of
this supplementary material as well as the draft disclosure requirement
also are reflected in the proposed rule change.
Solicitor Representations
    In response to the First Request for Comment, draft rule text set
forth standards regarding solicitor municipal advisor representations
to solicited entities. Commenters generally urged the MSRB to narrow
these draft standards.\82\ One commenter suggested that the standards
should only apply to a subset of a solicitor's representations
(generally regarding the capacity and resources of the municipal
advisor). This commenter also suggested that the applicable standard
more closely mirror that posed in the G-17 Excerpt for Solicitor
Municipal Advisors.\83\
---------------------------------------------------------------------------

    \82\ See SIFMA I 2-3.
    \83\ See id. at 2.
---------------------------------------------------------------------------

    In the Second Request for Comment, the MSRB revised the draft rule
text accordingly and in a manner that is consistent with the standard
set forth in

the proposed rule change. The MSRB believes that this more narrow
standard is consistent with the standard applicable to non-solicitor
municipal advisors and that these standards, in concert with a
solicitor municipal advisor's Rule G-17 fair dealing obligations, offer
appropriate protections to entities solicited by solicitor municipal
advisors.
Prohibited Conduct
    The rule text in the First Request for Comment did not include a
section setting forth specific conduct that would expressly be
prohibited. One commenter suggested that the MSRB add such language to
the rule and that such prohibitions could largely be drawn from the
specifically prohibited conduct under Rule G-42.\84\ In the Second
Request for Comment, the MSRB proposed a new section to draft Rule G-46
that would prohibit solicitor municipal advisors from: (i) receiving
excessive compensation and (ii) delivering a materially inaccurate
invoice. Additionally, the MSRB sought comment as to how to determine
that compensation for a solicitation is excessive.
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    \84\ See id. at 3-4.
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    In response to the Second Request for Comment, one commenter stated
that the provision to prohibit excessive compensation should be
excluded noting, in part, the challenges in determining the appropriate
compensation a solicitor municipal advisor should earn. In the
alternative, this commenter suggested that the MSRB should provide
guidance as to how excessive compensation should be determined.\85\ In
response, the MSRB determined not to include in the proposed rule
change the prohibition on excessive compensation. The MSRB notes that,
solicitor municipal advisors are already subject to a general duty of
fair dealing under Rule G-17 and unlike the clients of non-solicitor
municipal advisors, solicitor municipal advisor clients are not
municipal entities and investors, but instead are themselves regulated
financial professionals. As a result, the MSRB believes that the
potential benefits associated with such a prohibition may not be
sufficiently outweighed by the burdens associated with determining and
demonstrating compliance. Additionally, the proposed rule change
reflects the addition of another specified prohibition pertaining to
third-party payments, which was added in response to a comment
regarding the use of solicitors and the establishment of a more level
playing field between solicitor municipal advisors and dealers
(discussed further below).
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    \85\ See 3PM II at 1-3.
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Documentation of the Relationship
    In the First Request for Comment, draft Rule G-46 proposed to
require solicitor municipal advisors to document their relationship and
would have required such documentation to include relatively limited
content--in part to align with standards under the IA Marketing
Rule.\86\ One commenter stated that the draft requirement to document
the solicitor municipal advisor's engagement should be more aligned
with a non-solicitor municipal advisor's obligation to document its
municipal advisory relationship under Rule G-42 (which includes
additional terms not set forth in the First Request for Comment).\87\
In the Second Request for Comment, the MSRB added two additional draft
elements that would be required to be included in such engagement, both
of which are required under Rule G-42 and pertain to termination of the
relationship. The MSRB also sought comment as to whether additional
information regarding the terms of such documentation may be warranted.
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    \86\ 17 CFR 275.206(4)-1.
    \87\ See SIFMA I at 3.
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    In response to the Second Request for Comment, while one commenter
stated that the draft text of draft Rule G-46 adequately captured the
description of the compensation arrangement,\88\ another commenter
stated that the MSRB should provide additional information regarding
the terms and amount of compensation to be received by a solicitor (a
term that would be required to be included in the documentation of the
relationship).\89\
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    \88\ See SIFMA II at 8.
    \89\ See 3PM II at 3.
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    The proposed rule change currently reflects a new Supplementary
Material .04, which provides additional detail regarding written
disclosures pertaining to a solicitor's compensation. This
supplementary material is designed to inform a solicitor municipal
advisor's compliance with both its documentation obligation under
Proposed Rule G-46(c)(ii) and its disclosure obligation under Proposed
Rule G-46(e)(i)(D).
Required Disclosures
    In the First Request for Comment, the MSRB proposed to require
solicitor municipal advisors to disclose to solicited entities certain:
role and compensation disclosures; conflicts disclosures; and solicitor
client disclosures. Commenters did not oppose a draft obligation to
make such disclosures but suggested that the MSRB modify them in some
respects. One commenter suggested that the MSRB could better align the
types of required disclosures with those required by non-solicitors
under Rule G-42.\90\ Another stated that the MSRB should require
solicitors to make certain disclosures to their clients regarding their
conflicts of interest and legal and disciplinary history.\91\ This
commenter also suggested that solicitor municipal advisors should be
permitted to customize their role-based disclosures.\92\
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    \90\ See NAMA I at 1-2.
    \91\ See 3PM I at 6-7.
    \92\ See id. at 1.
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    Commenters also suggested that the MSRB align the timing and manner
of required disclosures with the standards set forth under Rule G-42
\93\ and requested guidance from the MSRB as to what qualifies as
evidence that disclosure was provided in the manner set forth under the
draft rule. While one commenter supported an option to make oral
disclosures if the MSRB were to provide additional guidance in this
area, another commenter was not supportive of such an option.\94\
Finally, one commenter suggested a bifurcated approach to disclosures
for solicited entities, which would permit the solicitor municipal
advisor to provide an initial set of disclosures to the person
solicited followed by a second set of disclosures at the time of
capital allocation that would increase the likelihood that an official
with the authority to bind the solicited entity by contract would see
such disclosures.\95\
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    \93\ See SIFMA I at 4.
    \94\ See id. at 11.
    \95\ See 3PM I at 3.
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    In the Second Request for Comment, the MSRB revised the timing and
manner of such disclosures in response to comments received and also
sought comment as to whether disclosures should be permitted to be
provided orally, consistent with the IA Marketing Rule.\96\ In
response, commenters generally indicated that the revised timing and
manner of disclosures was workable and less burdensome than the
approach initially proposed.\97\ However, one commenter requested
clarification regarding whether, in the case of an indirect
solicitation, the disclosure requirement would be met if a solicitor
municipal advisor presents the requisite disclosures to an intermediary
to be passed on to an official of the solicited entity.\98\
Additionally, two commenters

