[Federal Register Volume 85, Number 122 (Wednesday, June 24, 2020)]
[Notices]
[Pages 37974-37986]
[FR Doc No: 2020-13535]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89092; File No. SR-MSRB-2020-04]

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

June 18, 2020.
    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 June 5, 2020, 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
consisting of amendments to MSRB Rules A-3 and A-6 (the ``proposed rule
change'') that are designed to improve Board governance. As described
below, the draft amendments would:
     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;
     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;
     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;
     Impose a six-year limit on Board service;
     Remove overly prescriptive detail from the description of
the Board's nominations process while preserving in the rule the key
substantive requirements;
     Require that any Board committee with responsibilities for
nominations, governance, or audit be chaired by a public
representative; and
     Make certain other reorganizational and technical changes.

The effective date for the proposed rule change will be October 1,
2020. The current versions of MSRB Rules A-3 and A-6 would remain
applicable in the interim period between SEC approval and the effective
date.
    The Board previously issued a Request for Comment on potential
changes to MSRB Rule A-3 (the ``RFC'').\3\ The proposed rule change
reflects the Board's consideration of the comments it received, which
are discussed below, along with the Board's responses.
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    \3\ 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 proposed rule change includes
certain reorganizational and technical changes that were not
included in the RFC, as described herein.
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    The text of the proposed rule change is available on the MSRB's
website at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2020-Filings.aspx, 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
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.'' \4\ 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 \5\ or municipal advisor (``public representatives'') and
individuals who must be associated with a dealer or municipal advisor
(``regulated representatives'').\6\ 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.'' \7\
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    \4\ Exchange Act Section 15B(b)(2)(B), 15 U.S.C. 78o-4(b)(2)(B).
    \5\ As used herein, the term ``dealer'' refers to a broker,
dealer, or municipal securities dealer.
    \6\ Exchange Act Section 15B(b)(1), 15 U.S.C. 78o-4(b)(1).
    \7\ Exchange Act Section 15B(b)(1), 15 U.S.C. 78o-4(b)(1);
Exchange Act Section 15B(b)(2)(B)(iv), 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. 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.\8\
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    \8\ Exchange Act Section 15B(b)(1), 15 U.S.C. 78o-4(b)(1).
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    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. 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. 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.\9\
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    \9\ See Exchange Act Section 15B(b)(2)(B)(i), 15 U.S.C. 78o-
4(b)(2)(B)(i).
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    Since the enactment of the Dodd-Frank Act, the Board has elected
public representatives with a range of backgrounds and experience. 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. In most years, municipal entity
representation on the Board has exceeded the statutory minimum. The
Board has also required, either by rule or by policy, that committees
responsible for nominations, governance and audit be chaired by a
public representative.
    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.'' \10\ 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. 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.\11\ 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.\12\
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    \10\ Exchange Act Section 15B(b)(1), 15 U.S.C. 78o-4(b)(1);
Exchange Act Section 15B(b)(2)(B)(iii), 15 U.S.C. 78o-
4(b)(2)(B)(iii).
    \11\ MSRB Rule A-3 provides that these municipal advisors may
not be associated with dealers.
    \12\ See 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).
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    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. In recent years, the Board has been conducting a retrospective
review of its existing rules and related interpretations designed to
ensure that they continue to serve their intended purposes and reflect
the current state of the municipal securities market.\13\
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    \13\ See, e.g., MSRB Notice 2019-04 (Feb. 5, 2019).
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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.\14\ In
January 2020, the Board published the RFC to solicit comment on changes
to MSRB Rule A-3,\15\ and the proposed rule change reflects the Board's
consideration of the comments it received. These comments are discussed
in the Board's Statement on Comments on the Proposed Rule Change
Received from Members, Participants, or Others (``Statement on Comments
Received'') below, along with the Board's responses.
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    \14\ 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.
    \15\ After the Board 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 are
included in the proposed rule change, as described herein.
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Independence Standard
    As noted above, the Exchange Act requires the Board to establish by
rule ``requirements regarding the independence of public
representatives.'' \16\ In 2010, the Board amended MSRB Rule A-3 to
define 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. The Board defined the term ``no material business
relationship'' to mean, at a minimum, that:
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    \16\ Exchange Act Section 15B(b)(2)(B)(iv), 15 U.S.C. 78o-
4(b)(2)(B)(iv).
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     The individual is not, and within the last two years was
not, associated with a dealer or municipal advisor; \17\ and
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    \17\ The Board further provided, in a policy revision in fiscal
year 2019, that an individual who has been employed by a regulated
entity within the prior three years does not qualify as a public
representative due to a ``material business relationship.'' Once the
amendment to MSRB Rule A-3 extending the separation period to five
years is effective, this policy will be eliminated.
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     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.
    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.

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.
    The Board continues to believe, as it noted in the RFC, 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. At the same time, as discussed more fully in the Statement on
Comments Received, after considering comments on the RFC, the Board
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.\18\
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    \18\ See 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.\19\
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    \19\ Exchange Act Section 15B(b)(1), 15 U.S.C. 78o-4(b)(1);
Exchange Act Section 15B(b)(2)(B), 15 U.S.C. 78o-4(b)(2)(B).

As discussed above, the Board amended MSRB Rule A-3 to expand the size
of the Board to 21 members in 2010 in order to provide additional
flexibility in achieving balance among its members and to broaden the
range of Board-member perspectives as it sought to implement the Dodd-
Frank Act.
    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.\20\ 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 a new type of regulated entity--i.e., municipal advisors--that
rulemaking activity is now complete. Thus, the Board 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.
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    \20\ 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.
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    The Board 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. As discussed further in the
Statement on Comments Received, 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. Although there will be fewer Board members, the Board
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.
Board Composition
    As discussed above, when it established the 21-member Board, the
MSRB required that municipal advisor representation be greater than the
statutory minimum. Specifically, the Board provided in MSRB Rule A-3:

    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.

