[Federal Register Volume 85, Number 155 (Tuesday, August 11, 2020)]
[Notices]
[Pages 48579-48587]
[FR Doc No: 2020-17454]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89484; File No. SR-MSRB-2020-04]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of a Proposed Rule Change Consisting of
Amendments to MSRB Rules A-3 and A-6 That Are Designed To Improve Board
Governance

August 5, 2020.

I. Introduction

    On June 5, 2020, the Municipal Securities Rulemaking Board (the
``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or ``Exchange
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change
consisting of amendments to MSRB Rules A-3 and A-6, regarding Board
governance (the ``proposed rule change''). The proposed rule change was
published for comment in the Federal Register on June 24, 2020.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 89092 (June 18, 2020)
(the ``Notice of Filing''), 85 FR 37974 (June 24, 2020).
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    The Commission received five comment letters on the proposed rule
change.\4\ On July 29, 2020, the MSRB responded to those comments.\5\
This order approves the proposed rule change.
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    \4\ See Letter to Secretary, Commission, from Steve Apfelbacher,
Renee Boicourt, Marianne Edmonds, Robert Lamb and Noreen White,
former MSRB Board members (collectively, ``Former MSRB Board
Members''), dated July 15, 2020 (the ``Former MSRB Board Members
Letter''); Letter to Secretary, Commission, from Emily Swenson
Brock, Director, Federal Liaison Center, Government Finance Officers
Association (``GFOA''), dated July 15, 2020 (the ``GFOA Letter'');
Letter to Secretary, Commission, from Emily Brock, GFOA, John
Godfrey, American Public Power Association, Charles Thompson,
International Municipal Lawyers Association, Eryn Hurley, National
Association of Counties, Chuck Samuels, National Assn. of Health and
Educational Facilities Finance Authorities, Cornelia Chebinou,
National Association of State Auditors, Comptrollers and Treasurers,
Brian Egan, National Association of State Treasurers, Michael
Gleeson, National League of Cities, and Emery Real Bird, Native
American Finance Officers Association (collectively, the ``Issuer
Organizations''), dated July 15, 2020 (the ``Issuer Organizations
Letter''); Letter to Secretary, Commission, from Susan Gaffney,
Executive Director, National Association of Municipal Advisors
(``NAMA''), dated July 15, 2020 (the ``NAMA Letter''); and Letter to
Secretary, Commission, from Mike Nicholas, Chief Executive Officer,
Bond Dealers of America (``BDA''), dated July 15, 2020 (the ``BDA
Letter'').
    \5\ See Letter to Secretary, Commission, from Jacob N. Lesser,
Associate General Counsel, Municipal Securities Rulemaking Board
(``MSRB''), dated July 29, 2020 (the ``MSRB Response Letter'').
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II. Description of Proposed Rule Change

    As described further below and in the Notice of Filing, the MSRB
proposed amendments designed to improve Board governance that would:
(i) Extend to five years the length of time that an individual must
have been separated from employment or other association with any
regulated entity to serve as a public representative to the Board; (ii)
reduce the Board's size from 21 to 15 members through a transition plan
that includes an interim year in which the Board will have 17 members;
(iii) replace the requirement that at least one and not less than 30%
of regulated members on the 21-member Board be municipal advisors with
a requirement that the 15-member Board include at least two municipal
advisors; (iv) impose a six-year limit on Board service; (v) remove
overly prescriptive detail from the description of the Board's
nominations process while preserving in the rule the key substantive
requirements; (vi) require that any Board committee with
responsibilities for nominations, governance, or audit be chaired by a
public representative; and (vii) make certain other reorganizational
and technical changes.\6\
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    \6\ See Notice of Filing, 85 FR at 37974.
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    The MSRB requested that the proposed rule change become effective
on October 1, 2020.\7\
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    \7\ Id.
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Background

    The Exchange Act establishes basic requirements for the Board's
size and composition and requires the Board to adopt rules that
establish ``fair procedures for the nomination and election of members
of the Board and assure fair representation in such nominations and
elections.'' \8\ As amended by the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the ``Dodd-Frank Act''), the Exchange
Act categorizes Board members in two broad groups: Individuals who must
be independent of any dealer \9\ or municipal advisor (``public
representatives'') and individuals who must be associated with a dealer
or municipal advisor (``regulated representatives'').\10\ The Exchange
Act requires the Board to establish by rule requirements regarding the
independence of public representatives and provides that all Board
members--whether public or regulated representatives--must be
``knowledgeable of matters related to the municipal securities
markets.'' \11\
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    \8\ 15 U.S.C. 78o-4(b)(2)(B).
    \9\ As used herein, the term ``dealer'' refers to a broker,
dealer, or municipal securities dealer.
    \10\ 15 U.S.C. 78o-4(b)(1).
    \11\ 15 U.S.C. 78o-4(b)(1); 15 U.S.C. 78o-4(b)(2)(B)(iv).
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    Within the public representative category, at least one Board
member must be representative of institutional or retail investors in
municipal securities, at least one must be representative of municipal
entities, and at least one must be a member of the public with
knowledge of or experience in the municipal industry.\12\ Within the
regulated representative category, at least one Board member must be
associated with a dealer that is a bank, at least one must be
associated with a dealer that is not a bank, and at least one must be
associated with a municipal advisor.\13\
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    \12\ 15 U.S.C. 78o-4(b)(1).
    \13\ Id.
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    The MSRB states that the Exchange Act, as amended by the Dodd-Frank
Act, recognizes the benefits that a Board composed of both public and
regulated representatives brings to regulation of the municipal
securities market in the public interest and the protection of
investors, municipal entities, and obligated persons.\14\ The MSRB
further states that, although regulated representatives may bring
specialized expertise to the regulation of a market with features and
functions that are markedly different from those of other financial
markets, public representatives

