In particular, as stated above, the Commission is mindful of the
programmatic, assessment, registration, and recordkeeping costs
associated with the municipal advisor regulatory regime.
1. Broad Economic Considerations
a. Benefits of the Final Rules and Forms
    The Commission believes that the final rules and forms should
result in a number of benefits, including those discussed throughout
this economic analysis. As discussed below, the Commission has sought
to subject to the municipal advisor regulatory regime those persons
that should be regulated as municipal advisors in light of the purposes
of the Dodd-Frank Act to regulate those persons that engage in
municipal advisory activities. The final rules and forms should
increase the amount of publicly available information about municipal
advisors and enhance the ability of securities regulators to oversee
municipal advisors.
    The permanent registration regime will increase the amount of
information available about municipal advisors relevant to the
baseline.\1700\ The forms will require municipal advisors to provide
information about their businesses, including disciplinary histories
and potential conflicts of interest (as well as information that may be
useful in assessing conflicts of interest), beyond what is required to
be disclosed on Form MA-T. Although much of the additional information
required by Form MA is already publicly available with respect to
municipal advisors that are already registered with the Commission as
investment advisers or broker-dealers, many municipal advisors that are
not registered with the Commission will make this type of information
publicly available for the first time.\1701\ In addition, while
municipal advisors are required to disclose disciplinary history for
some associated persons on Form MA-T, municipal advisors will be
required to disclose on Form MA disciplinary history for all associated
persons.\1702\
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    \1700\ As discussed below, the permanent registration regime
will also impose registration and recordkeeping costs on municipal
advisors. See infra Section VIII.D.3-4.
    \1701\ For example, little is currently known about solicitors,
and disciplinary histories and conflicts of interest about many
solicitors will be disclosed for the first time.
    \1702\ Form MA-T requires disclosure of disciplinary information
of a subgroup of associated persons who are closely associated with
a municipal advisor's municipal advisory activities (i.e., those who
are primarily engaged in a municipal advisor's municipal advisory
activities, have supervisory responsibilities over those primarily
engaged in municipal advisory activities, are engaged in day-to-day
management of the conduct of a municipal advisor's municipal
advisory activities, or are responsible for executive management of
the municipal advisor).
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    To the extent municipal entities and obligated persons consider
disciplinary history and conflict of interest information important in
selecting a municipal advisor, the permanent registration regime may
reduce selection of municipal advisors that have been the subject of
disciplinary actions or whose activities or affiliations create, or
have the potential to create, conflicts of interest. Moreover,
municipal advisors, knowing that more-detailed disciplinary history
must now be disclosed, may be further incentivized to avoid engaging in
misconduct (or may exit the market).\1703\ In addition, municipal
advisors, knowing that conflicts of interest must now be disclosed, may
also be more likely to avoid associations that create conflicts of
interest or may be more likely to avoid recommending financial
intermediaries or investments for which conflicts of interest might be
present. The increased dissemination of information regarding
disciplinary history and conflicts of interest may lead to improved
quality-based competition among municipal advisors to the extent
municipal advisors rely on this information in the municipal advisor
selection process.
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    \1703\ As discussed below, the Commission is unable to estimate
the number of municipal advisors that have exited the market due to
the temporary registration regime or that will exit the market due
the permanent registration regime because Form MA-T does not require
a municipal advisor withdrawing from registration from Form MA-T to
indicate the reasons for withdrawal. See infra Section VIII.D.1.b.
As a result of the requirement that municipal advisors disclose
disciplinary histories, those municipal advisors that may
discontinue activity in the market may include disproportionately
more municipal advisors with disciplinary records. Further, such
public disclosure may deter municipal advisors that have significant
disciplinary histories from entering the market.
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    The Commission also believes that the permanent registration regime
will enhance the ability of the Commission and other regulators to
oversee the conduct of municipal advisors, as contemplated by the Dodd-
Frank Act, which could increase the willingness of municipal entities
and obligated persons to utilize municipal advisors.\1704\ The
Commission staff will review applications for registration and by order
grant registration or the Commission will institute proceedings

to determine whether registration should be denied.\1705\ Because Rule
15Ba1-2 provides that both Form MA and Form MA-I constitute a
``report'' within the meaning of Sections 15B(c), 17(a), 18(a), 32(a)
(15 U.S.C. 78o-4(c), 78q(a), 78r(a), 78ff(a)) and other applicable
provisions of the Exchange Act, it is unlawful for a municipal advisor
to willfully make or cause to be made, a false or misleading statement
of material fact or omit to state a material fact in Form MA and Form
MA-I. The Commission believes that a municipal advisor's knowledge of
the Commission's authority to examine the municipal advisor and to
sanction the municipal advisor for false and misleading statements
could help ensure the reliability of the information submitted by
municipal advisors under the permanent registration regime, which could
increase the willingness of municipal entities and obligated persons to
utilize municipal advisors.
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    \1704\ See also infra notes 1758-1759 and accompanying text.
    \1705\ See 78 U.S.C. 78o-4(a)(2).
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    In addition, the Commission's examination staff will be able to use
the information provided in Form MA and Form MA-I as a tool to
prioritize and plan examinations. By securing information regarding
municipal advisors through EDGAR, relative to the baseline, Commission
staff should be able to more efficiently retrieve and analyze the data
it needs to carry out its mission with respect to municipal advisory
activities effectively, such as by identifying potentially violative
activities and risky municipal advisory firms.\1706\ Moreover, Rule
15Ba1-8 will assist the Commission in evaluating a municipal advisory
firm's compliance with Section 15B of the Exchange Act,\1707\ rules and
regulations promulgated thereunder, and MSRB rules. By requiring that
municipal advisory firms maintain specific types of information, the
final rules will enhance the ability of regulators to perform more-
efficient inspections and examinations and increase the likelihood of
identifying improper conduct at earlier stages in an inspection or
examination. In addition, municipal advisory firms may benefit from
recordkeeping practices developed pursuant to the requirements of Rule
15Ba1-8 by having their operations interrupted for shorter time periods
in response to inspections or examinations.
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    \1706\ In addition, municipal entities, obligated persons, and
other market participants will be able to perform their own analyses
using EDGAR and provide some market monitoring. Information
submitted on Form MA and Form MA-I will be tagged in XML format,
which may improve the Commission staff's ability to retrieve and
analyze data. In addition, tagging information in XML format could
allow municipal entities and obligated persons to perform better
research into municipal advisors, which could help improve
efficiency if this increased monitoring results in greater market
discipline of municipal advisors.
    \1707\ 15 U.S.C. 78o-4.
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    The requirement that a non-resident municipal advisor file Form MA-
NR and obtain an opinion of counsel in connection with the municipal
advisor's initial application, as well as annual updates to Form MA-NR
and the opinion of counsel, will also help to enhance the Commission's
oversight of non-resident municipal advisors, which may promote the
willingness of municipal entities and obligated persons to utilize
municipal advisors. The Commission believes that requiring Form MA-NR
and an opinion of counsel could improve the Commission's oversight of
municipal advisors by: minimizing any legal or logistical obstacles
that the Commission may encounter when attempting to effect service;
conserving Commission resources; and avoiding potential conflicts of
law. The requirement that a non-resident municipal advisory firm obtain
an opinion of counsel that it can provide access to books and records
and can be subject to inspection and examination will allow the
Commission to better evaluate and monitor a municipal advisory firm's
ability to meet the requirements of registration. These benefits will
be the same across all types of municipal advisor--municipal financial
advisors, municipal investment advisers, and solicitors.
    To the extent that the registration and recordkeeping requirements
result in more-effective examinations, the enhanced ability to monitor
municipal advisors could lead to increased efficiency relative to the
baseline. Enhanced oversight of municipal advisors due to the
registration and recordkeeping requirements could improve capital
formation relative to the baseline to the extent enhanced oversight
increases the willingness of municipal entities and obligated persons
to utilize municipal advisors, and municipal entities and obligated
persons, in turn, issue more debt or debt with better terms.\1708\ To
the extent that investors decide to make greater investments in the
municipal securities market, efficiency could increase as capital is
put to a more-efficient use.
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    \1708\ See infra notes 1830-1831 and accompanying text. Investor
willingness to invest in municipal bond offerings may increase to
the extent that the municipal entity issuing bonds used a municipal
advisor and investors understand and consider the benefits of
municipal advisor registration.
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b. Potential Changes to the Municipal Advisor Market
    The Commission recognizes that the final rules and forms may result
in changes to the municipal advisor market. As discussed below,
municipal advisors will incur programmatic costs as a result of the
statutory municipal advisor regulatory regime.\1709\ In addition,
municipal advisors will incur the registration and recordkeeping costs
that result from the final rules and forms.\1710\ The Commission
recognizes that, as a result of these costs, municipal advisors may
decide to exit the market, consolidate with other firms, or pass the
costs on to municipal entities and obligated persons in the form of
higher fees.
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    \1709\ See infra Section VIII.D.2. The Commission expects that
the costs and benefits resulting from the statutory municipal
advisory regulatory regime will likely accrue primarily at the
programmatic level, and that many of these costs are accounted for
in the baseline. See supra Sections VIII.C.1.
    \1710\ See infra Section VIII.D.3-4.
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    Some municipal advisors currently registered with the Commission
may decide to exit the market or reduce services provided to municipal
entities or obligated persons because of the costs associated with the
final rules and forms. One commenter believed that the Commission did
not address in the Proposal potential public costs from a reduction of
services to municipal entities.\1711\ While the Commission recognizes
that some municipal advisors may exit the market as a result of the
costs associated with the final rules and forms relative to the
baseline, the Commission believes municipal advisors may exit the
market for a number of reasons, including business reasons separate
from reasons involving the costs associated with the final rules and
forms. The Commission anticipates that some exits will result from
municipal advisors' unwillingness to disclose required information to
the Commission. The Commission believes that municipal advisors that
have been subject to past disciplinary actions may decide to exit the
market rather than disclose that information, and that the departure of
such ``bad actors'' could improve the quality of the market for
municipal advisory services and,