Along with the increased Board size, 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.
    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. As discussed further in
the Statement on Comments Received, after considering comments on the
RFC, the Board 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. 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. Specifically, the
draft 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, very close to the 30% representation
currently required. 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 does not believe
imposing a minimum larger than two is in the public interest.
Member Qualifications
    MSRB Rule A-3 tracks the Exchange Act requirement that all Board
members must be knowledgeable of matters related to the municipal
securities markets. 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. 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. The Board 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.
Transition Plan to Reduced Board Size
    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.
    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 will meet
the Board composition requirements set out in the proposed rule change.
As discussed more fully in the Statement on Comments Received, however,
the Board has determined to change the transition plan described in the
RFC so that as included in the proposed rule change the Board size will
be 17 members for fiscal year 2021, which begins on October 1, 2020.
Although the Board 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 is persuaded by
commenters 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. 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.
    Like the transition plan included in the RFC, 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. 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.
    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.
    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.
    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.
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.'' \21\ Since 2016, MSRB Rule A-3 has provided
for four-year terms and prohibited 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. The six-year maximum service provision would
effectively limit a Board member to one complete four-year term.
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.
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    \21\ Exchange Act Section 15B(b)(1), 15 U.S.C 78o-4(b)(1).
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    Based on its experience, the Board 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. The six-year lifetime limit is intended to
enhance these benefits by increasing the rate at which new members will
join the Board.
    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. 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. 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.
    Finally, MSRB Rule A-3(d) 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. 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.\22\
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    \22\ As discussed below, the proposed rule change also includes
amendments to MSRB Rule A-3 to reorganize the rule so that topics
are presented in a more logical order. 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
    MSRB Rule A-3 includes a detailed description of the composition,
responsibilities and processes of the Board's Nominating and Governance
Committee. The proposed rule change includes amendments to MSRB Rule A-
3 that would preserve the key features of this important Board
committee while removing overly prescriptive detail that could be
provided instead, and the Board believes more appropriately, in
governing documents such as committee charters and Board policies. The
Board believes these amendments will enhance the Board's flexibility to
respond efficiently to changes in circumstances.
    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. 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. The Board believes that moving these
requirements relating to committee composition to a more logical
location will improve transparency by making Board requirements easier
to find.
    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 Board believes has
become antiquated. 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.'' 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. 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.
Public Representative Committee Chairs
    As discussed above, the Board believes it should retain
administrative flexibility to design and from time to time change its
committee structure. The proposed rule change would enable the Board to
establish its committee structure through governance mechanisms such as
charters and policies. The MSRB 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.
    The Board 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. 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 Board believes this
requirement should be included in the Board's rules, rather than only
in a Board policy. 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.
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 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.
MSRB Rule A-3 Organization
    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. 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.
Although none of these changes is substantive, they should make it
easier for interested persons to find and understand relevant MSRB
requirements.
Board Member Changes in Employment and Other Circumstances
    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.
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, 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. 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.
    The proposed rule change would include the substance of this policy
in MSRB Rule A-3(c), with minor updates. Specifically, new subsection
(c)(ii) would provide that:
     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.

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.
2. Statutory Basis
    The MSRB has adopted the proposed rule change pursuant to Sections
15B(b)(1) and (2) of the Exchange Act.
    Section 15B(b)(1) of the Act \23\ provides:
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    \23\ 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.

    Section 15B(b)(2)(B) of the Act \24\ provides that the MSRB's rules
shall:
---------------------------------------------------------------------------

    \24\ 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.
    Section 15B(b)(2)(I) of the Exchange Act \25\ provides that the
MSRB's rules shall:
---------------------------------------------------------------------------

    \25\ 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.
Statutory Basis for Amendments Related to Independence Standard
    The proposed amendments to MSRB Rule A-3 that would increase the
two-year separation period in the definition of ``no material business
relationship'' to five years are consistent with Section
15B(b)(2)(B)(iv) of the Act,\26\ which requires the Board to
``establish requirements regarding the independence of public
representatives.'' As discussed above, 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. For the reasons described above
and in the Statement on Comments Received below, the Board has
determined to increase this period of time to five years, in order to
further enhance the independence of public representatives. For these
reasons, the amendments are ``requirements regarding the independence
of public representatives'' and therefore consistent with Section
15B(b)(2)(B)(iv) of the Exchange Act.\27\
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78o-4(b)(2)(B)(iv).
    \27\ Id.
---------------------------------------------------------------------------

Statutory Basis for Amendments Related to Board Size
    The proposed amendments to MSRB Rule A-3 that would return the
Board to its original size of 15 members are consistent with Section
15B(b)(1) of the Exchange Act,\28\ which 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. As described above, the Board increased its size, in
accordance with Section 15B(b)(2)(B) of the Exchange Act,\29\ after the
enactment of the Dodd-Frank Act. For the reasons described above, the
Board believes it is now appropriate for the Board to return to the
size specified in the Exchange Act. The 15-member Board would, as
required by the Section 15B(b)(1) of the Exchange Act,\30\ consist of
eight public representatives and seven regulated representatives.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78o-4(b)(1).
    \29\ 15 U.S.C. 78o-4(b)(2)(B).
    \30\ 15 U.S.C. 78o-4(b)(1).
---------------------------------------------------------------------------

Statutory Basis for Amendments Related to Board Composition
    The amendments relating to Board composition are consistent with
Section 15B(b)(2)(B) of the Exchange Act,\31\ which 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.'' As discussed
above, 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 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. Accordingly, the Board
believes that the amendments related to Board composition are
consistent with Section 15B(b)(2)(B) of the Exchange Act.\32\
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78o-4(b)(2)(B).
    \32\ Id.
---------------------------------------------------------------------------