may bring a broader perspective of the public interest and the
protection of investors, municipal entities, and obligated persons.\15\
The MSRB observes that, striking the balance between the two
perspectives--public and regulated--in the Dodd-Frank Act, Congress
specified that the Board at all times must be majority public but that
it also must be as evenly divided between public and regulated
representatives as possible.\16\
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    \14\ See Notice of Filing, 85 FR at 37975.
    \15\ Id.
    \16\ See Notice of Filing, 85 FR at 37975; 15 U.S.C. 78o-
4(b)(2)(B)(i).
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    The MSRB states that, since the enactment of the Dodd-Frank Act,
the Board has elected public representatives with a range of
backgrounds and experience.\17\ The MSRB observes that, in addition to
the statutorily specified municipal entity and investor
representatives, they have included individuals with prior municipal
securities regulated industry experience, academics and individuals
with rating agency experience.\18\ The MSRB further observes that, in
most years, municipal entity representation on the Board has exceeded
the statutory minimum.\19\ The MSRB states that it has also required,
either by rule or by policy, that committees responsible for
nominations, governance and audit be chaired by a public
representative.\20\
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    \17\ See Notice of Filing, 85 FR at 37975.
    \18\ Id.
    \19\ Id.
    \20\ Id.
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    The Exchange Act sets the number of Board members at 15 but
provides that the rules of the Board ``may increase the number of
members which shall constitute the whole Board, provided that such
number is an odd number.'' \21\ The MSRB notes that, in response to the
enactment of the Dodd-Frank Act, which established a new registration
requirement and regulatory framework for municipal advisors, the Board
increased the size of the Board to 21 members (11 public and 10
regulated) in October 2010.\22\ The MSRB further notes that, at the
same time, the Board also provided for municipal advisor membership on
the Board that was greater than the statutory minimum, requiring that
at least 30% of the regulated representatives be associated with
municipal advisors.\23\ The MSRB states that these changes were
designed to ensure the Board could achieve appropriately balanced
representation and would have sufficient knowledge and expertise to
implement the new municipal advisor regulatory framework without
detracting from its ability to continue fulfilling its existing
rulemaking responsibilities with respect to dealer activity.\24\ The
MSRB further states that, although its expanded duties with regard to
the protection of municipal entities and obligated persons and the
regulation of municipal advisors are ongoing, the Board has completed
the rulemaking activity associated with implementation of the Dodd-
Frank Act, including establishment of the core municipal advisor
regulatory regime.\25\
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    \21\ 15 U.S.C. 78o-4(b)(1); 15 U.S.C. 78o-4(b)(2)(B)(iii).
    \22\ See Notice of Filing, 85 FR at 37975.
    \23\ Id. MSRB Rule A-3 provides that these municipal advisors
may not be associated with dealers.
    \24\ See Notice of Filing, 85 FR at 37975; Exchange Act Release
No. 65158 (Aug. 18, 2011), 76 FR 61407, 61408 (Oct. 4, 2011);
Exchange Act Release No. 63025 (Sept. 30, 2010), 75 FR 61806, 61809
(Oct. 6, 2010).
    \25\ See Notice of Filing, 85 FR at 37975.
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    In September 2019, the Board announced the formation of a special
committee to examine all aspects of the Board's governance.\26\ In
January 2020, the Board published a Request for Comment on potential
changes to MSRB Rule A-3 (the ``RFC'') to solicit comment on changes to
MSRB Rule A-3,\27\ and the MSRB states that the proposed rule change
reflects the Board's consideration of the comments it received.\28\
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    \26\ MSRB, ``MSRB to Begin FY 2020 With a Focus on Governance''
(Sept. 23, 2019), available at http://www.msrb.org/News-and-Events/Press-Releases/2019/MSRB-to-Begin-FY-2020-with-Focus-on-Governance.aspx.
    \27\ MSRB Notice 2020-02 (Jan. 28, 2020), available at http://
www.msrb.org/~/media/Files/Regulatory-Notices/RFCs/2020-
02.ashx??n=1. Comments on the RFC are available on the Board's
website at http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2020/2020-02.aspx?c=1. The MSRB states that, after it issued
the RFC, the special committee focused on, among other things,
reorganizational and technical changes to the Board's administrative
rules that would improve interested persons' ability to locate and
understand MSRB requirements. These reorganizational and technical
amendments, which were not included in the RFC, are included in the
proposed rule change, as described herein.
    \28\ See Notice of Filing, 85 FR at 37975. The comments received
by the MSRB on the RFC, along with the Board's responses to those
comments, are described in the Notice of Filing, 85 FR at 37981-5.
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Independence Standard

    The Exchange Act requires the Board to establish by rule
``requirements regarding the independence of public representatives.''
\29\ MSRB Rule A-3 currently defines the term ``independent of any
municipal securities broker, municipal securities dealer, or municipal
advisor'' to mean that an individual has ``no material business
relationship with'' such an entity. MSRB Rule A-3 further provides that
the term ``no material business relationship'' is defined to mean, at a
minimum, that: (i) The individual is not, and within the last two years
was not, associated with a dealer or municipal advisor; and (ii) the
individual does not have a relationship with any dealer or municipal
advisor, compensatory or otherwise, that reasonably could affect the
individual's independent judgment or decision making.
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    \29\ 15 U.S.C. 78o-4(b)(2)(B)(iv).
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    The proposed rule change includes an amendment to MSRB Rule A-3
that would increase the two-year separation period in the definition of
``no material business relationship'' to five years.\30\ The MSRB
states that this amendment is intended to enhance the independence of
public representatives who have prior regulated entity associations and
better avoid any appearance of a conflict of interest on the part of a
public representative.\31\
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    \30\ See Notice of Filing, 85 FR at 37975.
    \31\ See Notice of Filing, 85 FR at 37976.
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    The MSRB states that it continues to believe that the Board's
public representatives have acted with the independence required by the
Exchange Act, MSRB rules and their duties as public representatives,
notwithstanding any prior affiliation with a regulated entity.\32\ At
the same time, the MSRB states that it believes that a five-year
separation period would further enhance not only independence in fact
but also the appearance of independence, which should, in turn, provide
additional assurance that the Board's decisions are made in furtherance
of its mission to protect investors, municipal entities, obligated
persons and the public interest, and to promote a fair and efficient
municipal securities market.\33\
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    \32\ Id.
    \33\ Id. See also MSRB Mission Statement, available at http://www.msrb.org/About-MSRB/About-the-MSRB/Mission-Statement.aspx.
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Board Size

    The Exchange Act establishes a 15-member Board but permits the MSRB
to increase the size, provided that:
     The number of Board members is an odd number;
     A majority of the Board is composed of public
representatives; and
     The Board is as closely divided in number as possible
between public and regulated representatives.\34\
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    \34\ 15 U.S.C. 78o-4(b)(1); 15 U.S.C. 78o-4(b)(2)(B).
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    MSRB Rule A-3 currently sets the size of the Board at 21 members.
    The proposed rule change includes an amendment to MSRB Rule A-3
that would return the Board's size to 15 members, the original number

established by the Exchange Act.\35\ The MSRB states that, although the
21-member Board size was particularly valuable during the period of
heightened rulemaking activity required to implement the Dodd-Frank
Act, particularly the complex rulemaking necessary to establish the
core regulatory framework for municipal advisors as a new type of
regulated entity, that rulemaking activity is now complete.\36\ Thus,
the MSRB states that it believes that it can now return to the
statutorily prescribed Board size of 15, and the attendant efficiency
and lower cost of such a smaller Board, without decreasing its ability
to discharge its expanded responsibilities under the Exchange Act, as
amended by the Dodd-Frank Act.\37\
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    \35\ See Notice of Filing, 85 FR at 37976. As required by
Section 15B(b)(1) of the Exchange Act, the 15-member Board would be
composed of eight public representatives and seven regulated
representatives.
    \36\ See Notice of Filing, 85 FR at 37976.
    \37\ Id.
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    The MSRB states that it believes that the 15-member Board size
established by Congress will continue to allow for a broad range of
viewpoints as the Board fulfills its statutory mission.\38\ The MSRB
observes that, each year, through its annual nominations and elections
process, the Board seeks to constitute a Board that not only meets the
requirements of the Exchange Act and MSRB rules but that also provides
the Board with a broad and diverse range of perspectives.\39\ Although
there will be fewer Board members, the MSRB states that it believes
that the 15-member size contemplated by the Exchange Act allows the
Board to continue to assemble a Board that reflects the wide range of
backgrounds and experiences within each of the statutorily required
Board member categories.\40\
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    \38\ Id.
    \39\ Id. See also Notice of Filing, 85 FR at 37983.
    \40\ See Notice of Filing, 85 FR at 37976.
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Board Composition