therefore, benefit municipal entities and obligated persons.\1712\
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    \1711\ See Financial Services Roundtable Letter (``Given the
burden of registering as a municipal advisor, particularly for a
small bank, we believe that there is a likelihood that smaller banks
that offer a few products to a small number of municipal entities
providing services in their communities would elect to discontinue
serving municipal entities.''). See also Public FA Letter; Ranson
Financial Consultants Letter.
    \1712\ The Commission recognizes that municipal advisors that
exit the market would lose any revenue that would have accrued from
providing municipal advisory services. Municipal entities and
obligated persons could benefit, however, from not having municipal
advisors who do not want to comply with the regulatory regime or
other bad actors in the market.
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    In addition, the costs associated with the final rules and forms
relative to the baseline may lead some municipal advisors to
consolidate with other municipal advisors, rather than exit the
market.\1713\ For example, some municipal advisors may determine to
consolidate with other municipal advisors in order to benefit from
economies of scale (e.g., by leveraging existing compliance resources
of a larger firm) rather than to incur separately the costs associated
with the final rules and forms.
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    \1713\ See, e.g., Public FA Letter (``The regulations imposed on
small firms like ours could be time consuming and costly enough to
either put us out of business or cause small firms to merge with
larger firms or to create larger firms.''); Ranson Financial
Consultants Letter (``Our options [in relation to compliance costs]
may include joining another firm or simply go out of business'').
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    The Commission, however, is unable to estimate the number of
municipal advisors that have exited the market or consolidated with
other firms as a result of the temporary registration regime because
Form MA-T does not require a municipal advisor withdrawing from
registration on Form MA-T to indicate the reasons for withdrawal.
Similarly, the Commission is unable to estimate the number of municipal
advisors that will exit the market or consolidate with other firms as a
result of the final rules and forms. In addition, the Commission is not
aware of any municipal advisors exiting the market or consolidating
with other firms as a result of the temporary registration regime.
    The Commission recognizes that some of the municipal advisors that
may exit the market could be small entity municipal advisors that exit
the market for financial reasons and that such exits from the market
may lead to a reduced pool of municipal advisors. In the Final
Regulatory Flexibility Analysis below, after comparing the estimated
registration costs with a small municipal advisory firm's annual
revenue, the Commission discusses alternatives considered to accomplish
the objectives of the permanent registration regime while minimizing
any significant adverse impact on small municipal advisors.\1714\ As
discussed in the Final Regulatory Flexibility Analysis, the
requirements under the final rules and forms are designed to impose
only those burdens necessary to accomplish the objectives of the Dodd-
Frank Act. In addition, as discussed below, the Commission believes
that the market for municipal advisory services is likely to remain
competitive despite the potential exit of municipal advisors, including
small entity municipal advisors.\1715\
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    \1714\ See infra Section IX.D.
    \1715\ See infra notes 1718-1723 and accompanying text.
---------------------------------------------------------------------------

    Some municipal advisors may pass the costs associated with the
rules and forms on to municipal entities and obligated persons in the
form of higher fees. For example, one commenter argued that the rules
will have economic costs that will either come out of the bottom lines
of firms or be passed along to municipal clients in the form of fee
increases.\1716\ Although commenters asserted that such costs could be
passed on to clients,\1717\ commenters did not provide specific
estimates, and the Commission does not have the information necessary
to provide a reasonable estimate of the extent to which municipal
advisors may pass costs on to clients given the lack of publicly
available information on municipal advisory fees.
---------------------------------------------------------------------------

    \1716\ See UFS Bancorp Letter. See also SIFMA Letter I.
    \1717\ See, e.g., SIFMA Letter I; UFS Bancorp Letter.
---------------------------------------------------------------------------

    The Commission believes that the market for municipal advisory
services is likely to remain competitive despite the potential exit of
municipal advisors, consolidation of municipal advisors, or lack of new
entrants into the market.\1718\ As discussed above, the Commission
estimates that approximately 100 new entrants to the market will
register on Form MA each year \1719\ and that approximately 30
municipal advisors will withdraw from Form MA registration each
year.\1720\ Because the Commission expects that new entrants to the
municipal advisor market will exceed departures therefrom, the
Commission does not expect exits from the market or consolidation of
municipal advisors to result in reduced competition.\1721\ In addition,
the level of competition in the existing markets for each type of
municipal advisor--municipal financial advisors, municipal investment
advisers, and solicitors--suggests, based on data available to the
Commission,\1722\ that exits from the market, consolidation, or lack of
new entrants into the market are unlikely to lead to market
concentration levels at which the remaining municipal advisors are able
to increase prices significantly.\1723\ Accordingly, the Commission
does not expect the departure of municipal advisors from the market to
result in a significant increase in the cost of municipal advisory
services.
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    \1718\ The Commission recognizes that the requirements to
register with the Commission and maintain certain books and records,
and the associated costs, will increase the burdens on those seeking
to enter the municipal advisor market, which may negatively impact
competition in the municipal advisor market.
    \1719\ See supra note 1470 and accompanying text.
    \1720\ See supra note 1531 and accompanying text.
    \1721\ The Commission does not expect an effect on capital
formation due to new entrants to the municipal advisor market or
from exits from the market.
    \1722\ As indicated above, as of December 31, 2012,
approximately 901 municipal advisors registered with the Commission
on Form MA-T were also registered with the MSRB, as they are
required prior to engaging in municipal advisory activities. See
supra note 1688 and accompanying text. With respect to municipal
advisors registered with the MSRB, approximately 682 were financial
advisors; 192 were guaranteed investment contract brokers or
advisors; 272 were placement agents; 159 were solicitors or finders;
246 were swap or derivative advisors; 135 were third-party
marketers; and 201 provided other services. See supra note 1694 and
accompanying text (discussing this data as well as similar MA-T
data).
    \1723\ As discussed above in the economic baseline, the
municipal advisor market is not highly concentrated. See supra
Section VIII.C.3. See also supra note 1694 and accompanying text
(discussing MSRB and MA-T data regarding services provided by
municipal advisors registered with the MSRB and the Commission).
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    In addition, the registration and recordkeeping costs should not
impact efficiency or capital formation because those costs are unlikely
to reduce the utilization of municipal advisors by municipal entities
and obligated persons. The Commission believes that any increase in
municipal advisory fees attributable to the registration and
recordkeeping costs of the permanent registration regime will be
minimal given the average cost per municipal advisory firm \1724\ and
the relatively small magnitude of these costs compared to the large
number of municipal entity issuers per municipal advisory firm. The
Commission recognizes, however, that for smaller municipal advisors
with fewer clients the registration and recordkeeping costs may
represent a greater percentage of annual revenues, and thus, such
advisors may be more likely to pass those costs along to clients.\1725\
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    \1724\ As discussed above, the Commission estimates that the
average cost per municipal advisory firm to register with the
Commission will be approximately $8,092. See infra note 1813 and
accompanying text.
    \1725\ See infra notes 1991-1998 and accompanying text.
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c. Assessment Costs
    Under the temporary registration regime, market participants may
have incurred costs to determine whether their business activities meet
the definition of municipal advisor or if a

statutory exclusion applies, and thus, whether registration with the
Commission as a municipal advisor and compliance with the requirements
imposed by Section 15B of the Exchange Act as well as rules established
by the MSRB was required.\1726\ Prior to the enactment of the Dodd-
Frank Act and the Commission's adoption of the temporary registration
regime, there were no assessment costs with respect to municipal
advisor regulation. The Commission received a number of comments in
connection with the 2010 interim temporary final rule seeking guidance
regarding the scope of the statutory definition of municipal advisor
and the statutory exclusions therefrom.\1727\
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    \1726\ See supra notes 1662-1669 and accompanying text.
    \1727\ See letters from Brad R. Jacobson, dated September 7,
2010; John J. Wagner, Kutak Rock LLP, dated September 28, 2010; Joy
A. Howard, Principal, WM Financial Strategies, received October 5,
2010; Steve Apfelbacher, President, National Association of
Independent Public Finance Advisors, received October 8, 2010; Amy
Natterson Kroll & W. Hardy Callcott, Bingham McCutchen LLP, on
behalf of the National Association of Energy Service Companies,
dated October 13, 2010; Carolyn Walsh, Vice-President and Senior
Counsel, Center for Securities, Trust and Investments, American
Bankers Association, Deputy General Counsel, ABA Securities
Association, dated October 13, 2010; and Leslie M. Norwood, Managing
Director and Associate General Counsel, Securities Industry and
Financial Markets Association, dated November 15, 2010.
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    In the Proposal, the Commission stated its belief that the direct
costs for respondents to read and apply the definitions in proposed
Rule 15Ba1-1(d) would be minimal.\1728\ The Commission received several
comments regarding the costs to interpret the proposed definition of
municipal advisor, proposed interpretations of the statutory
exclusions, and proposed exemptions.\1729\ One commenter asserted that
``given that Form MA and the related rules are new, . . . outside legal
fees could easily exceed $25,000 for a financial institution that
provides a variety of services to municipal clients.'' \1730\
---------------------------------------------------------------------------