Statutory Basis for Amendments Related to Member Qualifications
    The amendment that would add an explicit requirement that Board
members be ``individuals of integrity'' is consistent with Section
15B(b)(2)(B) of the Exchange Act,\33\ which requires the Board to
``establish fair procedures for the nomination and election of members
of the Board.'' Although the Board has always sought individuals of
integrity in nominating and electing Board members, the Board believes,
as described above, that adding this provision to the rules it has
adopted for nominating and electing Board members is appropriate to
further convey to the public the seriousness with which the Board takes
those responsibilities.
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

Statutory Basis for Amendments Related to Transition Plan
    The amendments that would provide for a transition plan that
includes an interim year with a 17-member Board and extend a limited
number of terms for Board members to change the structure of the
Board's member classes are consistent with Sections 15B(b)(2)(B) and
(I) of the Exchange Act.\34\ The amendment establishing the 17-member
Board is consistent with Section 15B(b)(2)(B)(iii) of the Exchange

Act,\35\ which permits the Board to increase the statutorily specified
15-member Board, provided that the number of members is an odd number.
It is also consistent with Section 15B(b)(2)(B)(i) of the Exchange
Act,\36\ 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. In accordance
with those requirements, the amendments provide that a 17-member Board
would include nine public representatives and eight regulated
representatives.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78o-4(b)(2)(B), (I).
    \35\ 15 U.S.C. 78o-4(b)(2)(B)(iii).
    \36\ 15 U.S.C. 78o-4(b)(2)(B)(i).
---------------------------------------------------------------------------

    The amendments that provide for a limited number of term extensions
for Board members are consistent with Section 15B(b)(2)(B)(ii) of the
Exchange Act,\37\ which requires the Board to ``specify the length or
lengths of terms members shall serve.'' Providing in the transition
plan that a limited number of Board members' terms will include a fifth
year serves the purpose of specifying the length or lengths of Board
members' terms.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78o-4(b)(2)(B)(ii).
---------------------------------------------------------------------------

    Finally, the transition plan is also consistent with Section
15B(b)(2)(I) of the Exchange Act,\38\ which requires MSRB rules to
``provide for the operation and administration of the Board.'' The
primary purpose of the transition plan is administrative in nature.
Specifically, the plan is intended to transition the Board from 21
members to 15 members in an orderly manner that minimizes any risk of
disruption to MSRB governance, programs and operations.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78o-4(b)(2)(I).
---------------------------------------------------------------------------

Statutory Basis for Amendments Related to Terms
    The amendments that would impose a six-year limit on Board service
are consistent with Section 15B(b)(2)(B) of the Exchange Act,\39\ 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.'' As discussed above, the six-year limit is
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. Accordingly, the limit is a fair
procedure for the nomination and election of Board members. The limit
also serves the purpose of specifying ``the length or lengths of terms
members shall serve,'' as required by Section 15B(b)(2)(B)(ii) of the
Exchange Act.\40\
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78o-4(b)(2)(B).
    \40\ 15 U.S.C. 78o-4(b)(2)(B)(ii).
---------------------------------------------------------------------------

Statutory Basis for Amendments to Board Nominations and Elections
Provisions
    The amendments that remove overly-prescriptive detail from the
Board's rule regarding nominations and elections, while preserving the
key features of the process, are consistent with Exchange Act Sections
15B(b)(2)(B) and (I),\41\ 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. As discussed above,
the amendments would remove references in MSRB rules to a ``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. Accordingly, these provisions, as amended, will remain
fair procedures for the nomination and election of members. The
amendments to these provisions also provide for the operation and
administration of the Board because they permit the Board additional
flexibility to determine its committee structure through Board charters
and policies, and to determine the most appropriate methods of
providing notice that the Board is soliciting applicants for membership
in light of available technology and media.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78o-4(b)(2)(B), (I).
---------------------------------------------------------------------------

Statutory Basis for Amendments Requiring Public Representative
Committee Chairs
    The amendments that would codify in MSRB Rule A-6 existing MSRB
rule and policy requirements that the chairs of Board committees with
responsibilities for nominations, governance, and audit must be public
representatives is consistent with Section 15B(2)(I) of the Exchange
Act,\42\ which requires MSRB rules to provide for the operation and
administration of the Board. As an administrative and operational
matter, the Board has established a number of standing committees as
well as special committees when appropriate. Determining the
appropriate leadership and composition of these committees is the type
of activity contemplated by Section 15B(2)(I) of the Exchange Act,\43\
which recognizes that the Board will establish internal operational and
administrative requirements and, in some instances, will do so by rule.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78o-4(b)(2)(I).
    \43\ Id.
---------------------------------------------------------------------------

Statutory Basis for Reorganizational and Technical Amendments
    As discussed above, the proposed rule change includes certain
organizational and technical changes to MSRB Rule A-3. The amendments
that change the rule's title and reorganize the content to present the
topics in a more logical order are consistent with Section 15B(b)(2) of
the Exchange Act,\44\ which requires the Board 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.'' MSRB Rule A-3 establishes the Board's
fair procedures for, and assures fair representation in, the nomination
and election of Board members. The organizational and technical
amendments make no substantive changes to these fair procedures but
merely improve the rule's readability. Accordingly, these amendments
are consistent with Exchange Act Section 15B(b)(2).\45\
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78o-4(b)(2).
    \45\ Id.
---------------------------------------------------------------------------