    The MSRB states that, when it established the 21-member Board, the
MSRB required that municipal advisor representation be greater than the
statutory minimum.\41\ Specifically, the Board provided in MSRB Rule A-
3:
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    \41\ Id.

at least one, and not less than 30 percent of the total number of
regulated representatives, shall be associated with and
representative of municipal advisors and shall not be associated
with a broker, dealer, or municipal securities dealer.\42\
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    \42\ MSRB Rule A-3(a)(ii)(3).

    Along with the increased Board size, the MSRB states that the
change was intended to ensure that the Board could achieve
appropriately balanced representation and would have sufficient
knowledge and expertise to implement the new municipal advisor
regulatory framework without detracting from its ability to continue
fulfilling its existing rulemaking responsibilities with respect to
dealer activity.\43\
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    \43\ See Notice of Filing, 85 FR at 37976.
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    In connection with reducing the Board's size to 15 members, the
proposed rule change amends MSRB Rule A-3 to provide that at least two
of the regulated representatives shall be associated with and
representative of municipal advisors and shall not be associated with a
broker, dealer or municipal securities dealer.\44\ The MSRB states that
it believes that it remains appropriate, in light of the broad range of
municipal advisors subject to MSRB regulation, to require municipal
advisor representation greater than the statutory minimum of one.\45\
The MSRB states that this amendment would preserve as closely as
possible the current percentage of municipal advisors on the Board as
the Board moves from a 21-member Board to a 15-member Board.\46\
Specifically, the proposed amendment to MSRB Rule A-3 would require
that at least two (28.6%) of the regulated representatives on a 15-
member Board be municipal advisor representatives, which the MSRB
states is very close to the 30% representation currently required.\47\
The MSRB observes that retaining the 30% requirement with the 15-member
Board would require that three of the seven (or 42.9%) regulated
members be municipal advisors; although there may be times the Board
chooses to have a municipal advisor contingent of that size (just as
the Board routinely has representations greater than the minimum for
the other statutorily specified categories), the Board states that it
does not believe imposing a minimum larger than two is in the public
interest.\48\
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    \44\ Id.
    \45\ Id.
    \46\ Id.
    \47\ Id.
    \48\ Id.
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Member Qualifications

    The MSRB notes that MSRB Rule A-3 tracks the Exchange Act
requirement that all Board members must be knowledgeable of matters
related to the municipal securities markets.\49\ The MSRB states that,
in its processes for the nomination and election of new members, the
Board has consistently sought candidates who meet that standard, but
who also have demonstrated personal and professional integrity.\50\ The
MSRB further states that, in order to further convey to the public the
seriousness with which the Board conducts its elections and bolster
public confidence in its process, the proposed rule change includes an
amendment to MSRB Rule A-3 that would add an express requirement that
Board members be individuals of integrity.\51\ The MSRB notes that it
will continue to determine whether a candidate possesses the requisite
personal and professional integrity through its rigorous nominations
and elections processes, which include, among other things, candidate
interviews, extensive screening, and background checks.\52\
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    \49\ Id.
    \50\ Id.
    \51\ Id.
    \52\ Id.
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Transition Plan to Reduced Board Size

    The MSRB states that the proposed change to a 15-member Board
requires a transition plan, and the Board has designed a plan to effect
the necessary changes expeditiously, while minimizing any risk of
disruption to MSRB governance, programs and operations.\53\
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    \53\ See Notice of Filing, 85 FR at 37976-7.
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    The proposed rule change includes a transition plan that would
reduce the Board size to 17 members for fiscal year 2021, which begins
on October 1, 2020.\54\ The MSRB observes that the plan included in the
proposed rule change transitions the Board's class structure from three
classes of five members and one class of six members to three classes
of four members and one class of three members.\55\ The MSRB states
that each of the new Board classes would have the same number of public
and regulated representatives except for

the class of three, which would have two public representatives.\56\
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    \54\ See Notice of Filing, 85 FR at 37977. The Board sought
comment in the RFC on a transition plan that would reduce the
Board's size to 15 members in the next fiscal year because the 15
Board members returning after the six Board members serving in their
fourth year complete their terms on September 30, 2020 would meet
the Board composition requirements for a Board of that size. In the
Notice of Filing, the MSRB states that, although it generally seeks
to assemble a Board that includes more than one issuer
representative, under the transition plan described in the RFC, the
Board would have had just a single issuer representative in fiscal
year 2021. The Board states that it was persuaded by commenters on
the RFC that having more than one issuer representative is of
particular importance next fiscal year in light of the ongoing
COVID-19 pandemic and its effects on municipal entities. The MSRB
notes that reducing the Board size to 17 members in the first year
of the transition will enable the Board to include a second issuer
member for fiscal year 2021. Id.
    \55\ See Notice of Filing, 85 FR at 37977.
    \56\ Id.
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    Pursuant to the transition plan included in the proposed rule
change, all new Board members elected during the transition, and
thereafter, would be appointed to four-year terms. The Board would
resume electing new members for a four-member class with terms
commencing in fiscal year 2022, which begins on October 1, 2021. No new
Board members would be elected for terms beginning on October 1, 2020.
The transition would be completed in fiscal year 2024, which ends on
September 30, 2024.\57\
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    \57\ Id.
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    The MSRB states that, to effect the transition, the Board would
grant one-year term extensions to five public representatives and three
regulated representatives, as follows:
     One public representative and one regulated representative
whose terms would otherwise end on September 30, 2020;
     One public representative whose term would otherwise end
on September 30, 2021;
     One public representative and one regulated representative
whose terms would otherwise end on September 30, 2022; and
     Two public representatives and one regulated
representative whose terms would otherwise end on September 30,
2023.\58\
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    \58\ Id.
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    The MSRB states that, each year, members would be considered for
the one-year extensions as part of the Board's annual nominations
process, once that process resumes during fiscal year 2021, so that
overall Board composition, resulting from existing member extensions
and new member elections, can be considered holistically.\59\
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    \59\ Id.
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Terms