    \1728\ See Proposal, 76 FR 873.
    \1729\ See, e.g., SIFMA Letter I; ACLI Letter; Financial
Services Roundtable Letter.
    \1730\ See Financial Services Roundtable Letter.
---------------------------------------------------------------------------

    Although the above comment appears to be directed at the
Commission's estimate of the costs to engage outside counsel in
connection with completing Form MA, the Commission recognizes that many
persons will incur assessment costs to determine whether registration
as a municipal advisor is required under the final rules. The
Commission, therefore, has reconsidered the direct costs for
respondents to read and apply the definitions in Rule 15Ba1-1(d). The
Commission recognizes that some market participants are likely to seek
legal counsel for interpretation of various aspects of the rule,
particularly to determine whether the market participant's business
activities meet the definition of municipal advisor or whether an
exclusion or exemption from the definition of municipal advisor is
available. The Commission believes that the assessment costs may vary
depending on the relevant facts and circumstances, including the
complexity of the market participant's business activities. The
Commission also now believes that for larger financial institutions
with more complex businesses the assessment costs could range up to
$25,500, as indicated by a commenter.\1731\
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    \1731\ See supra note 1730. The Commission believes that
different market participants will need to undertake different
analyses in relation to the definition of municipal advisor and
exclusions and exemptions therefrom. The estimate of assessment
costs is intended to include analysis of the exclusions and
exemptions, although the Commission separately discusses the impacts
of the interpretations of the exclusions and exemptions on
assessment costs below. See infra Section VIII.D.5-6 (discussing the
exclusions and exemptions).
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    The Commission does not have the information necessary to provide a
point estimate of the potential assessment costs because the Commission
believes the assessment costs associated with determining whether a
market participant is a municipal advisor under Section 15B of the
Exchange Act will vary. However, based on the Commission staff's
understanding of the industry and comments received,\1732\ the
Commission estimates that the costs associated with undertaking this
determination may range from $379 to $25,500.\1733\ The Commission
believes that many entities are clearly municipal advisors and that an
in-house attorney, without the assistance of outside counsel, could
make such a determination in one hour. If an entity's business is more
complex, the Commission estimates the assessment could require
approximately 25 hours of in-house counsel time and 40 hours of outside
counsel time.
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    \1732\ See supra note 1730.
    \1733\ The average cost incurred by market participants is based
on the estimated amount of time that the staff believes would be
required for both in-house counsel and outside counsel to assess
whether a market participant is a municipal advisor, as that term is
defined in Section 15B of the Exchange Act (15 U.S.C. 78o-4(e)(4))
and the final rules. For the calculation of the hourly rate for an
in-house attorney, see infra note 1779. The Commission estimates the
costs for outside legal services to be $400 per hour. For an
explanation of the outside counsel cost estimate, see supra note
1538. Accordingly, the Commission estimates the cost on the high end
of the range to be $25,475 ($9,475 (based on 25 hours of in-house
counsel time x $379) + $16,000 (based on 40 hours of outside counsel
time x $400). This estimate is rounded by two significant digits to
avoid the impression of false precision of the estimate. In
addition, as discussed below, the Commission estimates that the
average cost per municipal advisory firm to register with the
Commission will be $8,092. See infra note 1813.
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    The Commission believes that the assessment costs associated with
determining whether a person would be required to register as a
municipal advisor would be greater in the absence of the rules the
Commission is adopting today. The Commission believes the rules adopted
today provide extensive guidance to market participants and should
reduce the number of requests for no-action relief and other guidance
from the Commission or Commission staff, which, in turn, should lead to
lower assessment costs for many firms.
    In particular, to further facilitate market participants' analysis
of whether their activities would require them to register as a
municipal advisor, the Commission has adopted several definitions that
are consistent with existing regulatory definitions. For example, the
Commission is adopting a definition of obligated person \1734\ that is
generally consistent with Rule 15c2-12. This definition will provide
further protections for certain entities that participate in borrowing
in the municipal securities market, ensure uniformity among rules
relating to that market, and provide clearer guidance to market
participants. In addition, the consistency with Rule 15c2-12 will
likely reduce any confusion and, thus, may reduce the cost of
compliance by allowing advisors to more quickly and accurately
determine whether their clients are obligated persons. The Commission
also believes that the materiality standard for secondary market
disclosure in Rule 15c2-12 is an appropriate standard to identify those
obligated persons that should have the protections afforded by Section
15B of the Exchange Act.\1735\
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    \1734\ See supra Section III.A.1.b.iii.
    \1735\ Similarly, in response to commenters, the Commission is
providing exemptions from the definition of municipal advisor for
swap dealers that will apply the safe harbor requirements applicable
to the parties to such transactions under the existing CFTC
regulatory regime and, therefore, will apply consistent and
comparable protections to municipal entities and obligated persons
as under that regime. See Rule 15Ba1-1(d)(3)(v); supra Section
III.A.1.c.vi.
---------------------------------------------------------------------------

    Similarly, as discussed above, the Commission is adopting a
definition of ``proceeds of municipal securities'' that is similar to
the definition of proceeds for purposes of the arbitrage rules, except
that it applies to both taxable and tax-exempt municipal securities,
which should lead to lower assessment costs

for many firms.\1736\ Because the arbitrage rules are central to tax-
exempt municipal securities, the Commission believes that market
participants will be familiar with and able to understand easily the
scope of ``proceeds of municipal securities.'' \1737\ Further, the
Commission believes that the definition appropriately limits the time
and cost of compliance for a person to determine whether it must
register as a municipal advisor because if a person makes a reasonable
inquiry of a knowledgeable municipal entity or obligated person
official and is informed in writing that monies are not proceeds of
municipal securities, then absent reason to know otherwise, they are
not proceeds of municipal securities.\1738\ While municipal entities
and obligated persons generally already track proceeds of tax-exempt
municipal securities,\1739\ and thus, should not incur additional costs
in tracking such monies, municipal entities and obligated persons may
incur additional costs in tracking proceeds of taxable municipal
securities. However, the Commission believes that these costs will not
be substantial because municipal entities currently trace proceeds of
taxable bonds for non-tax purposes, such as for compliance with a bond
indenture or resolution.
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    \1736\ See supra text accompanying note 1733.
    \1737\ The Commission recognizes that some entities may not be
familiar with the arbitrage rules and, thus, that any benefits
recognized from the Commission's reliance on the arbitrage rules may
be reduced.
    \1738\ Similarly, the Commission is including a reasonable
inquiry qualification in the definition of ``municipal escrow
investments.'' See Rule 15Ba1-1(h)(2). See also notes 383-384 and
accompanying text.
    \1739\ See supra notes 361-362 and accompanying text.
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    The Commission also believes the interpretations of the statutory
exclusions adopted today should reduce assessment costs. For example,
the Commission has provided examples of activities outside the scope of
serving as an underwriter of municipal securities for purposes of the
underwriter exclusion.\1740\ Similarly, the Commission has clarified
the types of activities that would fall outside of the other statutory
exclusions.\1741\
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    \1740\ See supra Section III.A.1.c.iv.
    \1741\ For example, an investment adviser that provides advice
concerning whether and how to issue municipal securities; advice
concerning the structure, timing, and terms of issuances of
municipal securities and other similar matters; advice concerning
municipal derivatives; or a solicitation would need to register as a
municipal advisor. See Rule 15Ba1-1(d)(2)(ii); supra Section
III.A.1.c.v.
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2. Definition of Municipal Advisor and Related Terms
a. Programmatic, Registration, and Recordkeeping Costs and Benefits
    As discussed above, there are programmatic costs and benefits that
flow from the statutory municipal advisor regulatory regime. Given the
limitations on the Commission's ability to conduct a quantitative
assessment of the programmatic costs and benefits associated with the
definition of municipal advisor,\1742\ the Commission has considered
these costs and benefits primarily in qualitative terms.\1743\ In
addition, as discussed below, the Commission has quantified many of the
registration and recordkeeping costs that result from the final rules
and forms. Relying on the programmatic, registration, and recordkeeping
costs and benefits, the Commission believes it is possible to identify
those persons that, because of the activities in which they engage,
appear to be the types of persons for which the statutory requirements
of Section 975 of the Dodd-Frank Act were created.\1744\
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    \1742\ The Commission does not have the information necessary to
provide a reasonable estimate for many of the programmatic costs and
benefits, in particular when discussing increases in the willingness
of municipal entities and obligated persons to utilize municipal
advisors and improvements in investor protection. In general,
secondary data regarding the municipal advisory market that would
assist the Commission in producing quantitative analyses are largely
unavailable. Other than the academic papers cited in the Proposal
and this release, few studies on municipal securities have attempted
to undertake the efforts to collect such secondary data.
    \1743\ While commenters criticized this qualitative approach,
none provided or suggested sources of data that would facilitate a
quantitative analysis.
    \1744\ As indicated throughout this release, and as discussed
further below, the Commission is mindful of the programmatic,
registration, and recordkeeping costs and has adopted a definition
of municipal advisor intended to help minimize compliance burdens
consistent with the statutory objectives.
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    As previously stated, the statutory definition of municipal advisor
is broad and includes persons that traditionally have not been
considered to be municipal financial advisors.\1745\ The definition of
municipal advisor the Commission is adopting today is designed to
provide guidance that parties can use in determining whether
registration as a municipal advisor is required. In determining the
appropriate scope of the definition of municipal advisor, the
Commission considered what types of persons should be regulated as
municipal advisors in light of the purposes of the Dodd-Frank Act to
regulate persons that engage in municipal advisory activities, the
overall regulatory framework, and information currently available. The
Commission has therefore sought to adopt a definition of municipal
advisor that would capture those persons without imposing programmatic,
registration, and recordkeeping costs on persons for which regulation
currently may not be justified in light of the purposes of the Dodd-
Frank Act. The Commission believes that this approach should help
maximize the benefits provided by the municipal advisor regulatory
regime while minimizing costs imposed on market participants where
consistent with investor protection. Further, because the definition of
municipal advisor and related terms adopted today are consistent with
the definitions in Section 15B(e) of the Exchange Act and the purposes
of the Dodd-Frank Act,\1746\ the Commission believes that those persons
that currently meet the definition of municipal advisor under the final
rules and for which a statutory exclusion is not available should
already be registered with the Commission and the MSRB under the
temporary registration regime.
---------------------------------------------------------------------------