    The amendment that includes in MSRB Rule A-3 the substance of the
Board's policy on Board member changes of employment or other
circumstances is consistent with Exchange Act Section 15B(b)(1),\46\
which imposes certain Board composition requirements, and Exchange Act
Section 15B(b)(2)(B),\47\ which, as discussed above, requires the
Board's rules to assure fair representation in the nomination and
election of Board members. As discussed above, this amendment 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) \48\ for Board composition, including the requirements that
the majority of the Board be public representatives and that the Board
be as

evenly divided in number as possible between public and regulated
representatives. Accordingly, this amendment is consistent with
Exchange Act Section 15B(b)(1).\49\ Additionally, this amendment would
provide that 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.
This provision allows the Board to preserve the balance of Board
categories on the Board that it carefully establishes each year when it
elects new members. Accordingly, the amendment is designed to assure
fair representation in Board nominations and elections and is
consistent with Exchange Act Section 15B(b)(2)(B).\50\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78o-4(b)(1).
    \47\ 15 U.S.C. 78o-4(b)(2)(B).
    \48\ 15 U.S.C. 78o-4(b)(1).
    \49\ Id.
    \50\ 15 U.S.C. 78o-4(b)(2)(B).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 15B(b)(2)(C) of the Exchange Act requires that MSRB rules
not be designed to impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\51\ 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 MSRB 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.
---------------------------------------------------------------------------

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

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

    On January 28, 2020, the Board issued the RFC, which sought comment
on the matters included in the proposed rule change, other than the
reorganizational and technical changes described above, for a period of
60 days. On March 23, 2020, the Board extended the comment period for
an additional 30 days in light of the impact of the COVID-19 pandemic
and in response to requests from market participants. The Board
received 11 comment letters. These comments, along with the Board's
responses, are discussed below.
Independence Standard
    In the RFC, the Board sought comment on draft amendments that would
increase the separation period for public representatives to five
years. Of the nine commenters that expressed a view, three supported
the increase to five years.\52\ Two of these commenters believed that
the Board should enhance what one described as the ``broad public
interest perspective'' \53\ that public representatives bring to the
Board. Another expressed concern that individuals who have spent most
of their careers working for regulated entities could become public
representatives after only a two year break, and stated that Board
members representing issuers should have spent the vast majority of
their careers as issuers.\54\ Two commenters also believed that the
Board is not applying the requirement for public members to have ``no
material business relationship'' with a regulated entity strictly
enough and that some public members are employed in positions in which,
as one described it, ``a vast majority of their work is spent
interacting and doing business directly with regulated parties.'' \55\
---------------------------------------------------------------------------

    \52\ See Letter from Susan Gaffney, Executive Director, National
Association of Municipal Advisors to Ronald Smith, Corporate
Secretary, MSRB (Apr. 29, 2020) (``NAMA Letter''); Letter from Emily
Swenson Brock, Director, Federal Liaison Center, Government Finance
Officers Association to Ronald Smith, Corporate Secretary, MSRB
(Apr. 29, 2020) (``GFOA Letter''); Letter from Americans for
Financial Reform Education Fund to Ronald Smith, Corporate
Secretary, MSRB (Apr. 29, 2020) (``AFR Letter''). One commenter
supported an increase to the separation period but did not suggest
how long the period should be. See Letter from Steve Apfelbacher,
Renee Boicourt, Marianne Edmonds, Robert Lamb, Nathaniel Singer, and
Noreen White to Ronald Smith, Corporate Secretary, MSRB (Apr. 29,
2020) (``Former Board Members Letter''). Another supported an
increase to the separation period but believed five years was
excessive and recommended three years. See Letter from Beth Pearce,
President, National Association of State Auditors, Comptrollers and
Treasurers to Ronald Smith, Corporate Secretary, MSRB (Apr. 30,
2020) (``NASACT Letter'').
    \53\ See NAMA Letter; see also AFR Letter (stating that the
change to a five-year separation period ``would make a difference in
shifting Board membership to more effectively represent the public
interest and we strongly support it'').
    \54\ See GFOA Letter.
    \55\ See id.; see also AFR Letter (stating that an employee of a
bond insurer, for example, should be viewed as having a material
business relationship with regulated entities).
---------------------------------------------------------------------------

    Commenters that supported increasing the separation period to five
years generally believed that doing so would not decrease the pool of
individuals qualified to serve as public representatives. One suggested
that the Board currently interprets the statutory requirement that one
public representative be a ``member of the public with knowledge of or
experience in the municipal industry'' \56\ too narrowly, and that the
standard should include ``those persons who have a depth of knowledge
about the ways in which municipal issuers or investors interact with
regulated entities in practice as well as persons that have expertise
representing the public interest in any market or governmental finance
context.'' \57\ Another believed that the Board currently interprets
the statutory standard that all Board members be ``knowledgeable of
matters related to the municipal securities markets'' \58\ too narrowly
and that the standard should include academics, employees of issuers
who have never worked for banks, community and labor activists, and
others.\59\
---------------------------------------------------------------------------

    \56\ Exchange Act Section 15B(b)(1), 15 U.S.C. 78o-4(b)(1).
    \57\ See NAMA Letter.
    \58\ Exchange Act Section 15B(b)(1), 15 U.S.C. 78o-4(b)(1).
    \59\ See AFR Letter.
---------------------------------------------------------------------------

    Five commenters opposed increasing the separation period to five
years.\60\ These commenters generally believed that doing so would
decrease the pool of candidates with the requisite knowledge of matters
related to the municipal securities market \61\ and was unnecessary.
Commenters believed that five years away from the industry was too long
given the complexity of, and rapid pace of changes to, the municipal
market for an individual to serve effectively as a ``member of the
public with knowledge of or experience in the municipal industry,''
\62\ one of the three required categories of public
representatives.\63\ Commenters also

noted that the current two-year separation period is longer than those
applicable to public members of other SROs \64\ and the post-employment
restrictions for former federal government officials.\65\
---------------------------------------------------------------------------