    The Exchange Act provides that Board members ``shall serve as
members for a term of 3 years or for such other terms as specified by
the rules of the Board.'' \60\ MSRB Rule A-3 currently provides for
four-year terms and prohibits a Board member from serving more than two
consecutive terms. The proposed rule change includes an amendment to
MSRB Rule A-3 that would impose a six-year lifetime limit on Board
service.\61\ The MSRB observes that the six-year maximum service
provision would effectively limit a Board member to one complete four-
year term.\62\ The MSRB states that allowing for up to an additional
two years would permit the Board to fill a vacancy that arises in the
middle of a Board member's term expeditiously, as it has in the past,
by re-appointing a sitting member, or electing a former Board member,
to serve for the remainder of the term of the Board member whose
departure created the vacancy rather than leaving the vacancy unfilled
until a more exhaustive, but time-consuming, search for a new Board
member can be completed.\63\
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    \60\ Exchange Act Section 15B(b)(1), 15 U.S.C 78o-4(b)(1).
    \61\ See Notice of Filing, 85 FR at 37977.
    \62\ Id.
    \63\ Id.
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    Based on its experience, the MSRB states that it believes that
regularly refreshing the Board with new members benefits the Board and,
in turn, the municipal market, by bringing new and diverse perspectives
to the policymaking process.\64\ The MSRB states that the six-year
lifetime limit is intended to enhance these benefits by increasing the
rate at which new members will join the Board.\65\
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    \64\ Id.
    \65\ Id.
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    The proposed rule change also includes an amendment to MSRB Rule A-
3 that would permit a Board member filling a vacancy to serve for any
part of an unexpired term, rather than requiring such a Board member to
serve for the entire unexpired portion.\66\ The MSRB states that this
change is necessary to implement the six-year lifetime limit described
above because a Board member may leave the Board with more than two
years remaining in his or her term.\67\ The MSRB states that, in many
such cases, requiring the replacement Board member to serve the
remainder of the term would disqualify current and former Board members
due to the six-year limit.\68\
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    \66\ Id.
    \67\ Id.
    \68\ Id.
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    Finally, MSRB Rule A-3(d) currently provides that ``[v]acancies on
the Board shall be filled by vote of the members of the Board,'' and
states in the final sentence that the term ``vacancies on the Board''
includes a vacancy resulting from the resignation of a Board member
prior to the commencement of his or her term.\69\ The proposed rule
change deletes this final sentence to clarify that the term includes
all vacancies that arise prior to conclusion of a term for any
reason.\70\
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    \69\ MSRB Rule A-3(d).
    \70\ See Notice of Filing, 85 FR at 37977. As discussed below,
the proposed rule change also includes amendments to MSRB Rule A-3
to reorganize the rule. As reorganized, the provision on vacancies
would be a subsection of section (b), which governs Board
nominations and elections.
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Amendments to Board Nominations and Elections Provisions

    The MSRB notes that MSRB Rule A-3 includes a detailed description
of the composition, responsibilities and processes of the Board's
Nominating and Governance Committee.\71\ The MSRB states that the
proposed rule change includes amendments to MSRB Rule A-3 that would
preserve the key features of this important Board committee while
removing what the MSRB describes as overly prescriptive detail that
could be provided instead, and the Board believes more appropriately,
in governing documents such as committee charters and Board
policies.\72\ The MSRB further states that it believes these amendments
will enhance the Board's flexibility to respond efficiently to changes
in circumstances.\73\
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    \71\ See Notice of Filing, 85 FR at 37977.
    \72\ Id.
    \73\ Id.
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    Specifically, the proposed rule change would remove references in
MSRB Rule A-3 to the ``Nominating and Governance Committee'' and
replace them with references to a committee charged with the nominating
process. The proposed rule change retains the substantive requirements
that the committee responsible for the nominating process be: (1)
Composed of a majority of public representatives, (2) chaired by a
public representative, and (3) representative of the Board's
membership, but removes the more detailed requirements.\74\ The
proposed rule change would also move these requirements, as amended by
the proposed rule change, to MSRB Rule A-6, Committees of the
Board.\75\ The MSRB states that it believes that moving these
requirements relating to committee composition to a more logical
location will improve transparency by making Board requirements easier
to find.\76\
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    \74\ Id.
    \75\ See Notice of Filing, 85 FR at 37977-8.
    \76\ Id. at 37978.
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    The proposed rule change also includes an amendment to MSRB Rule A-
3 that updates the requirement for the Board to publish a notice
seeking applicants for Board membership, which the MSRB states that it
believes has become antiquated.\77\ Specifically, the amendment would
replace the requirement to publish the notice ``in a financial journal
having national circulation among members of the municipal securities
industry and in a

separate financial journal having general national circulation'' with
the more general requirement to publish the notice ``by means
reasonably designed to provide broad dissemination to the public.''
\78\ The MSRB states that this broader and more flexible requirement
recognizes that in addition to publishing the notice in financial
journals as specified in MSRB Rule A-3, the Board currently uses a
variety of methods to reach a broad range of potential candidates,
including press releases, the MSRB website, and the Board's social
media channels.\79\ The MSRB states that the amendment to MSRB Rule A-3
would permit the Board to continue to use these methods, as well as to
determine other ways to reach a wide range of potential applicants in
light of available technology and media.\80\
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    \77\ Id.
    \78\ Id.
    \79\ Id.
    \80\ Id.
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Public Representative Committee Chairs

    The MSRB states that it believes it should retain administrative
flexibility to design and from time to time change its committee
structure.\81\ The MSRB further states that the proposed rule change
would enable the Board to establish its committee structure through
governance mechanisms such as charters and policies.\82\ The MSRB
observes that it could, for example, continue to have a committee
responsible for both nominations and governance, or it could establish
a separate committee on governance, freeing the nominating committee to
focus on identifying, recruiting and vetting new members.\83\
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    \81\ Id.
    \82\ Id.
    \83\ Id.
---------------------------------------------------------------------------

    The MSRB believes that, irrespective of the committee structure the
Board from time to time may establish, responsibility for both
nominations and governance should continue to be in a committee or
committees chaired by a public representative, as currently required by
MSRB Rule A-3.\84\ Current Board policy requires that the audit
committee also be chaired by a public representative. In light of the
importance of public representative leadership of the audit committee
to the Board's corporate governance system, the MSRB states that it
believes this requirement should be included in the Board's rules,
rather than only in a Board policy.\85\ Accordingly, the proposed rule
change codifies these existing rule and policy requirements in a single
location in MSRB Rule A-6, Committees of the Board.\86\
---------------------------------------------------------------------------

    \84\ Id.
    \85\ Id.
    \86\ Id.
---------------------------------------------------------------------------