stated that disclosures should be provided in writing,\99\ while
another commenter responded that disclosures should be permitted to be
provided orally only if the MSRB can provide proper guidance as how to
meet a solicitor municipal advisor's books and records
obligations.\100\
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    \96\ 17 CFR 275.206(4)-1.
    \97\ See 3PM II at 7-8.
    \98\ See 3PM II at 3-4.
    \99\ See NAMA II at 2 and SIFMA II at 8.
    \100\ See 3PM II at 6.
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    In response to these comments, the proposed rule change currently
reflects a slightly modified approach as compared to that set forth in
the Second Request for Comment. As discussed above, a solicitor
municipal advisor would be expected to provide the first set of
disclosures for a solicited entity to the person actually solicited.
For indirect solicitations, the second set of disclosures must be
presented to an official of the solicited entity. However, the proposed
rule change expressly provides that an intermediary would be permitted
to pass such disclosures on to such official. After reviewing the
comments received, the MSRB determined to retain the requirement that
all disclosures be provided in writing.
    The MSRB believes that it is important that all solicited entities
receive consistent role disclosures from the solicitor municipal
advisors that solicit them. Accordingly, the proposed rule change
requires solicitor municipal advisors to use identical language in
connection with their role disclosures. The MSRB also believes that as
registered municipal advisors, solicitor municipal advisors have been
required to keep appropriate books and records in order to show
compliance with other relevant MSRB rules and that they can leverage
similar processes and experiences to determine what evidence would
establish that disclosures were made in the manner required by the
proposed rule change. If compliance resources would assist solicitor
municipal advisors in their compliance efforts, the MSRB is prepared to
produce such resources as solicitor municipal advisors begin to
implement new policies and procedures to comply with Proposed Rule G-
46, if approved by the Commission.\101\
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    \101\ Additionally, if the proposed rule change is approved, the
MSRB expects to revise the G-17 Excerpt for Solicitor Municipal
Advisors to reflect the adoption of Proposed Rule G-46.
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Clarification of Solicitor Municipal Advisory Activity
    Commenters asked the MSRB to provide guidance on certain areas
relevant to the definition of a municipal advisor, including when the
solicitation of an obligated person would cause one to be a solicitor
municipal advisor as well as when the solicitation of an intermediary
of a municipal entity would cause one to be a solicitor municipal
advisor.
    The MSRB believes that the more appropriate regulator to whom to
direct such comments may be the Commission. Commenters may wish to
consult the Commission's set of Frequently Asked Questions pertaining
to registration as a municipal advisor.\102\
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    \102\ See SEC, Registration of Municipal Advisors Frequently
Asked Questions, available at: SEC.gov Registration of Municipal
Advisors Frequently Asked Questions.
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The Use of Solicitors
    One commenter emphasized the importance of creating a level playing
field between dealers and municipal advisors, noting that under Rule G-
38, on solicitation of municipal securities business, dealers are
currently prohibited from providing payment to unaffiliated persons for
a solicitation of municipal securities business on behalf of the
dealer.\103\ This commenter suggested that a similar standard should
apply with respect to solicitor municipal advisors, such that Proposed
Rule G-46 expressly should prohibit solicitor municipal advisors from
paying other third-party solicitors to solicit municipal advisory
business on their behalf. This commenter further suggested that, if the
MSRB deemed not to extend this prohibition to solicitor municipal
advisors, it should permit both dealers and municipal advisors to pay
solicitor municipal advisors for their third-party solicitation
efforts; provided, that such solicitors are subject to comprehensive
pay-to-play regulation.
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    \103\ See SIFMA II at 2-3.
---------------------------------------------------------------------------