    \1745\ See supra note 1662.
    \1746\ With regard to terms that are not defined in Section
15B(e) of the Exchange Act, the Commission is defining those terms
in a manner consistent with the purposes of the Dodd-Frank Act to
regulate persons that engage in municipal advisory activities. See
15 U.S.C. 78o-4(e).
---------------------------------------------------------------------------

    As discussed in the PRA, the Commission estimates that
approximately 910 municipal advisory firms, including sole proprietors,
will register with the Commission under the permanent registration
regime.\1747\ In addition, the Commission anticipates that the
exemption for persons providing advice with respect to investment
strategies that are not plans or programs for the investment of
proceeds of municipal securities or the recommendation of and brokerage
of municipal escrow investments \1748\ could reduce the estimated
number of initial Form MA applicants. Likewise, the Commission
anticipates the additional exemptions adopted today could also reduce
the estimated number of initial Form MA applicants.\1749\
---------------------------------------------------------------------------

    \1747\ See supra note 1446 and accompanying text.
    \1748\ See Rule 15Ba1-1(d)(3)(vii).
    \1749\ See supra Section III.A.1.c.
---------------------------------------------------------------------------

    Because the Commission has interpreted the definition of municipal
advisor consistent with the statute, it believes that any differences
from the baseline with regard to the number of municipal advisors
required to register with the Commission should be minimal as those
persons should have already registered under the temporary registration
regime. In addition, any

differences from the baseline with regard to the programmatic costs and
benefits related to the statutory requirements and MSRB rules that are
currently operative should be minimal because they would have already
been incurred under the temporary registration regime.\1750\ Similarly,
the definition of municipal advisor adopted today should not impact
efficiency, competition, or capital formation relative to the baseline
because those market participants required to register under the
permanent registration regime should already be registered with the
Commission and the MSRB under the temporary registration regime and
complying with the requirements of Section 15B of the Exchange Act and
MSRB rules.\1751\
---------------------------------------------------------------------------

    \1750\ To the extent that the final rules provide guidance to
certain market participants that their activities do not cause them
to be municipal advisors, those persons would not incur the
programmatic costs that flow from the regulatory regime.
    \1751\ See supra Section VIII.C.
---------------------------------------------------------------------------

    As discussed above, a person that meets the statutory definition of
municipal advisor, and for which a statutory exclusion is not
available, is already required to register with the Commission on Form
MA-T and is subject to a series of programmatic costs.\1752\ These
programmatic costs include, among other things, those incurred to
comply with applicable provisions of Section 15B of the Exchange Act
and MSRB rules. Municipal advisors will continue to be subject to a
fiduciary duty to any municipal entity client and be prohibited from
engaging in any fraudulent, deceptive, or manipulative acts or
practices when providing advice to or on behalf of a municipal entity
or obligated person with respect to municipal financial products or the
issuance of municipal securities, or when undertaking a solicitation of
a municipal entity or obligated person.\1753\ Municipal advisors will
also continue to be subject to MSRB Rule G-17, which requires municipal
advisors to deal fairly with all persons and not engage in any
deceptive, dishonest, or unfair practice. In addition, municipal
advisors will still need to register with the MSRB and pay a $100
initial fee and a $500 annual fee.\1754\ Because the Commission is
adopting a definition of municipal advisor that is consistent with
Section 15B(e) of the Exchange Act,\1755\ the Commission believes
registered municipal advisors would have already incurred these costs
under the temporary registration regime. The Commission recognizes,
however, that municipal advisors may incur costs to meet standards of
training, experience, competence, and other qualifications, as well as
continuing education requirements, that the MSRB may establish in the
future.\1756\
---------------------------------------------------------------------------

    \1752\ As discussed below, the Commission is providing
exemptions from the definition of municipal advisor for persons
engaged in certain activities.
    \1753\ See 15 U.S.C. 78o-4(c)(1). See also supra note 1666 and
accompanying text.
    \1754\ See MSRB Rule A-12; and MSRB Rule A-14.
    \1755\ With regard to terms that are not defined in Section
15B(e) of the Exchange Act, the Commission is defining those terms
in a manner consistent with the purposes of the Dodd-Frank Act to
regulate persons that engage in municipal advisory activities. See
15 U.S.C. 78o-4(e).
    \1756\ See supra note 1668. In addition, as discussed below, the
final rules and forms will require every municipal advisor to
register with the Commission and satisfy new recordkeeping
requirements according to Rule 15Ba1-8.
---------------------------------------------------------------------------

    The Commission believes the municipal advisor regulatory regime
should continue to enhance municipal entity and obligated person
protections and incentivize municipal advisors not to engage in
misconduct.\1757\ Municipal advisors will continue to be subject to
Commission oversight, including periodic examinations, and may be
subject to disciplinary action for misconduct.\1758\ In addition,
certain municipal advisors will now be subject to periodic examinations
by FINRA to evaluate compliance with the Exchange Act, the rules and
regulations thereunder, and MSRB rules.\1759\
---------------------------------------------------------------------------

    \1757\ See infra Section VIII.D.3.b.
    \1758\ See supra note 1680 and accompanying text.
    \1759\ See 15 U.S.C. 78o-4(b)(2)(E); 15 U.S.C. 78o-
4(c)(7)(A)(iii). See also supra notes 1672-1673 and accompanying
text.
---------------------------------------------------------------------------

    Market participants will need to interpret a number of related
terms to determine whether they are municipal advisors. Market
participants will need to determine whether they provide ``advice to or
on behalf of a municipal entity or obligated person with respect to
municipal financial products.'' \1760\ The term ``municipal financial
product'' is defined as ``municipal derivatives, guaranteed investment
contracts, and investment strategies.'' \1761\ As discussed below,
although the Exchange Act defines the terms ``guaranteed investment
contract'' and ``investment strategies,'' it does not define the term
``municipal derivatives.'' In addition, certain terms important to
interpreting the term ``investment strategies'' are undefined (i.e.,
proceeds of municipal securities and guaranteed investment contracts).
As discussed below, the Commission is adopting definitions of these
terms that are consistent with the purposes of the Dodd-Frank Act to
regulate persons that engage in municipal advisory activities. The
Commission has adopted several definitions of other related terms that
are effectively identical to the statute (i.e., municipal entity,
obligated person, and solicitation).\1762\
---------------------------------------------------------------------------

    \1760\ See 15 U.S.C. 78o-4(e)(4).
    \1761\ See 15 U.S.C. 78o-4(e)(5).
    \1762\ Because the definitions of municipal entity, obligated
person, and solicitation are consistent with the statute, the
Commission believes that these definitions will not result in a
significant change from the baseline (i.e., the number of municipal
advisors registered with the MSRB) in the number of registered
municipal advisors or in the programmatic costs or benefits. See
supra text accompanying notes 1750-1751.
---------------------------------------------------------------------------

    The Commission is adopting a definition of guaranteed investment
contract that applies only to contracts related to investments of
proceeds of municipal securities or municipal escrow investments.\1763\
The Commission believes that persons that provide advice concerning
guaranteed investment contracts should have already registered with the
Commission and the MSRB under the temporary registration regime.\1764\
The Commission staff understands that most persons that provide advice
about guaranteed investment contracts specialize in public finance
issues and are unlikely to provide advice only about guaranteed
investment contracts that do not relate to investments of proceeds of
municipal securities or municipal escrow investments. In addition, a
review of MA-T and MSRB data indicates that no municipal advisor
registered with the Commission or the MSRB has indicated that it
provides advice only about guaranteed investment contracts and not
another service that would likely require registration with the
Commission under the final rules and forms. Accordingly, the Commission
does not believe that the definition of guaranteed investment contract
adopted today will result in a significant change from the baseline
(i.e., the number of municipal advisors registered with the MSRB) in
the number of municipal advisors that will register under the permanent
registration regime. Similarly, the Commission does not believe there
will be a significant change from the baseline with regard to the
programmatic costs and benefits due to the definition of ``guaranteed
investment contract.''
---------------------------------------------------------------------------

    \1763\ See Rule 15Ba1-1(a).
    \1764\ As of December 31, 2012, approximately 320 municipal
advisors registered on Form MA-T and approximately 185 municipal
advisors registered with the MSRB indicated that they provide advice
concerning guaranteed investment contracts.
---------------------------------------------------------------------------