Reorganizational and Technical Changes

MSRB Rule A-3 Title
    The proposed rule change would change the title of MSRB Rule A-3
from ``Membership on the Board'' to ``Board Membership: Composition,
Elections, Removal, Compensation.'' The MSRB states that the new title
will describe all of the topics covered by the rule and should make it
easier for interested persons to locate relevant MSRB rule
requirements.\87\
---------------------------------------------------------------------------

    \87\ Id.
---------------------------------------------------------------------------

MSRB Rule A-3 Organization
    The MSRB states that the proposed rule change reorganizes the
content of MSRB Rule A-3 so that similar provisions are grouped
together, topics are presented in a more logical sequence, and overall
readability is improved.\88\ The provision on vacancies, currently
section (d), would be included as a subsection of section (b),
regarding nominations and elections. Similarly, the provision on Board
member affiliations, currently section (f), would be included within
section (a), which describes the number of Board members and the
requirements for Board composition. The titles of sections (b) and (c)
would be revised to more completely describe the topics covered and new
subsection headers would be added to section (b) to provide a better
roadmap to the section's contents.\89\ Although none of these changes
is substantive, the MSRB states that they should make it easier for
interested persons to find and understand relevant MSRB
requirements.\90\
---------------------------------------------------------------------------

    \88\ Id.
    \89\ Id.
    \90\ Id.
---------------------------------------------------------------------------

Board Member Changes in Employment and Other Circumstances
    The MSRB states that Board policies describe certain changes in a
Board member's circumstances, such as a change in employment, that
could result in the Board member's disqualification from continuing to
serve on the Board.\91\ For example, a Board member who is a public
representative at the time of his or her election may accept a position
with a regulated entity during the course of his or her Board term.
Assuming there are no Board vacancies at the time, the MSRB observes
that such a change would result in the Board no longer being majority
public and no longer as evenly divided in number as possible between
public and regulated representatives.\92\ The MSRB states that Board
policy provides that the member would be disqualified from continuing
to serve because the change in employment would cause a conflict with
Board composition requirements.\93\
---------------------------------------------------------------------------

    \91\ Id.
    \92\ Id.
    \93\ Id.
---------------------------------------------------------------------------

    The MSRB states that the proposed rule change would include the
substance of this policy in MSRB Rule A-3(c), with minor updates.\94\
Specifically, new subsection (c)(ii) would provide that:
---------------------------------------------------------------------------

    \94\ Id.
---------------------------------------------------------------------------

     If a member's change in employment or other circumstances
results in a conflict with the Board composition requirements described
in section (a) of MSRB Rule A-3, as proposed to be amended, the member
shall be disqualified from serving on the Board as of the date of the
change.
     If the Board determines that a member's change in
employment or other circumstances does not result in disqualification
pursuant to the above provision but changes the category of
representative in which the Board member serves, the member will remain
on the Board pending a vote of the other members of the Board, to be
taken within 30 days, determining whether the member is to be retained.
    The MSRB states that including these provisions in the Board's
rules, rather than its policies, is intended to improve transparency
about the Board's approach to changes in Board member circumstances,
including changes that require immediate disqualification due to a
conflict with Board composition requirements and changes that do not
cause a conflict with those requirements but might still, in the
Board's judgment, require removal because, for example, they negatively
affect the balanced representation on the Board that the Board seeks to
maintain.\95\
---------------------------------------------------------------------------

    \95\ Id.
---------------------------------------------------------------------------

III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received five comment letters
on the proposed rule change, as well as the MSRB Response Letter.

Independence Standard

    One commenter reiterated its concern, expressed in its response to
the RFC, that ``five years away from the industry and the market is too
long for a Board member to be effective.'' \96\ This

commenter stated that the Board has ``provided no evidence that the
current two-year required separation has created any conflicts or even
the perception of conflicts'' and that the only effect of an increase
to five years would be to prevent qualified and knowledgeable persons
from serving on the Board.\97\
---------------------------------------------------------------------------

    \96\ See BDA Letter at 1.
    \97\ Id.
---------------------------------------------------------------------------

    The MSRB stated that, while the five-year separation requirement
may postpone the time when some otherwise qualified persons may apply
for Board membership, the comment's intimation that former regulated
entity employees are the primary--or the best--source of public members
is not correct.\98\ The MSRB noted that Section 15B(b)(1) of the
Exchange Act provides that all Board members ``shall be knowledgeable
of matters related to the municipal securities markets'' and that at
least one of the public representatives must be a member of the public
``with knowledge of or experience in the municipal industry.'' \99\ The
MSRB stated that it does not view prior experience with a dealer or
municipal advisor as a prerequisite for Board service as a public
representative, and public representatives may gain the required
knowledge in any number of ways.\100\
---------------------------------------------------------------------------

    \98\ See MSRB Response Letter at 3.
    \99\ See MSRB Response Letter at 3-4.
    \100\ See MSRB Response Letter at 4. See also Notice of Filing,
85 FR at 37982.
---------------------------------------------------------------------------

    One commenter stated that the ``knowledge standard requirement for
public applicants, as written, is very subjective and, in the past, has
been too narrowly interpreted by the MSRB Board and Committees'' and
suggested that the Board ``should ensure that individuals with broad
knowledge of the public interest be considered in addition to those who
have specialized industry expertise and have been traditionally
appointed to these seats.'' \101\ The MSRB stated that it continues to
believe, as it noted in the RFC, that ``while regulated representatives
may bring specialized expertise to the regulation of a market with
features and functions that are vastly different from those of other
financial markets, public representatives may bring a broader
perspective of the public interest.'' \102\ The MSRB stated that,
through its nominations and elections process, the Board will continue
to seek qualified public representatives who can bring that perspective
to bear on Board decision-making.\103\
---------------------------------------------------------------------------

    \101\ See NAMA Letter at 2.
    \102\ See MSRB Response Letter at 4. See also RFC at 3.
    \103\ See MSRB Response Letter at 4.
---------------------------------------------------------------------------

    The MSRB further stated that, while some stakeholders perceive--
accurately, in the Board's view--that the Board's public
representatives are independent of the entities that the Board
regulates, that perception is not universally held.\104\ Accordingly,
the MSRB stated that increasing the length of the separation period is
intended in part to address the perception held by some stakeholders
that public representatives are not sufficiently independent, and that
it continues to believe that enhancing the appearance of independence
of public representatives will provide additional assurance that the
Board's decisions are made in furtherance of its mission to protect
investors, municipal entities, obligated persons and the public
interest and to promote a fair and efficient municipal securities
market.\105\
---------------------------------------------------------------------------

    \104\ Id.
    \105\ See MSRB Response Letter at 4-5.
---------------------------------------------------------------------------