    \60\ See Letter from Nicole Byrd, Chair, National Federation of
Municipal Analysts to Ronald Smith, Corporate Secretary, MSRB (Apr.
29, 2020) (``NFMA Letter''); Letter from Dorothy Donohue, Deputy
General Counsel--Securities Regulation, Investment Company Institute
to Ronald Smith, Corporate Secretary, MSRB (Apr. 15, 2020) (``ICI
Letter''); Letter from Leslie M. Norwood, Managing Director and
Associate General Counsel, and Bernard V. Canepa, Vice President and
Assistant General Counsel, Securities Industry and Financial Markets
Association to Ronald Smith, Corporate Secretary, MSRB (Apr. 29,
2020) (``SIFMA Letter''); NASACT Letter (stating that some increase
to the separation period is necessary but that five years is too
long and recommending a three-year period); Letter from Mike
Nicholas, Chief Executive Officer, Bond Dealers of America to Ronald
Smith, Corporate Secretary, MSRB (Apr. 29, 2020) (``BDA Letter'').
    \61\ In addition, one commenter that viewed addressing public
perceptions of a lack of independence as sufficiently important to
justify increasing the separation period (but did not specify an
optimal length) also believed that it would reduce the pool of
qualified applicants. See Former Board Members Letter.
    \62\ Exchange Act Section 15B(b)(1), 15 U.S.C. 78o-4(b)(1).
    \63\ See, e.g., NASACT Letter (stating that ``[w]ith almost
continual changes in the municipal securities market, an extended
absence from the industry may prevent continuity of the appropriate
level of knowledge for effective service on a regulatory board'').
    \64\ See BDA Letter; SIFMA Letter.
    \65\ See ICI Letter.
---------------------------------------------------------------------------

    Some commenters also took issue with the rationale the Board
provided in the RFC for extending the separation period to five years
and believed that the Board had not adequately supported the need for
the increase.\66\ One disagreed with the Board's assertion in the RFC
that a longer separation period could better avoid any appearance of a
conflict of interest,\67\ while another stated that a longer separation
period would fail to satisfy those who believe that there is a
revolving door between the MSRB and the industry but would reduce the
Board's access to eligible candidates.\68\
---------------------------------------------------------------------------

    \66\ See, e.g., id. (stating that ``[o]ther than a vague comment
that `some commentators have questioned whether a two-year
separation period is sufficiently long,' the MSRB has offered no
explanation for extending the period beyond two years''). In the
RFC, the Board explained that it was ``considering whether a longer
separation period would enhance the independence of public
representatives who have prior regulated entity associations and
better avoid any appearance of a conflict of interest without
significantly decreasing the pool of individuals with sufficient
municipal market knowledge to serve effectively as public
representatives.'' RFC, at 6.
    \67\ See BDA Letter.
    \68\ See SIFMA Letter.
---------------------------------------------------------------------------

    After considering these comments, the Board determined to include
an amendment to MSRB Rule A-3 in the proposed rule change that would
extend the separation period to five years. Although the Board
continues to believe, as it stated in the RFC, 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, the
Board also believes that a five-year separation period would further
enhance not only independence in fact but also the appearance of
independence. This 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.
    Comments on the RFC suggested to the Board that although 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. The Board
believes that increasing the length of the separation period should
address the perception held by some stakeholders that public
representatives are not sufficiently independent. Although the Board
understands concerns expressed by commenters that the longer separation
period would decrease the pool of qualified public representatives, the
Board's experience seeking and electing new Board members each year
suggests that there is a sufficient number of qualified potential Board
members that would meet this standard. The Board notes that although
prior experience working for a regulated entity is permitted by the
Exchange Act for public members, it is explicitly not required.\69\
Contrary to the suggestion of some commenters, the Board does not view
experience working for a regulated entity as a prerequisite for Board
membership and public representatives may gain the required municipal
market knowledge in any number of ways.
---------------------------------------------------------------------------

    \69\ In addition to requiring one public member who is an issuer
representative and one who is an investor representative, the
Exchange Act requires that one public member must have ``knowledge
of or experience in the municipal industry'' (emphasis added). The
Exchange Act is silent with regard to industry experience as a
qualification for the other public members.
---------------------------------------------------------------------------

    The Board also does not agree with commenters who suggested that
the independence of the Board's public representatives has, in fact,
been compromised, nor does it believe that it has incorrectly applied
the requirement in MSRB Rule A-3 that public representatives have ``no
material business relationship'' with a regulated entity. In
particular, the Board has had many years of experience applying this
standard and disagrees that the routine business interactions of a
Board member's employer with other market participants, without more,
would constitute a material business relationship within the meaning of
MSRB Rule A-3. Indeed, the Board's issuer representatives--a
statutorily required category of public representative--would be
disqualified under such a reading of the requirement.
Board Size
    The RFC sought comment on whether the Board should reduce its size
to 15 members, the number specified in the Exchange Act.\70\ Two
commenters supported the reduction and one opposed it, while others
expressed some concerns or offered recommendations should the Board
move forward with it. Commenters that supported the change believed
that 21 members is too large,\71\ that a smaller Board would be more
manageable,\72\ and that the larger Board size, implemented after the
Dodd-Frank Act, was no longer necessary now that significant Dodd-Frank
Act related rulemaking has been completed.\73\ One commenter that
supported the change to a 15-member Board expressed concern that the
necessary rule changes would not be completed by October and suggested
the Board wait until fiscal year 2022, beginning on October 1, 2021, to
implement the change, in light of the COVID-19 pandemic, and begin
recruiting new Board members for fiscal year 2021 immediately.\74\
---------------------------------------------------------------------------

    \70\ See Section 15B(b) of the Exchange Act, 15 U.S.C. 78o-4(b)
(providing that the Board ``shall be composed of 15 members, or such
other number of members as specified by rules of the Board'').
    \71\ See BDA Letter.
    \72\ See SIFMA Letter.
    \73\ See id.
    \74\ See BDA Letter. In addition, one commenter stated that the
Board should wait to make the changes described in the RFC until a
new CEO is selected rather than presenting the new CEO with ``a fait
accompli.'' See NFMA Letter. Because the CEO reports to the Board,
the Board does not agree that waiting to make changes until a new
CEO is selected is necessary or would be appropriate.
---------------------------------------------------------------------------