    Although Section 15B of the Exchange Act does not define the term
``municipal derivatives,'' the Commission is adopting a definition that
is consistent with the purposes of the Dodd-Frank

Act to regulate persons that engage in municipal advisory activities.
As discussed above, with respect to municipal entities, the Commission
has determined not to qualify the definition of municipal derivatives
as being limited to those entered into in connection with, or pledged
as security or a source of payment for, existing or contemplated
municipal securities.\1765\ Accordingly, the Commission does not
believe that this definition of municipal derivatives will result in a
significant change from the baseline (i.e., the number of municipal
advisors registered with the MSRB) of the number of municipal advisors
that will register under the permanent registration regime.\1766\ The
Commission is clarifying the application of the definition of municipal
derivatives with respect to obligated persons to advice that relates to
derivatives entered into in connection with, or pledged as security or
a source of payment for, existing or contemplated municipal securities
or another municipal derivative. The Commission expects that any
persons that provide advice about derivatives outside this context
would not register with the Commission under the permanent registration
regime. The Commission does not believe, however, that this
clarification will result in fewer persons registering as municipal
advisors because the clarification is limited to instances that would
cause a person to be an obligated person as defined in Section
15B(e)(10) of the Exchange Act.\1767\
---------------------------------------------------------------------------

    \1765\ See supra Section III.A.1.c.
    \1766\ The Commission believes that persons that provide advice
about municipal derivatives to municipal entities should have
already registered with the Commission and the MSRB under the
temporary registration regime. As of December 31, 2012, more than
350 municipal advisors registered on Form MA-T and more than 230
municipal advisors registered with the MSRB indicated that they
provide advice concerning the use of municipal derivatives. See also
infra VIII.D.6 (discussing the exemption for swap dealers).
    \1767\ 15 U.S.C. 78o-4(e)(10).
---------------------------------------------------------------------------

    The Commission recognizes that persons that are required to
register as municipal advisors because they provide advice about
municipal derivatives will incur the programmatic costs of the
municipal advisor regulatory regime. However, the Commission believes
that any differences from the baseline with regard to the programmatic
costs and benefits due to the definition of ``municipal derivatives''
would be minimal since such advisors would have already incurred these
costs under the temporary registration regime.\1768\ The Commission
believes that municipal entities and obligated persons that receive
advice about municipal derivatives should receive the protections of
the municipal advisor regulatory regime.\1769\ As discussed above, the
permanent registration regime will increase the amount of information
available about municipal advisors.\1770\ The Commission believes that
the increased availability of information relative to the baseline
about municipal advisors that provide advice about municipal
derivatives, including disciplinary history and conflicts of interest,
may lead to an improvement in the selection of municipal advisors that
provide advice related to municipal derivatives because municipal
entities and obligated persons will be able to consult registration
information when choosing municipal advisors that specialize in
municipal derivatives.\1771\ In addition, as discussed above, the
Commission believes that the increased public availability of
information about municipal advisors who engage in municipal advisory
activities pertaining to municipal derivatives may reduce from the
baseline instances of misconduct to the extent the increased amount of
information disclosed on Form MA as compared to Form MA-T acts as a
deterrent against misconduct related to derivatives.\1772\
---------------------------------------------------------------------------

    \1768\ See supra text accompanying note 1766.
    \1769\ See supra notes 1752-1756 and accompanying text.
    \1770\ See infra Section VIII.D.1.a.
    \1771\ See infra Section VIII.D.3.b.
    \1772\ The Commission recognizes, however, that municipal
entities and obligated persons will not have registration
information for advisors to obligated persons that invest in
derivative transactions not connected with municipal securities or
other municipal derivatives.
---------------------------------------------------------------------------

    The Commission has determined not to adopt a separate definition of
``investment strategies,'' which is defined in Section 15B(e)(3) of the
Exchange Act to include ``plans or programs for the investment of the
proceeds of municipal securities that are not municipal derivatives,
guaranteed investment contracts, and the recommendation of and
brokerage of municipal escrow investments.'' \1773\ The Commission,
however, is adopting definitions of proceeds of municipal securities
and municipal escrow investments that are consistent with the purposes
of the Dodd-Frank Act to regulate persons that engage in municipal
advisory activities. The Commission believes that persons that provide
advice with regard to proceeds of municipal securities and municipal
escrow investments should have already registered with the Commission
and the MSRB under the temporary registration regime.\1774\ In
addition, the exemption in Rule 15Ba1-1(d)(3)(vii) for any person that
provides advice to a municipal entity or obligated person with respect
to municipal financial products to the extent that such person provides
advice with respect to investment strategies that are not plans or
programs for the investment of the proceeds of municipal securities or
the recommendation of and brokerage of municipal escrow investments
will provide greater certainty regarding the types of persons who are
required to register with the Commission. Accordingly, the Commission
believes that the definitions of ``proceeds of municipal securities''
and ``municipal escrow investments'' will not result in a significant
change from the baseline (i.e., the number of municipal advisors
registered with the MSRB) with regard to the number of municipal
advisors that register under the permanent registration regime.
---------------------------------------------------------------------------

    \1773\ See 15 U.S.C. 78o-4(e)(3).
    \1774\ As of December 31, 2012, nearly 500 municipal advisors
registered on Form MA-T indicated that they provide advice
concerning the investment of the proceeds of municipal securities
and 360 indicated that they provide advice regarding the
recommendation and/or brokerage of municipal escrow investments.
MSRB data does not separately identify municipal advisors that
provide these activities.
---------------------------------------------------------------------------

    In addition, the Commission believes that any differences from the
baseline with regard to the programmatic costs due to the adoption of
the definitions of ``proceeds of municipal securities'' and ``municipal
escrow investments'' should be minimal since such costs would have been
incurred under the temporary registration regime. The Commission
believes that municipal entities and obligated persons that receive
advice concerning proceeds of municipal securities and municipal escrow
investments should receive the protections of the municipal advisor
regulatory regime, and that the Commission's approach tailors
protection to those activities related to the investment of the
proceeds of municipal securities and related escrow investments, which
have been subject to widespread enforcement activity.\1775\
---------------------------------------------------------------------------

    \1775\ See supra note 287.
---------------------------------------------------------------------------

    The Commission also believes the increased public availability of
information relative to the baseline about municipal advisors who
engage in municipal advisory activities pertaining to proceeds of
municipal securities and municipal escrow investments may reduce
instances of misconduct to the extent the increased amount of
information disclosed on Form MA as compared to Form MA-T acts as a

deterrent against misconduct related to investment strategies.
    Persons may incur costs to rely on the provisions regarding
reasonable reliance on representations related to proceeds of municipal
securities \1776\ and municipal escrow investments.\1777\ The
Commission estimates that the PRA costs \1778\ for persons to rely on
Rule 15Ba1-1(m)(3) for reasonable reliance on representations related
to proceeds of municipal securities will be $733,885.\1779\ In
addition, the Commission estimates that the PRA costs for persons to
rely on Rule 15Ba1-1(h)(2) for reasonable reliance on representations
related to municipal escrow investments will be $401,065.\1780\ The
Commission notes that no entity is required to utilize Rule 15Ba1-
1(m)(3) or Rule 15Ba1-1(h)(2) and that any efforts to do so are
voluntary.
---------------------------------------------------------------------------

    \1776\ See Rule 15Ba1-1(m).
    \1777\ See Rule 15Ba1-1(h)(2).
    \1778\ See text accompanying infra note 1797.
    \1779\ (880 hours (estimated burden to draft a template to use
in obtaining the written representation) x $379 (hourly rate for an
in-house attorney)) + (6,355 hours (estimated burden to obtain the
written representation) x $63 (hourly rate for a Compliance Clerk))
= $733,885. See supra notes 1622-1624 and accompanying text. Staff
estimates that the average national hourly rate for an in-house
attorney is $379 based on data from SIFMA's Management &
Professional Earnings in the Securities Industry 2012 (modified by
Commission staff to account for an 1800-hour-work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead). The $63-per-hour figure for a Compliance
Clerk is from SIFMA's Office Salaries in the Securities Industry
2012, as modified by Commission staff to account for an 1,800-hour
work-year and multiplied by 2.93 to account for bonuses, firm size,
employee benefits, and overhead.
    \1780\ (700 hours (estimated burden to draft a template to use
in obtaining the written representation) x $379 (hourly rate for an
attorney)) + (2,155 hours (estimated burden to obtain the written
representation) x $63 (hourly rate for a Compliance Clerk)) =
$401,065. See supra notes 1616-1618 and accompanying text. See supra
note 1779 (calculating the hourly rate for an in-house attorney and
a Compliance Clerk).
---------------------------------------------------------------------------

b. Alternatives
    One alternative to the rules the Commission is adopting today
relates to the types of monies covered under the final rules. The
Commission considered whether the final rules should only apply to the
proceeds of municipal securities or whether they should also apply to
funds held by, or on behalf of, a municipal entity that do not
constitute the proceeds of municipal securities. As discussed above,
because the definition of ``investment strategies'' in Section
15B(e)(3) of the Exchange Act \1781\ provides that it ``includes''
plans or programs for the investment of the proceeds of municipal
securities, the Commission proposed to interpret the term to mean that
it includes, without limitation, the investment of proceeds of
municipal securities, as well as plans, programs, or pools of assets
that invest funds held by, or on behalf of, a municipal entity.
Commenters generally opposed the proposed interpretation of investment
strategies.\1782\
---------------------------------------------------------------------------