    As described above, Exchange Act Sections 15B(e)(4) and 15B(e)(9)
\104\ permit municipal advisors to engage in certain solicitation
activities on behalf of third-party dealers, municipal advisors, and
investment advisers. MSRB Rule G-38 (which pre-dates the amendments to
the Exchange Act that brought municipal advisors under the MSRB's
regulatory jurisdiction) prohibits dealers from paying third parties
for such solicitation activities. Non-solicitor municipal advisors are
similarly subject to a restriction on paying third parties for
solicitation activities on their behalf, subject to an exception.\105\
Unlike dealers, non-solicitor municipal advisors are permitted to pay
reasonable fees to another registered municipal advisor for such
solicitation.
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    \104\ 15 U.S.C 78o-4(e)(4) and 15 U.S.C. 78o-4(e)(9).
    \105\ See Rule G-42(e)(i)(E).
---------------------------------------------------------------------------

    In response to commenters and as discussed above, the proposed rule
change would extend a similar prohibition (and related narrow
exception) to solicitor municipal advisors. Because registered
municipal advisors are permitted to engage in both solicitation and
non-solicitation municipal advisory activities, the MSRB believes that
this is the appropriate approach to harmonization among regulated
entities. The MSRB notes that, unlike dealers, municipal advisors owe
their municipal entity clients a fiduciary duty, which may mitigate any
potential risk associated with municipal advisor use of third-party
solicitors. As a result, the MSRB believes that the current approach
taken in the proposed rule change represents an appropriate approach to
protecting municipal entities and obligated persons.
Books and Records
    In the First Request for Comment, the MSRB proposed to include the
books and records obligations relevant to draft Rule G-46 in the text
of draft Rule G-46 itself. In the Second Request for Comment, the MSRB
explained that it proposed to take a similar approach with respect to
future MSRB rules or rule amendments. A number of commenters opposed
this standard and urged the MSRB to move the relevant books and records
requirements into Rule G-8, on books and records, as regulated entities
are more accustomed to consulting that rule to identify their relevant
books and records obligations.\106\ As discussed above, the proposed
rule change proposes to amend Rule G-8 to take such an approach.
---------------------------------------------------------------------------

    \106\ See SIFMA I at 4, NAMA II at 2 and SIFMA II at 4-5.
---------------------------------------------------------------------------

Inadvertent Solicitations
    In the First Request for Comment and the Second Request for
Comment, the MSRB did not propose a safe harbor for inadvertent
solicitations. One commenter recommended that the MSRB consider such a
safe harbor provision, modeled off of the safe harbor provision in Rule
G-42.\107\ The MSRB determined not to include such a provision in the
proposed rule change because even a one-time solicitation could result
in a solicitor municipal advisor's client getting hired and providing
services to the municipal entity or obligated person solicited. As a
result, the MSRB believes that it is important that the solicited
entity has

all of the protections afforded by the proposed rule change and that
all of the other obligations under Rule G-46 are met. The MSRB notes
that the proposed rule change would apply only to certain solicitations
on behalf of unaffiliated dealers, municipal advisors or investment
advisers. As a result, if a firm solicits an entity only on its own
behalf or even on behalf of an entity that controls, is controlled by,
or is under common control with the soliciting firm, the proposed rule
change would not apply.
---------------------------------------------------------------------------

    \107\ See SIFMA I at 6 and SIFMA II at 4.
---------------------------------------------------------------------------

Other
    In the First Request for Comment and the Second Request for
Comment, the MSRB inquired whether a municipal advisor client should be
required to make a bona fide effort to ascertain whether the solicitor
municipal advisor has provided to solicited entities the required
disclosures related to a municipal advisor client. The MSRB also sought
comment as to whether there would be value to solicited entities
receiving disclosures regarding the payments made by one solicitor
municipal advisor to another to facilitate a solicitation.
    With respect to the bona fide effort requirement, commenters were
not supportive of such a requirement \108\ and the proposed rule change
does not impose this obligation on municipal advisor clients of
solicitor municipal advisors. With respect to the comment regarding
payments made by one solicitor municipal advisor to another, commenters
indicated that such disclosures are important and supported an
obligation to require such disclosures.\109\ The MSRB subsequently
refined draft Rule G-46 to require the disclosure of such payments.
This obligation appears in Proposed Rule G-46(e)(i)(E).
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    \108\ See 3PM I at 8 and 3PM II at 7.
    \109\ See SIFMA II at 9 and 3PM II at 7.
---------------------------------------------------------------------------

    One commenter suggested that reference to obligated persons should
be removed from the definitions of solicitor municipal advisor and
solicited entity, noting that they are not relevant for the purposes of
the activity in which solicitors typically engage.\110\ Because the
MSRB has an obligation to protect both municipal entities and obligated
persons and because solicitor municipal advisors may (within the scope
of their professional qualification activities) solicit obligated