Board Composition--Municipal Advisor Representation

    One commenter believed that only a minimum of one municipal advisor
representative should be required,\106\ while two commenters believed
that a minimum of three municipal advisor representatives should be
required.\107\ The commenter that believed that only one municipal
advisor representative should be required stated that requiring only
the statutory minimum of one municipal advisor would provide the Board
with the maximum flexibility to determine municipal advisor
representation based on its anticipated agenda.\108\ Noting that
dealers pay more in fees to the MSRB than municipal advisors, this
commenter ``call[ed] on the MSRB to set the ratio of board seats
between dealers and MAs based on each constituency's relative financial
contribution to the organization, subject to statutory requirements.''
\109\
---------------------------------------------------------------------------

    \106\ See BDA Letter.
    \107\ See Former MSRB Board Members Letter; NAMA Letter.
    \108\ See BDA Letter at 1-2.
    \109\ See BDA Letter at 2. The BDA Letter also states, in
support of its position that only one municipal advisor should be
required, that five commenters on the RFC opposed the Board's
proposal to require at least two municipal advisors while only two
agreed with it. See BDA Letter at 1. As noted in the Notice of
Filing, two commenters (one of which was BDA) believed that one
municipal advisor should be required, two believed that two
municipal advisors should be required, and three believed that three
municipal advisors should be required. See Notice of Filing, 85 FR
at 37983. See also MSRB Response Letter at 6.
---------------------------------------------------------------------------

    The commenters that believed at least three municipal advisor
representatives should be required noted that municipal advisor
regulation remains a significant focus of the Board.\110\ These
commenters suggested that at least three municipal advisors are
necessary to represent the diverse range of that profession as well as
the issuer clients it serves.\111\ One believed that it would be
difficult for two municipal advisors ``to make their voices heard'' on
a Board with five dealer representatives and stated that just as MSRB
Rule A-3 recognizes the difference between bank and non-bank dealers,
``the broad and different nature of our MA businesses [should] also be
considered.'' \112\ This commenter also disagreed that representation
on the Board should be proportionate to fees paid.\113\
---------------------------------------------------------------------------

    \110\ See Former MSRB Board Members Letter at 1, 2; NAMA Letter
at 1. The MSRB noted that both commenters characterized statements
in the Notice of Filing that the Board had completed the rulemaking
associated with implementation of the Dodd-Frank Act, including the
establishment of the core municipal advisor regulatory regime, see
Notice of Filing at 37975, 37976, as minimizing the continued
significance of rulemaking involving municipal advisors. These
commenters noted that municipal advisor regulation will continue to
present the Board with challenges going forward. The MSRB stated
that it agrees that ``its expanded duties with regard to the
protection of municipal entities and obligated persons and the
regulation of municipal advisors are ongoing.'' See Notice of
Filing, 85 FR at 37975. See also MSRB Response Letter at 6.
    \111\ See Former MSRB Board Members Letter at 1; NAMA Letter at
1.
    \112\ See Former MSRB Board Members Letter at 2.
    \113\ Id. at 1-2.
---------------------------------------------------------------------------

    After considering these comments, the MSRB stated that it continues
to believe that while municipal advisor representation on the Board
should be greater than the statutory minimum of one, requiring at least
three of seven regulated representatives (or 42.9%) to be municipal
advisors not associated with a dealer would not be appropriate.\114\ As
an initial matter, the MSRB noted that Rule A-3 sets the minimum number
of Board members within each regulated category and that once those
minimums are met the Board seeks to balance the Board each year with
the mix of members it believes will best serve its mission to protect
investors, municipal entities, obligated persons and the public
interest and to promote a fair and efficient municipal securities
market.\115\ The MSRB stated that, while that mix may, in a particular
year, include three municipal advisors, the proposed rule change
reflects the Board's view that it should always include at least two
municipal advisors not associated with a dealer.\116\
---------------------------------------------------------------------------

    \114\ See MSRB Response Letter at 7.
    \115\ Id.
    \116\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it reached that position for some of the
reasons

described by commenters.\117\ Specifically, the MSRB stated that it
agrees that municipal advisor representation greater than the statutory
minimum continues to be appropriate in light of the broad range of
municipal advisors subject to MSRB regulation, though it disagrees,
based on its experience with the current Board composition, that a
proportional increase in municipal advisor representation is
warranted.\118\
---------------------------------------------------------------------------

    \117\ Id.
    \118\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it also disagrees with the comment that the
Board should ``set the ratio of board seats between dealers and MAs
based on each constituency's relative financial contribution to the
organization, subject to statutory requirements.'' \119\ The MSRB
observed that nothing in the Exchange Act suggests that fees paid to
the Board should be tied to Board composition and, in fact, the
Exchange Act treats the two topics in separate provisions.\120\
Exchange Act Section 15B(b)(2)(B) requires MSRB Rules to ``establish
fair procedures for the nomination and election of members of the Board
and assure fair representation in such nominations and elections of
public representatives, broker dealer representatives, bank
representatives, and advisor representatives.'' \121\ The MSRB
explained that the proposed rule change would maintain, as closely as
possible on a 15-member Board, the existing balance of representation
among regulated representatives and that the Board believes that
requiring municipal advisor representation greater than the statutory
minimum continues to assure fair representation in light of the broad
range of MAs subject to MSRB regulation.\122\ The MSRB concluded that,
for these reasons, the Board believes that the amendments related to
Board composition are consistent with the Exchange Act.\123\
---------------------------------------------------------------------------

    \119\ See MSRB Response Letter at 7-8.
    \120\ Id.
    \121\ 15 U.S.C. 78o-4(b)(2)(B).
    \122\ See MSRB Response Letter at 8.
    \123\ Id.
---------------------------------------------------------------------------

    With respect to the comments regarding the fees paid by regulated
entities and their proportionate representation on the Board, the MSRB
stated that comments on the MSRB fee structure are outside the scope of
the proposed rule change.\124\
---------------------------------------------------------------------------

    \124\ See MSRB Response Letter at 8.
---------------------------------------------------------------------------

Board Composition--Issuer Representation

    The MSRB noted that, although the proposed rule change includes no
amendments related to Board composition other than as it relates to
municipal advisors, three commenters urged the Board to increase the
required number of issuer representatives.\125\ One such commenter
stated that a Board with eight public members should include three
issuers, three investors, and two ``general public members'' and asked
the Commission not to approve the proposed rule change without
increasing the number of issuers.\126\ This commenter believed that a
single issuer representative is insufficient to represent the broad
spectrum of issuers in the municipal market, and stated that
``[w]ithout issuers, none of the other parties would exist, and because
of this, the voice of the issuer community is essential to ensure
robust capital formation within the parameters of the MSRB's regulatory
regime.'' \127\
---------------------------------------------------------------------------

    \125\ See GFOA Letter; Issuer Organizations Letter; NAMA Letter.
    \126\ See GFOA Letter at 2.
    \127\ See GFOA Letter at 1. See also NAMA Letter at 2 (stating
that ``the issuer community is extremely diverse and should be well
and better represented on the Board to allow for the different ways
that issuers approach the capital markets''); Issuer Organizations
Letter at 1 (describing the diverse range of issuers and urging the
Board to require at least two issuer representatives to ``ensure
that issuer voices are heard and utilized by the MSRB in its
rulemaking, management of the EMMA system, and municipal market
educational efforts'').
---------------------------------------------------------------------------