    \1781\ 15 U.S.C. 78o-4(e)(3).
    \1782\ See supra notes 300-324 and accompanying text.
---------------------------------------------------------------------------

    As noted above, the Commission continues to believe that the term
``includes'' is not limiting, but is persuaded by commenters.
Accordingly, the Commission has determined to adopt a definition of
``investment strategies'' that focuses more narrowly on the statutorily
identified categories of ``proceeds of municipal securities'' and
``municipal escrow investments.'' \1783\ The Commission believes this
approach related to investment strategies focuses the protections of
the municipal advisor regulatory regime on those activities related to
the investment of the proceeds of municipal securities and related
escrow investments, which have been subject to widespread enforcement
activity.\1784\ The Commission believes that a broader approach would
likely result in a greater number of persons registering as municipal
advisors, which may not be necessary or appropriate in the protection
of investors at this time.\1785\ In addition, because persons that
provide advice with respect to investment strategies that are not plans
or programs for the investment of the proceeds of municipal securities
or the recommendation of and brokerage of municipal escrow investments
will not have to register as municipal advisors, the Commission
recognizes that such persons will not be subject to the programmatic,
registration, and recordkeeping costs of the permanent registration
regime.
---------------------------------------------------------------------------

    \1783\ See Rule 15Ba1-1(b). The Commission is also persuaded by
commenters that, at this time, it is appropriate to apply the
definition of guaranteed investment contract more narrowly. This
approach is consistent with the Commission's decision to limit the
application of ``investment strategies'' to plans or programs for
the investment of proceeds of municipal securities. The Commission
expects that most providers of guaranteed investment contracts will
not be considered municipal advisors as long as they do not engage
in municipal advisory activities.
    \1784\ See supra note 287.
    \1785\ The Commission is unable to estimate the number of
persons who would otherwise need to register as municipal advisors
under this alternative approach because it does not have the data
necessary to conduct this analysis and the information is not
otherwise publicly available.
---------------------------------------------------------------------------

    Another alternative to the rules the Commission is adopting today
is for the Commission not to define further ``municipal advisor'' and
related terms. The Commission did not estimate the assessment costs
market participants would incur to determine whether registration is
required under the temporary registration regime and initially believed
that the direct costs for respondents to read and apply the definitions
in proposed Rule 15Ba1-1(d) would be minimal.\1786\ As discussed above,
however, in light of comments received,\1787\ the Commission now
believes that persons may incur costs of up to $25,500 to determine
whether their activities require them to register as municipal advisors
under the final rules. Nonetheless, the Commission believes that the
assessment costs associated with determining whether a person would be
required to register as a municipal advisor would be greater in the
absence of the rules the Commission is adopting today.\1788\ Without
these rules, market participants would still need to analyze whether
their activities fall within the definition of municipal advisor in
Section 15B(e)(4) of the Exchange Act and would likely need to request
no-action relief and other guidance from the Commission or Commission
staff, or risk failing to register with the Commission as
required.\1789\ As discussed above, the Commission estimates that the
costs associated with determining whether a market participant is a
municipal advisor under Section 15B of the Exchange Act may range from
$379 to $25,500, with the high end of the range reflecting the cost for
entities with more complex business activities.\1790\ Thus, the
Commission believes the rules adopted today provide extensive guidance
to market participants and should reduce the number of requests for no-
action relief and other guidance from the Commission or Commission
staff, which, in turn, should lead to lower assessment costs for many
firms.
---------------------------------------------------------------------------

    \1786\ See Proposal, 76 FR 873.
    \1787\ See supra note 1730.
    \1788\ For example, one commenter on the Proposal stated that it
lacked a clear line between permissible and impermissible conduct
that will drive up municipal advisory costs due to cautious efforts
to ``over-comply'' and not risk an inadvertent violation. See
American Council of Life Insurers Letter.
    \1789\ In addition, without this guidance, a greater number of
market participants would likely decide to register as municipal
advisors unnecessarily and thereby incur the programmatic,
registration, and recordkeeping costs of the municipal advisor
registration regime.
    \1790\ See supra note 1733 and accompanying text.
---------------------------------------------------------------------------

3. Rules and Forms Related to Registration of Municipal Advisors
    The final rules and forms will create a permanent registration
regime for municipal advisors consisting of the

following forms: Form MA, Form MA-I, Form MA-NR, and Form MA-W.\1791\
Under Rule 15Ba1-2(a), each person applying for registration with the
Commission as a municipal advisor is required to complete Form MA and
file the form electronically with the Commission. In addition, each
person applying for registration or registered with the Commission as a
municipal advisor must complete Form MA-I with respect to each natural
person who is a person associated with the municipal advisor and
engages in municipal advisory activities on its behalf and file the
form electronically with the Commission.\1792\ Each Form MA shall be
considered filed with the Commission upon submission of a completed
Form MA, together with all additional required documents, including all
required filings of Form MA-Is, to the Commission's EDGAR system.\1793\
A sole proprietor will have to complete both Form MA and Form MA-
I.\1794\
---------------------------------------------------------------------------

    \1791\ The Commission is establishing additional requirements
for non-resident municipal advisors. See supra Section III.A.6.
    \1792\ See Rule 15Ba1-2(b)(1). As discussed above, natural
person municipal advisors who are not sole proprietors no longer
need to register with the Commission. However, the Commission is
retaining Form MA-I to obtain information about individuals
associated with municipal advisory firms engaged in municipal
advisory activities on behalf of such firms, which will assist in
the Commission's oversight functions. See supra Section VIII.D.1.a
(discussing the benefits of the permanent registration regime to
Commission oversight of municipal advisors). The Commission notes,
moreover, that it is the municipal advisory firms, not the
individuals, that will be required to file Form MA-I with the
Commission.
    \1793\ See Rule 15Ba1-2(c).
    \1794\ See Rule 15Ba1-2(b)(2). The Commission has developed an
online filing system to permit municipal advisors to file a
completed Form MA and Form MA-I through the EDGAR system. The
information filed will be publicly available once registration has
been granted.
---------------------------------------------------------------------------

    Pursuant to Rule 15Ba1-5(a), a municipal advisory firm that
registers on Form MA must amend its Form MA at least annually, within
90 days of the end of the municipal advisor's fiscal year in the case
of firms or within 90 days of the end of the calendar year for sole
proprietors, and more frequently as required by the General
Instructions. In addition, a registered municipal advisor must promptly
amend Form MA-I whenever any information previously provided in Form
MA-I becomes inaccurate for any reason.\1795\ With respect to Form MA-
I, all municipal advisory firms will be required to amend Form MA-I to
indicate that an individual is no longer an associated person of the
municipal advisory firm filing the form or no longer engages in
municipal advisory activities on its behalf. Registered municipal
advisors will also report successions of registration on Form MA.\1796\
---------------------------------------------------------------------------

    \1795\ See Rule 15Ba1-5(b).
    \1796\ See Rule 15Ba1-7.
---------------------------------------------------------------------------

    Pursuant to Rule 15Ba1-4, all registered municipal advisors are
required to file Form MA-W to withdraw from registration with the
Commission as a municipal advisor. As will be the case with both Form
MA and Form MA-I, a municipal advisor must file Form MA-W
electronically with the Commission.
    In adopting these rules, the Commission sought to design a
registration process that is similar to other registration processes
administered by the Commission. The rules are based on rules applicable
to broker-dealers and investment advisers; similarly, Form MA is based
on Form ADV and Form BD, and Form MA-I is based on Form U4. To the
extent market participants are familiar with these existing
registration processes, the Commission believes that using similar
processes to register municipal advisors will create efficiencies for
market participants.
    The Commission also has sought to ensure that the Commission staff
has information sufficient to make a determination as to whether
registration should be granted or denied. Thus, Form MA differs from
Form ADV and Form BD because it requests information specific to the
municipal advisory business. The Commission also has sought to assure
that the rules, forms, and process generally are as clear as possible
so as to minimize confusion. In addition, the Commission has sought to
minimize, to the extent possible, duplication and costs that the rules
may impose on firms. Finally, burdens and costs that have been
estimated for PRA purposes are included in the broader costs and
benefits discussion that follows because the Commission believes, as
the registration process would largely be forms-based, it is
appropriate to include them.\1797\
---------------------------------------------------------------------------

    \1797\ See supra Section VII.
---------------------------------------------------------------------------

a. Registration Costs
    The Commission acknowledges that the establishment of a permanent
registration regime will impose costs on persons registering as
municipal advisors on Form MA. As discussed above, persons meeting the
statutory definition of municipal advisor and for whom a statutory
exclusion is not available should currently be registered with the
Commission on Form MA-T as well as with the MSRB. Thus, such persons
would have incurred costs in connection with such registration.\1798\
Because of this, the quantitative costs discussed below related to
registration on Form MA represent additional costs separate from those
incurred to register on Form MA-T. However, for the reasons discussed
below, the Commission believes that municipal advisors that have
already gathered relevant information to complete Form MA-T or to
register with the Commission in another capacity may incur lower
permanent registration costs than those that have not registered on
Form MA-T (i.e., new entrants to the market) or that have not
registered with the Commission in another capacity.
---------------------------------------------------------------------------

    \1798\ See supra Section VIII.C.2.
---------------------------------------------------------------------------