    One commenter opposed reducing the Board's size to 15 members,
particularly in light of other draft amendments in the RFC that would
impose a term limit and lifetime service cap.\75\ This commenter
believed that the reduction would narrow the range of perspectives
available to the Board, making it less effective.\76\ Other commenters
acknowledged that a smaller Board would be easier to manage,\77\ and
may reduce costs,\78\ but expressed concerns that the Board would lose
expertise or limit the range of viewpoints represented.\79\
---------------------------------------------------------------------------

    \75\ See NFMA Letter.
    \76\ See id.
    \77\ See NAMA Letter.
    \78\ See NASACT Letter.
    \79\ See id.; NAMA Letter. In addition, one commenter stated
that reducing the size of the Board ``would result in one Board seat
available to an active issuer, thus diminishing and diluting
critical issuer voices on the Board.'' See Letter from Shaun Snyder,
Executive Director, National Association of State Treasurers to
Ronald Smith, Corporate Secretary, MSRB (Apr. 29, 2020) (``NAST
Letter''); see also GFOA Letter (expressing concern that next year's
Board would include only one issuer representative); NAMA Letter
(expressing concern that there would be a reduction in Board members
from the issuer side of a transaction).
---------------------------------------------------------------------------

    After considering these comments, the Board continues to believe
that returning to the original size of 15 members set in the Exchange
Act is appropriate and will enable the Board to more efficiently carry
out its mission to

protect investors, municipal entities, obligated persons and the public
interest, and to promote a fair and efficient municipal securities
market. As some commenters noted, a smaller Board size should result in
management efficiencies. A smaller Board may also be able to respond
more quickly and flexibly to market developments requiring an immediate
response. Although Board member compensation and expenses do not
account for a substantial portion of the overall MSRB budget, a Board
with fewer members will result in some reduction of costs as well.
    At the same time, the Board is cognizant of the risk raised by some
commenters who expressed concern that a reduction in Board size could
limit the range of viewpoints represented. The Board takes great care
through its annual nominations and elections process 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 viewpoints and perspectives. Through this process, the Board will
continue to seek and elect candidates that reflect the wide range of
backgrounds and experiences within each of the statutorily required
Board member categories.
    The Board also believes that fiscal year 2021, which begins on
October 1, 2020, is the most appropriate year to effect the reduction
in Board size, notwithstanding the ongoing pandemic. Rather, delaying
the reduction for a year and instead seeking to fill six Board
vacancies for fiscal year 2021 with appropriately qualified candidates
would be more disruptive to MSRB governance, operations and programs in
light of the travel and other logistical difficulties presented by the
ongoing pandemic. As discussed more fully below, however, the Board
agrees with commenters who expressed concern that an immediate
reduction to 15 members would leave the Board with only one issuer
representative in fiscal year 2021. Although the Board always strives
to exceed the minimum required number of issuer representatives, it
will be of particular importance in fiscal year 2021 in light of the
ongoing effects of the pandemic on municipalities and the municipal
securities market more generally. Accordingly, the Board has revised
the transition plan proposed in the RFC to provide for an interim
transition year with 17 members in fiscal year 2021, which will enable
the Board to include a second issuer representative.
Board Composition
    In the RFC, the Board sought comment on whether, if the Board's
size were reduced, the Board should replace the requirement that 30% of
regulated members be municipal advisor representatives with a
requirement that the Board include at least two municipal advisor
representatives. In addition, the Board sought comment on whether it
should permit--but not require--one municipal advisor representative to
be associated with a dealer, provided that the dealer does not engage
in underwriting the public distribution of municipal securities.\80\
MSRB Rule A-3 currently provides that the required municipal advisor
representatives may not be associated with a dealer.
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    \80\ Although some commenters stated that they would not object
to permitting one municipal advisor representative to be associated
with a dealer that does not engage in underwriting the public
distribution of municipal securities under certain conditions not
contemplated in the RFC, no commenter supported it as described in
the RFC. As discussed below, the Board has determined to maintain,
as closely as possible, the status quo with respect to Board
composition on a 15-member Board and, accordingly, has not included
this provision in the proposed rule change.
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    With respect to the number of municipal advisor representatives,
two commenters generally supported requiring at least two municipal
advisor representatives, with one suggesting that two municipal advisor
representatives ``among the seven regulated representatives should
provide appropriate knowledge and representation to the Board.'' \81\
Two commenters believed that the rule should require only the statutory
minimum of one municipal advisor.\82\ One noted that the Exchange Act
requires only at least one municipal advisor representative and stated
that reserving additional slots for municipal advisor representatives
is unnecessary now that municipal advisors have been regulated for
nearly 10 years.\83\ The other commented that reserving two seats for
municipal advisor representatives would give municipal advisors
disproportionate representation on the Board because the number of
licensed municipal advisors and those that support them is ``a mere
fraction'' of the ``tens of thousands of [dealer employees] who are
licensed to transact in municipal securities.'' \84\ This commenter
also noted ``that dealers are also subject to the whole gambit of the
MSRB's rulebook for the broad range of activities they engage in and
they pay the majority of the MSRB's fees.'' \85\
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    \81\ See NASACT Letter.
    \82\ See SIFMA Letter; BDA Letter.
    \83\ See BDA Letter.
    \84\ See SIFMA Letter.
    \85\ See id.
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    Three commenters believed that at least three municipal advisor
representatives should be required.\86\ These commenters generally
believed that due to the diverse nature of the municipal advisor
community, at least three municipal advisor representatives are
necessary to assure sufficient representation, particularly in light of
current policy discussions that affect municipal advisors. Two cited an
MSRB letter from 2011,\87\ in which the Board explained the need for
the 30% requirement in the context of a 21-member board by stating that
while the Board had made progress in developing rules for municipal
advisors, its work was not complete and that ``over the years, it will
continue to write rules that govern the conduct of municipal advisors
and provide interpretive guidance on those rules, just as it has over
the years for broker-dealers since it was created by Congress in
1975.'' \88\ Another stated that since municipal advisors have a
fiduciary duty to their issuer clients, sufficient municipal advisor
representation is necessary in light of what it perceived to be a
reduction in representation of those on the issuer side of a
transaction.\89\
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    \86\ See Letter from Kim M. Whelan and Noreen P. White, Co-
Presidents, Acacia Financial Group, Inc. to Ronald Smith, Corporate
Secretary, MSRB (Apr. 29, 2020) (``Acacia Letter''); Former Board
Members Letter; NAMA Letter.
    \87\ See Letter from Lawrence P. Sandor, Senior Associate
General Counsel, MSRB, to Elizabeth Murphy, Secretary, SEC (Sept.
19, 2011), available at https://www.sec.gov/comments/sr-msrb-2011-11/msrb201111-4.pdf.
    \88\ See Former Board Members Letter; Acacia Letter.
    \89\ See NAMA Letter.
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    After considering the comments on the municipal advisor composition
requirement, the Board determined to include in the proposed rule
change an amendment to MSRB Rule A-3 that would require that at least
two regulated representatives be associated with and representative of
municipal advisors and not be associated with dealers. This requirement
will preserve, as closely as possible, the status quo regarding Board
composition as the Board moves to a 15-member Board. Specifically, two
municipal advisor representatives among seven regulated representatives
will constitute 28.6% of the regulated representatives, as compared to
the 30% that is currently required. Three municipal advisors, which the
Board believes is too many, would constitute 42.9%.
    In determining to require at least two municipal advisor
representatives, the