    In the Notice of Filing, in response to similar comments on the
RFC, the MSRB noted that although the proposed rule change does not
include amendments that would change the number of required issuer
representatives on the Board, the Board modified the plan described in
the RFC for transitioning immediately to a 15-member Board in the next
fiscal year in order to avoid being left with only one issuer
representative for that year.\128\ The MSRB stated that it did so
because it agreed with commenters on the RFC that operating with only
one issuer is a particularly undesirable result in fiscal year 2021 in
light of the effects of the COVID-19 pandemic on municipalities and the
municipal securities market more generally.\129\ Accordingly, the MSRB
stated that it determined to specify an interim Board size of 17
members in the first year of its transition to the reduced Board size
of 15 members, which will allow the Board the benefit of a second
issuer representative in fiscal year 2021.\130\ At the same time, based
on its experience with the current Board composition requirements, the
MSRB stated that it continues to believe that maintaining the status
quo as it relates to Board composition as closely as possible with the
smaller Board size remains appropriate and will continue to assure fair
representation.\131\
---------------------------------------------------------------------------

    \128\ See MSRB Response Letter at 9. See also Notice of Filing,
85 FR at 37977.
    \129\ See MSRB Response Letter at 9.
    \130\ Id.
    \131\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change,
the comment letters received, and the MSRB Response Letter. The
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the MSRB.
    In particular, the Commission believes that the proposed rule
change is consistent with the provisions of Section 15B(b)(1) of the
Act,\132\ which provides:
---------------------------------------------------------------------------

    \132\ 15 U.S.C. 78o-4(b)(1).

    The Municipal Securities Rulemaking Board shall be composed of
15 members, or such other number of members as specified by rules of
the Board pursuant to paragraph (2)(B), which shall perform the
duties set forth in this section. The members of the Board shall
serve as members for a term of 3 years or for such other terms as
specified by rules of the Board pursuant to paragraph (2)(B), and
shall consist of (A) 8 individuals who are independent of any
municipal securities broker, municipal securities dealer, or
municipal advisor, at least 1 of whom shall be representative of
institutional or retail investors in municipal securities, at least
1 of whom shall be representative of municipal entities, and at
least 1 of whom shall be a member of the public with knowledge of or
experience in the municipal industry (which members are hereinafter
referred to as ``public representatives''); and (B) 7 individuals
who are associated with a broker, dealer, municipal securities
dealer, or municipal advisor, including at least 1 individual who is
associated with and representative of brokers, dealers, or municipal
securities dealers that are not banks or subsidiaries or departments
or divisions of banks (which members are hereinafter referred to as
``broker-dealer representatives''), at least 1 individual who is
associated with and representative of municipal securities dealers
which are banks or subsidiaries or departments or divisions of banks
(which members are hereinafter referred to as ``bank
representatives''), and at least 1 individual who is associated with
a municipal advisor (which members are hereinafter referred to as
``advisor representatives'' and, together with the broker-dealer
representatives and the bank representatives, are referred to as
``regulated representatives''). Each member of the board shall be
knowledgeable of matters related to the municipal securities
markets. Prior to the expiration of the terms of office of the
members of the Board, an election shall be held under rules adopted
by the Board

(pursuant to subsection (b)(2)(B) of this section) of the members to
---------------------------------------------------------------------------
succeed such members.

    In addition, the Commission believes that the proposed rule change
is consistent with the provisions of Section 15B(b)(2)(B) of the
Act,\133\ which provides that the MSRB's rules shall:
---------------------------------------------------------------------------

    \133\ 15 U.S.C. 78o-4(b)(2)(B).

establish fair procedures for the nomination and election of members
of the Board and assure fair representation in such nominations and
elections of public representatives, broker dealer representatives,
bank representatives, and advisor representatives. Such rules--
    (i) shall provide that the number of public representatives of
the Board shall at all times exceed the total number of regulated
representatives and that the membership shall at all times be as
evenly divided in number as possible between public representatives
and regulated representatives;
    (ii) shall specify the length or lengths of terms members shall
serve;
    (iii) may increase the number of members which shall constitute
the whole Board, provided that such number is an odd number; and
    (iv) shall establish requirements regarding the independence of
public representatives.

    Furthermore, the Commission believes that the proposed rule change
is consistent with the provisions of Section 15B(b)(2)(I) of the
Act,\134\ which provides that the MSRB's rules shall:
---------------------------------------------------------------------------

    \134\ 15 U.S.C. 78o-4(b)(2)(I).

provide for the operation and administration of the Board, including
the selection of a Chairman from among the members of the Board, the
compensation of the members of the Board, and the appointment and
compensation of such employees, attorneys, and consultants as may be
necessary or appropriate to carry out the Board's functions under
---------------------------------------------------------------------------
this section.

    MSRB Rule A-3 defines a public representative as independent if the
public representative has ``no material business relationship'' with a
regulated entity. An individual has no material business relationship
with a regulated entity, under MSRB Rule A-3, if the individual has not
been associated with a regulated entity for a two-year period. The
Commission believes that the Board's determination to increase this
period of time to five years, in order to further enhance the
independence of public representatives, is consistent with Section
15B(b)(2)(B)(iv) of the Exchange Act with respect to the requirement
for the Board to ``establish requirements regarding the independence of
public representatives.'' \135\
---------------------------------------------------------------------------

    \135\ 15 U.S.C. 78o-4(b)(2)(B)(iv).
---------------------------------------------------------------------------

    Section 15B(b)(1) of the Exchange Act \136\ provides that the Board
``shall be composed of 15 members, or such other number of members as
specified by rules of the Board pursuant to paragraph (2)(B). . . .''
and consist of eight public representatives and seven regulated
representatives. The Board having previously increased its size, in
accordance with Section 15B(b)(2)(B) of the Exchange Act,\137\ after
the enactment of the Dodd-Frank Act, has determined that it is now
appropriate to return to the size specified in the Exchange Act. The
Commission believes that returning to a 15-member Board consisting of
eight public representatives and seven regulated representatives would
be consistent with Section 15B(b)(1) of the Exchange Act.\138\
---------------------------------------------------------------------------

    \136\ 15 U.S.C. 78o-4(b)(1).
    \137\ 15 U.S.C. 78o-4(b)(2)(B).
    \138\ 15 U.S.C. 78o-4(b)(1).
---------------------------------------------------------------------------