    The Commission expects municipal advisors will incur one-time costs
to familiarize themselves with the rules and the relevant forms. The
paperwork burden of gathering information for the purpose of completing
the forms will be reduced to the extent municipal advisors have already
gathered some of the information required by the forms in order to
register with the Commission on Form MA-T or in another capacity.\1799\
In comparison, municipal advisors not otherwise registered with the
Commission and solicitors that are not brokers, dealers, or investment
advisers, to the extent they need to gather the required information
for the first time, may incur higher one-time costs to familiarize
themselves with the rules and relevant forms.\1800\ In addition, some
municipal advisors may incur one-time costs to establish new internal
controls, such as procedures for obtaining the information required by
the forms, as applicable. These potential one-time burdens are included
in the Commission's estimate below.\1801\ The Commission believes that
these costs will be limited for municipal advisors that are registered
with the Commission as investment advisers and/or broker-dealers or
that have voluntarily adopted such practices, but will likely be higher
for municipal advisors not otherwise registered with the Commission and
solicitors to the extent they have not voluntarily adopted such
practices.\1802\
---------------------------------------------------------------------------

    \1799\ See supra Section VII.D.1.
    \1800\ See supra Section VII.D.1.
    \1801\ See supra Section VII.D.1.
    \1802\ Some unregulated entities that engage in municipal
advisory activities have formed professional associations that have
implemented their own voluntary best practices with respect to
conflicts of interest, educational standards, and other disclosure
of note to their clients. See, e.g., National Association of
Independent Public Finance Advisors, http://www.naipfa.com/.
---------------------------------------------------------------------------

    The Commission received one comment letter that questioned the need
for the proposed self-certification

requirement.\1803\ As discussed above, after careful consideration of
comments received, the Commission is not requiring self-certification
in Form MA.\1804\
---------------------------------------------------------------------------

    \1803\ See, e.g., Costanzo Letter.
    \1804\ See supra Section III.A.2.b.
---------------------------------------------------------------------------

    In the Proposal, the Commission estimated that the total initial
cost for all municipal advisory firms and all natural person municipal
advisors to register with the Commission would be approximately
$12,623,000.\1805\ Although the Commission received comments suggesting
that the Proposal underestimated the hourly burden,\1806\ the
Commission is not changing its estimate of the time required to
register with the Commission (other than to reflect its decision not to
adopt a self-certification requirement).\1807\ The Commission notes
that commenters did not provide specific figures by which to
recalculate the Commission's estimate.\1808\ As discussed above,\1809\
the Commission is making some revisions to clarify the questions asked
in Form MA and Form MA-I and to elicit additional information. Because
some revisions will increase the hourly burden for municipal advisors
to complete the relevant forms, while others will decrease the burden,
and because most of the changes to Form MA and Form MA-I are
clarifications not requiring additional information, the Commission
does not believe the additional information requirements will impose
significant additional burdens on municipal advisors and is retaining
its original hourly burden estimates as proposed. As discussed above,
the Commission estimates that the total average initial burden to
complete a single Form MA will be 3.5 hours per applicant,\1810\ while
the average amount of time for a municipal advisory firm to complete
Form MA-I with respect to a natural person municipal advisor will be
3.0 hours.\1811\ The Commission now estimates that the total initial
PRA cost for all municipal advisory firms to register with the
Commission will be approximately $6,910,975,\1812\ for an average cost
per firm of $7,595.\1813\ The Commission believes that the reduction in
cost from the Proposal is primarily attributable to a reduction in the
estimated number of municipal advisory firms that will initially
register with the Commission; a reduction in the estimated number of
natural person municipal advisors for which municipal advisory firms
and sole proprietors will need to complete Form MA-I; \1814\ and the
Commission's decision not to adopt a self-certification requirement.
The Commission notes that this estimate represents the aggregate cost
to the industry. The costs incurred by a specific municipal advisor to
register with the Commission will depend on its size and the complexity
of its business activity.
---------------------------------------------------------------------------

    \1805\ $1,105,000 (estimated initial cost for all municipal
advisory firms to complete Form MA) + $11,118,000 (estimated initial
cost for all natural person municipal advisors to complete Form MA-
I) + $400,000 (estimated cost for all municipal advisory firms to
hire outside counsel) = $12,623,000. See Proposal, 76 FR 871, 875.
    \1806\ See Financial Services Roundtable Letter (asserting that
``initial preparation of Form MA would require significantly greater
hours and much higher costs''). See also supra Section VII.D.1
(discussing comments regarding the hourly burden estimate from the
Proposal).
    \1807\ See supra notes 1486-1487 and accompanying text.
    \1808\ The Commission received several comment letters that
specifically addressed the costs of registration on Form MA and Form
MA-I. These commenters generally criticized the cost of municipal
advisor registration with both the Commission and the MSRB,
including the MSRB's $100 initial fee and $500 annual fee. See,
e.g., Texas Bankers Association Letter; State of Texas Letter; John
Sullivan Letter. The Commission notes that it does not charge
municipal advisors a fee to register with the Commission. For
purposes of the economic analysis, the fees imposed by the MSRB are
part of the economic baseline. Although the Dodd-Frank Act permits
the MSRB to require municipal advisors to pay such reasonable fees
and charges as may be necessary or appropriate to defray the costs
and expenses of operating and administering the MSRB (see 15 U.S.C.
78o-4(b)(2)(J)), the Commission does not set or approve fees charged
by the MSRB. Instead, the Exchange Act provides that certain
designated SRO rules, including fees charged by the MSRB, take
effect upon filing with the Commission and may thereafter be
enforced by the SRO to the extent not inconsistent with the Exchange
Act, the rules and regulations thereunder, and applicable Federal
and State law. See 15 U.S.C. 78s(b)(3)(A), (C). The Commission has
sixty days from the date of filing, however, during which it
``summarily may temporarily suspend'' the fees ``if it appears to
the Commission that such action is necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of'' the Exchange Act. See 15 U.S.C.
78s(b)(3)(C). If the Commission takes such action, the Commission
shall institute proceedings to determine whether the proposed rule
should be approved or disapproved. See id. In addition, Section
19(c) of the Exchange Act authorizes the Commission, by rule, to
abrogate, add to, and delete from the rules of an SRO (other than a
registered clearing agency) as the Commission deems necessary or
appropriate to insure the fair administration of the SRO, to conform
its rules to requirements of the Exchange Act and the rules and
regulations thereunder applicable to such organization, or otherwise
in furtherance of the purposes of the Exchange Act. See 15 U.S.C.
78s(c).
    \1809\ See supra Section VII.D.1.a-b.
    \1810\ See supra Section VII.D.1.a.
    \1811\ See supra Section VII.D.1.b.
    \1812\ (36,935 hours (total estimated hourly burden under the
rules for all municipal advisors to complete Form MA and required
number of Form MA-I) x $166 (combined hourly rate for a Compliance
Manager and Compliance Clerk)) + $364,000 (estimated cost for all
municipal advisors to hire outside counsel to assist in completing
Form MA) + ((910 hours (estimated one-time burden for all municipal
advisory firms to draft a template to use in obtaining the written
consents to service of process) x $379 (hourly rate for an
attorney)) + (1,125 hours (estimated one-time burden for all
municipal advisory firms to obtain the written consents to service
of process) x $63 (hourly rate for a Compliance Clerk))) =
$6,910,975. See supra note 1501 and accompanying text (calculating
the total estimated hourly burden under the rules for all municipal
advisors to complete Form MA and required number of Form MA-I);
supra note 1567 and accompanying text (estimating the total cost for
all municipal advisory firms to hire outside counsel to review their
compliance with the final rules and forms); supra notes 1579-1581
and accompanying text (estimating the one-time burden to obtain
written consents to service of process); supra note 1779
(calculating the hourly rate for an in-house attorney and the hourly
rate for a Compliance Clerk). The Commission expects that completion
of Form MA and Form MA-I will most likely be performed equally by
compliance managers and compliance clerks. Dividing the hourly rate
evenly between a compliance manager ($269 per hour) and a compliance
clerk ($63 per hour) results in a cost per hour of $166. ($269 x
0.5) + ($63 x 0.5) = $166. The $269-per-hour figure for a Compliance
Manager is from SIFMA's Management & Professional Earnings in the
Securities Industry 2012, as modified by Commission staff to account
for an 1,800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead. In the
Proposal, the combined hourly rate was $170. See Proposal, 76 FR 875
n.398. The combined hourly rate for a Compliance Manager and
Compliance Clerk is lower than in the Proposal because of a
reduction in the rate for a Compliance Manager from $273 per hour to
$269 per hour and a reduction in the rate for a Compliance Clerk
from $67 per hour to $63 per hour.
    \1813\ $6,910,975 (estimated total initial labor cost for all
municipal advisory firms to register with the Commission) / 910
(estimated number of municipal advisors registered on Form MA) =
$7,594.48.
    \1814\ See supra notes 1447-1464 and accompanying text.
---------------------------------------------------------------------------

    The Commission also anticipates that municipal advisors will incur
ongoing annual costs to monitor and/or maintain the information
required by the registration forms; \1815\ to provide updates to the
registration forms; and to withdraw from registration with the
Commission. In addition, municipal advisors that are new to the market
will incur costs to register with the Commission. In the Proposal, the
Commission estimated that these ongoing annual costs would be
approximately $5,292,100.\1816\
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    \1815\ These costs are included in the Commission's estimate
below.
    \1816\ $510,000 (estimated ongoing cost for all municipal
advisory firms to amend Form MA and complete the annual self-
certification) + $3,519,000 (estimated ongoing cost for all natural
person municipal advisors to amend Form MA-I and complete the annual
self-certification) + $110,500 (estimated ongoing cost for all new
municipal advisory firms to complete Form MA) + $918,000 (estimated
ongoing cost for all new natural person municipal advisors to
complete Form MA-I) + $5,100 (estimated ongoing annual labor cost
for all municipal advisory firms to complete Form MA-W) + $229,500
(estimated ongoing cost for all natural person municipal advisors to
withdraw from Form MA-I registration) = $5,292,100. See Proposal, 76
FR 875-76.
---------------------------------------------------------------------------