Board carefully considered the comments of those who believed that only
at least one should be required and those who believed that at least
three should be required. The Board continues to believe, as it noted
in the RFC, that, in light of the broad range of municipal advisors
subject to MSRB regulation, it will serve the MSRB's regulatory mission
to require municipal advisor representation greater than the statutory
minimum. At the same time, a blanket requirement that at least three of
seven regulated members must be municipal advisor representatives would
be disproportionate to the required number of dealer and bank dealer
representatives. The Board notes that two municipal advisor
representatives is a minimum number and not a limit.
    Finally, although the Board did not seek comment on changes to
board composition requirements other than those described above related
to municipal advisors, some commenters noted their continued support
for issuer representation on the Board that is greater than the one
required position. One commenter acknowledged that in recent years the
Board had incorporated its suggestion for issuer representation beyond
the one required position, but expressed concern that in the first
fiscal year after a reduction in size there will be only one issuer
representative.\90\ Another urged the Board to consider changing its
rules or policies to specify a minimum number of seats for issuer
representatives and reserving one for a small issuer representative and
another for a representative of a state 529 plan.\91\
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    \90\ See GFOA Letter (suggesting that the public representatives
on a 15-member Board should consist of three issuer representatives,
three investor representatives, and two members of the public with
knowledge of or experience in the municipal industry).
    \91\ See BDA Letter; see also NAST Letter (stating that ``the
MSRB should continue to prioritize the inclusion of a State
Treasurer on the Board at all times, but should also include
additional active issuers, including those from local governments
and other issuer entities'').
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    Although the proposed rule change does not include amendments that
would change the number of required issuer representatives on the
Board, the Board agrees with commenters that issuer representation
beyond the statutory minimum is important to achieving a balanced Board
and, in most years, the Board has included more than one issuer
representative. As noted above, if the Board were to transition to 15
members in the next fiscal year, the Board would be left with only one
issuer representative for that year. Although circumstances may arise
that require the Board to operate with only one issuer representative
in a given year, the Board agrees with commenters that this 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. Accordingly, as discussed above, the
Board 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.
Board Member Qualifications
    In the RFC, the Board stated that in order to further convey to the
public the seriousness with which the Board conducts its elections and
bolster public confidence in its processes, it believed codifying in
its rules the requirement that members be individuals of integrity was
appropriate. One commenter supported this proposal and asked the Board
to provide details on how it would determine that a prospective Board
member possessed the necessary integrity.\92\
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    \92\ See BDA Letter.
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    The Board continues to believe that adding the express requirement
is appropriate and has included this amendment to MSRB Rule A-3 in the
proposed rule change. As explained in the RFC, the Board has
consistently sought candidates of demonstrated personal and
professional integrity. The purpose of the amendment is to further
convey to the public the seriousness with which the Board conducts its
elections and bolster public confidence in its process. The Board 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.
Transition Plan
    The RFC sought comment on a transition plan that would involve
granting one-year term extensions to four public representatives and
two regulated representatives over a three-year period. The four
commenters who commented on the plan generally believed the plan was
appropriate.\93\ One commenter stated that transparency should be a
priority in implementing the transition plan.\94\
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    \93\ See SIFMA Letter; BDA Letter; NAMA Letter; NASACT Letter.
    \94\ See NASACT Letter.
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    As discussed above, the proposed rule change includes the
transition plan described in the RFC, but adjusted to provide that in
the first transition year the Board will have 17 members. That
adjustment will be achieved by granting one-year extensions to an
additional public representative and an additional regulated
representative, in order to comply with the requirements that the Board
size be an odd number and that the Board be as evenly divided in number
as possible between public and regulated representatives.
    The Board agrees that transparency in connection with the
transition plan is an important consideration and has included the
details of the plan above for that reason. As noted above, the Board
will determine extensions pursuant to the plan each year in conjunction
with its annual nominations and elections process, when that process
resumes in fiscal year 2021, so that candidates for extensions and new
candidates may be considered holistically. Candidates for the one-year
extensions will have already been evaluated by the Board once before,
when they were first nominated for a Board term.
Terms
    In the RFC, the Board sought comment on draft amendments that would
remove the current maximum of two consecutive terms, provide that a
Board member could serve for a total of no more than six years, and
prohibit a Board member who had reached the six-year limit from
returning to the Board, even after a period away. In response, the
Board received four comments supporting the six-year limit described in
the RFC.\95\ These commenters generally agreed that the limit would
serve to refresh the perspectives available to the Board. One commenter
opposed replacing the two consecutive term limit with a six-year cap
and stated that, in light of the proposal to extend the separation
period, ``there needs to be a level of comfort that the caliber and
quantity of historical applications will continue in the future.'' \96\
Some commenters requested further clarification about when a Board
member would receive an additional two years.\97\
---------------------------------------------------------------------------