    Section 15B(b)(2)(B) of the Exchange Act \139\ requires MSRB Rules
to ``establish fair procedures for the nomination and election of
members of the Board and assure fair representation in such nominations
and elections of public representatives, broker dealer representatives,
bank representatives, and advisor representatives.'' The proposed rule
change would maintain, as closely as possible on a 15-member Board, the
existing balance of representation among regulated representatives and
includes no changes relating to the representation of public
representatives. The Commission believes that requiring representation
of municipal advisors not associated with a dealer greater than the
statutory minimum and maintaining as nearly as possible the current
balance between municipal advisor representatives and dealer
representatives continues to assure fair representation of regulated
entities on the Board and therefore is consistent with Section
15B(b)(2)(B) of the Exchange Act.\140\ In addition, the Commission
believes that the amendment that would add an explicit requirement that
Board members be ``individuals of integrity'' to codify existing Board
practice of seeking individuals of integrity in nominating and electing
Board members is consistent with Section 15B(b)(2)(B) of the Exchange
Act.\141\
---------------------------------------------------------------------------

    \139\ 15 U.S.C. 78o-4(b)(2)(B).
    \140\ Id.
    \141\ Id.
---------------------------------------------------------------------------

    The proposed rule change includes a plan for transitioning the
Board from 21 members to 15 members, with an interim year with a 17-
member Board composed of nine public representatives and eight
regulated representatives and with extensions to a limited number of
terms for Board members to change the structure of the Board's member
classes. The Commission believes that the amendment establishing the
17-member Board is consistent with Section 15B(b)(2)(B)(iii) of the
Exchange Act,\142\ which permits the Board to increase the statutorily
specified 15-member Board, provided that the number of members is an
odd number, and is also consistent with Section 15B(b)(2)(B)(i) of the
Exchange Act,\143\ which requires the number of public representatives
to at all times exceed the number of regulated representatives and the
membership to at all times be as evenly divided in number as possible
between public representatives and regulated representatives.
Furthermore, the Commission believes that the amendments that provide
for a limited number of term extensions, to include a fifth year of
service, for Board members are consistent with Section 15B(b)(2)(B)(ii)
of the Exchange Act,\144\ which requires the Board to ``specify the
length or lengths of terms members shall serve.'' Finally, the
Commission believes that the transition plan is consistent with Section
15B(b)(2)(I) of the Exchange Act,\145\ which requires MSRB rules to
``provide for the operation and administration of the Board,'' in that
the plan would serve to administer the Board transition process in a
manner intended to minimize risks of disruption to MSRB governance,
programs and operations.
---------------------------------------------------------------------------

    \142\ 15 U.S.C. 78o-4(b)(2)(B)(iii).
    \143\ 15 U.S.C. 78o-4(b)(2)(B)(i).
    \144\ 15 U.S.C. 78o-4(b)(2)(B)(ii).
    \145\ 15 U.S.C. 78o-4(b)(2)(I).
---------------------------------------------------------------------------

    The proposed rule change includes amendments that would impose a
six-year limit on Board service intended to increase the rate at which
new members will join the Board, thereby more regularly refreshing the
perspectives the Board may draw upon in carrying out its mission. The
Commission believes that this amendment is consistent with Section
15B(b)(2)(B) of the Exchange Act,\146\ which requires the Board to
establish fair procedures for the nomination and election of members of
the Board and ``specify the length or lengths of terms members shall
serve,'' by promoting broader participation in Board membership and
specifying the overall length of service permitted.
---------------------------------------------------------------------------

    \146\ 15 U.S.C. 78o-4(b)(2)(B).
---------------------------------------------------------------------------

    The proposed rule change includes amendments that the MSRB
describes as removing overly-prescriptive detail from the Board's rule
regarding nominations and elections, while preserving the key features
of the process, as further

described above. The Commission believes that the amendments to these
provisions providing for the operation and administration of the Board
are consistent with Exchange Act Sections 15B(b)(2)(B) and (I),\147\
which require the Board's rules to establish fair procedures for the
nomination and election of members and provide for the operation and
administration of the Board.
---------------------------------------------------------------------------

    \147\ 15 U.S.C. 78o-4(b)(2)(B), (I).
---------------------------------------------------------------------------

    Amendments to MSRB Rule A-6 would codify existing MSRB rule and
policy requirements that the chairs of Board committees with
responsibilities for nominations, governance, and audit must be public
representatives. As an administrative and operational matter, the Board
has established a number of standing committees as well as special
committees when appropriate. The Commission believes that the MSRB's
determination to codify that such committees be chaired by public
representatives is consistent with Section 15B(2)(I) of the Exchange
Act \148\ to provide for the operation and administration of the Board.
---------------------------------------------------------------------------

    \148\ 15 U.S.C. 78o-4(b)(2)(I).
---------------------------------------------------------------------------

    The proposed rule change includes certain organizational and
technical changes to MSRB Rule A-3 which make no substantive changes to
these fair procedures but merely improve the rule's readability.
Accordingly, the Commission believes that these amendments are
consistent with Exchange Act Section 15B(b)(2)(B).\149\
---------------------------------------------------------------------------

    \149\ 15 U.S.C. 78o-4(b)(2)(B).
---------------------------------------------------------------------------

    The proposed rule change includes an amendment that would provide
that a Board member is disqualified from further service if his or her
change in employment or other circumstances would result in the Board's
noncompliance with the requirements in Exchange Act Section 15B(b)(1)
\150\ for Board composition, and provides procedures for the Board to
determine whether to retain a member if a member's change in employment
or other circumstances does not result in disqualification under the
Board's composition requirements. The Commission believes the amendment
allows the Board to remain in compliance with its statutory composition
requirement and to preserve the balance of Board categories on the
Board that it establishes each year when it elects new members, and
therefore is consistent with Exchange Acts Section 15B(b)(1) \151\ and
15B(b)(2)(B).\152\
---------------------------------------------------------------------------

    \150\ 15 U.S.C. 78o-4(b)(1).
    \151\ 15 U.S.C. 78o-4(b)(1).
    \152\ 15 U.S.C. 78o-4(b)(2)(B).
---------------------------------------------------------------------------

    In approving the proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation.\153\ Section 15B(b)(2)(C) of the
Act \154\ 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 proposed rule change relates only to the
administration of the Board and would not impose requirements on
dealers, municipal advisors or others. Accordingly, the Commission does
not believe that the proposed rule change would result in any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Exchange Act.
---------------------------------------------------------------------------

    \153\ 15 U.S.C. 78c(f).
    \154\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    As noted above, the Commission received five comment letters on the
filing. The Commission believes that the MSRB, through its responses,
has addressed commenters' concerns. For the reasons noted above, the
Commission believes that the proposed rule change is consistent with
the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\155\ that the proposed rule change (SR-MSRB-2020-04) be, and
hereby is, approved.
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    \155\ 15 U.S.C. 78s(b)(2).

    For the Commission, pursuant to delegated authority.\156\
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    \156\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17454 Filed 8-10-20; 8:45 am]
BILLING CODE 8011-01-P