    \95\ See BDA Letter; GFOA Letter; NAMA Letter; NASACT Letter.
    \96\ See NFMA Letter.
    \97\ See NAMA Letter; NFMA Letter.
---------------------------------------------------------------------------

    Two commenters specifically agreed with the proposal to impose a
lifetime limit on Board service, and generally believed that there is a
wide range and large number of applicants that could be considered for
Board service.\98\ In

contrast, two commenters opposed the lifetime cap. One believed that a
former Board member might be the best candidate among applicants and
that it would be disadvantageous to disqualify him or her ``because of
an arbitrary lifetime service limit.'' \99\ This commenter suggested
that an alternative to the lifetime service limit could be to establish
a separation period before a former Board member could return. Another
commenter who opposed the lifetime limit suggested that an
``alternative to achieve the MSRB's stated goals might be to prohibit a
Board member from serving in the same class as his or her previous
term.'' \100\
---------------------------------------------------------------------------

    \98\ See NAMA Letter; GFOA Letter.
    \99\ See NFMA Letter.
    \100\ See SIFMA Letter.
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    After considering these comments, the Board determined to include
the six-year service limit in the proposed rule change. The Board
agrees that there is a wide range of potential candidates for Board
service and that regularly refreshing the perspectives available to the
Board assists the Board in carrying out its mission to protect
investors, municipal entities, obligated persons and the public
interest, and to promote a fair and efficient municipal securities
market.
    As described above, although one four-year term would be the norm
under the proposed rule change, Board members would be eligible to
serve for an additional two years as necessary for the Board to fill
expeditiously a vacancy that arises in the middle of a Board member's
term. In such circumstances, the Board sometimes chooses to fill such a
vacancy for a short period of time by re-appointing a sitting Board
member to serve for the remainder of the term of the Board member whose
departure created the vacancy or electing a recently departed former
Board member who has already been through the extensive nominations and
elections process and will be familiar with matters then before the
Board, rather than leaving the vacancy unfilled until a more
exhaustive, but time-consuming, search for a new Board member can be
completed. The proposed rule change would permit the Board to continue
to do so, provided that no Board member's total time on the Board
exceeds six years.
Amendments to Board Nominations and Elections Process
    The RFC sought comment on amendments to MSRB Rule A-3 that would
preserve the essential features of the nominations and elections
process but remove overly prescriptive detail, such as the specific
requirement for a ``nominations and governance committee.'' One
commenter agreed that allowing for flexibility to determine such
matters by policy rather than rulemaking would be more effective and
resilient.\101\ One commenter did not believe there was a need to
reduce the detailed requirements in the rule but stated that it would
not object if key issues were addressed in policies, provided the
policies were publicly available.\102\ Another similarly stated that it
did not object to the Board preserving flexibility to determine
committee structure through policies and charters, but that to preserve
transparency the reasons for any changes should be available on the
Board's website.\103\
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    \101\ See NASACT Letter.
    \102\ See NAMA Letter (also suggesting that the Board consider
reviewing and potentially revising policies on term extensions and
conflicts of interest and the code of ethics as part of a public
process).
    \103\ See NFMA Letter.
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    After considering these comments, the Board determined to remove
the prescriptive detail in MSRB Rule A-3, as described in the RFC. As
noted in the RFC, the substantive provisions, such as the requirements
that the committee responsible for nominations have a public
representative majority and be chaired by a public representative,
would remain in the Board's rules.\104\ The Board also notes that key
policies of interest to stakeholders, including the Code of Ethics and
Business Conduct, the Conflicts of Interest Policy, and the
Whistleblower Policy and Complaint Handling Procedures, are all
available to the public on the Board's website.\105\
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    \104\ In the RFC, the Board noted that it was reconsidering, and
sought commenters' views on, the requirement that the Board make
available on its website the names of all applicants who agreed to
be considered by the nominations committee. Four commenters believed
this requirement should be retained for purposes of transparency,
while one supported not publishing the names but making them
available to individuals upon request, also in the interest of
transparency. The Board did not include any change to the existing
requirement in the proposed rule change.
    \105\ These policies and procedures are available at http://www.msrb.org/About-MSRB/Governance.aspx.
---------------------------------------------------------------------------

Committee Public Representative Chairs
    The RFC sought comment on whether the Board should include in MSRB
rules a requirement that a public representative chair the Board
committees responsible for governance, nominations, and audit. One
commenter wrote in support of these provisions and the proposed rule
change includes an amendment to MSRB Rule A-6 that incorporates
them.\106\
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    \106\ See NFMA Letter.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period of up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please
include File Number SR-MSRB-2020-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.

All submissions should refer to File Number SR-MSRB-2020-04. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for

inspection and copying at the principal office of the MSRB. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2020-04 and should be
submitted on or before July 15, 2020.

    For the Commission, pursuant to delegated authority.\107\
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    \107\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13535 Filed 6-23-20; 8:45 am]
BILLING CODE 8011-01-P