    Under the final rules and forms, municipal advisory firms will
incur a number of ongoing costs. Municipal

advisory firms that are new to the market will incur costs to register
with the Commission. In addition, municipal advisory firms will incur
costs to amend Form MA, amend Form MA-I, and withdraw from registration
with the Commission. The Commission now estimates that municipal
advisors will incur total ongoing annual PRA costs of approximately
$2,618,373.\1817\ The Commission notes that this estimate represents
the aggregate cost to the industry. The ongoing costs incurred by a
specific municipal advisor will depend on its size and the complexity
of its business activity. The reduction in cost from the Proposal is
primarily attributable to a reduction in the estimated number of
municipal advisory firms that will register with the Commission; \1818\
a reduction in the estimated number of natural person municipal
advisors for which municipal advisory firms and sole proprietors will
need to amend Form MA-I; \1819\ a reduction in the estimated number of
municipal advisory firms that will withdraw from registration; and the
Commission's decision not to adopt a self-certification
requirement.\1820\
---------------------------------------------------------------------------

    \1817\ ((3,200 hours (total estimated hourly burden under the
rules for new municipal advisors to complete an initial Form MA and
required number of Form MA-I) x $166 (combined hourly rate for a
Compliance Manager and Compliance Clerk)) + $40,000 (estimated costs
for new municipal advisors to hire outside counsel to assist in
completing Form MA)) + (12,053 hours (total estimated hourly burden
under the rules for all municipal advisors to complete amendments to
Form MA and Form MA-I) x $166 (combined hourly rate for a Compliance
Manager and Compliance Clerk)) + (15 hours (total estimated hourly
burden under the rules for all municipal advisors to withdraw from
Form MA registration) x $166 (combined hourly rate for a Compliance
Manager and Compliance Clerk)) + ((100 hours (estimated ongoing
burden for new municipal advisory firms to draft a template to use
in obtaining the written consents to service of process) x $379
(hourly rate for an attorney)) + (95 hours (estimated ongoing burden
for municipal advisory firms to obtain the written consents to
service of process) x $63 (hourly rate for a Compliance Clerk))) =
$2,618,373. See supra note 1506 and accompanying text (calculating
the total estimated hourly burden under the rules for new municipal
advisors to complete an initial Form MA and required number of Form
MA-I); supra note 1525 and accompanying text (calculating the total
estimated hourly burden under the rules for all municipal advisors
to complete amendments to Form MA and Form MA-I); supra note 1532
and accompanying text (calculating the total estimated hourly burden
under the rules for all municipal advisors to withdraw from Form MA
registration); supra notes 1584-1586 and accompanying text
(estimating the ongoing burden to obtain written consents to service
of process); supra note 1779 (calculating the hourly rate for an in-
house attorney and the hourly rate for a Compliance Clerk); supra
note 1812 (calculating the combined hourly rate).
    \1818\ See supra notes 1442-1446 and accompanying text.
    \1819\ See supra notes 1447-1464 and accompanying text. As
discussed above, the Commission is not revising the estimated time
to amend Form MA and Form MA-I. See supra Section VII.D.3.
    \1820\ See supra Section VII.D.4. Several commenters stated that
the Commission did not address the potential liability costs
associated with a permanent registration regime. See SIFMA Letter I
(expressing concerns regarding the self-certification requirement);
NAESCO Letter (expressing concerns regarding fiduciary liability).
The Commission recognizes that some municipal advisors may incur
litigation costs as a result of the final rules and forms, and that
to the extent that there are such costs, some of them may be passed
on to municipal entities and obligated persons in the form of
increased fees. However, commenters did not provide estimates of
potential liability costs, and the Commission does not have the
information necessary to provide a reasonable estimate of the
litigation costs a municipal advisory firm may face because the
costs will depend on the facts and circumstances of each matter
litigated. In addition, the Commission notes that any litigation
costs incurred separate from the registration and recordkeeping
requirements are included in the economic baseline as a function of
the statutory municipal advisor regulatory regime. Further, the
Commission believes the potential liability costs are outweighed by
the benefits recognized by Congress in establishing the statutory
municipal advisor regulatory regime.
---------------------------------------------------------------------------

b. Registration Benefits
    The Commission believes that the requirements that municipal
advisors register with the Commission on Form MA, submit a Form MA-I
for each of its natural person municipal advisors, and update the
information provided at least annually (or more often as required by
the rules) will provide a number of benefits. In addition to the
benefits discussed above,\1821\ the final rules and forms could improve
the process through which municipal entities and obligated persons
select municipal advisors (referred to as the ``municipal advisor
selection process''), as the disclosures required under the permanent
registration regime should allow municipal entities and obligated
persons to become better informed about municipal advisors at a lower
cost, which could increase the use of municipal advisors. Further, the
final rules and forms could incentivize municipal advisors not to
engage in misconduct. In addition, Form MA, Form MA-I, and Form MA-NR
should enhance the ability of securities regulators to oversee
municipal advisors, which could increase the willingness of municipal
entities and obligated persons to utilize municipal advisors.\1822\
---------------------------------------------------------------------------

    \1821\ See supra Section VIII.D.1.a.
    \1822\ See supra Section VIII.D.1.a.
---------------------------------------------------------------------------

    The Commission believes that a significant benefit of the final
rules and forms is that they could enhance the municipal advisor
selection process by increasing the amount of publicly available
information about municipal advisors. The rules and forms will allow
municipal entities and obligated persons to become better informed
about municipal advisors more efficiently, and thereby, at a lower
cost.\1823\ Municipal advisors will be required to submit, and
municipal entities, obligated persons, the general public, and others
will be able to access, information through the Commission's EDGAR
system. In addition, because municipal advisors that are registered
with the Commission as broker-dealers and/or investment advisers will
be required to provide their CRD Number and IARD Number, respectively,
on Form MA, interested parties will be able to access other publicly
available information about the municipal advisor.\1824\ As discussed
in the Proposal,\1825\ research has shown that most municipal entities
do not utilize a formalized selection process when selecting municipal
advisors.\1826\ Because there is little publicly available information
about many municipal advisors, municipal entities and obligated persons
that do not use a formalized selection process might not have
sufficient information when deciding among municipal advisors.\1827\ As
a result of the public availability of information disclosed in Form MA
and Form MA-I, municipal entities and obligated persons may be able to
more easily establish objective criteria to use in selecting municipal
advisors. In addition, the availability of information required by Form
MA and Form MA-I in a uniform, standardized format will likely reduce
from the baseline the costs of collecting information and comparing it
across municipal advisors. The ease of establishing and verifying
compliance

with such criteria may increase the likelihood that municipal advisors
are hired because of their qualifications rather than for other reasons
such as political or personal connections to decision-making officials.
Further, to the extent that municipal entities and obligated persons
have been deterred from engaging a municipal advisor because they were
not familiar with the pool of municipal advisors, the permanent
registration regime may increase the use of municipal advisors from the
baseline.\1828\ The reduced information search costs for municipal
entities may have an incremental effect of increasing informational
efficiency. In addition, an improved municipal advisor selection
process may lead to fewer municipal defaults and an increased
likelihood that municipal entities issue debt, which could improve
efficiency and capital formation.\1829\
---------------------------------------------------------------------------

    \1823\ The Commission is unable to estimate the amount of time
and money municipal entities may save by reviewing Form MA and Form
MA-I rather than engaging in an RFP process or searching for other
regulatory documents. The Commission believes that the ability to
access information, including disciplinary history and conflicts of
interest, on municipal advisors in a single location benefits
municipal entities by reducing the need to search for other
regulatory documents of those municipal advisors that are
registered, or have associated persons that are registered, in
another capacity.
    \1824\ Although EDGAR will not automatically provide an
electronic link to the information on the CRD and IARD systems,
these systems are nevertheless readily accessible, and with the
identifying numbers of the relevant filings provided, interested
parties should be able to find the desired information easily.
    \1825\ See Proposal, 76 FR 874.
    \1826\ According to Mark D. Robbins and Bill Simonsen, 2003,
Financial Advisor Independence and the Choice of Municipal Bond Sale
Type, Municipal Finance Journal 24: 42 (``Robbins and Simonsen''),
an RFP had been used only 22.6% of the time by governments in
selecting the financial advisor for their last bond sale. See also
Allen and Dudney, supra note 38.
    \1827\ See supra Section VIII.D.1.a.
    \1828\ Moreover, public disclosure of the registration
information of municipal advisors and their associated persons will
make this information available not only to municipal entities and
regulators, but also to the general public. Even if a municipal
entity or obligated person does not otherwise seek to obtain this
information as part of its selection process, the information will
be available to interested persons (e.g., the press and concerned
citizens) that might directly or indirectly influence the selection
of the municipal advisor.
    \1829\ See infra notes 1830-1832 and accompanying text. The
final rules and forms could also increase investor willingness to
invest in municipal bond offerings to the extent that the municipal
entity issuing bonds used a municipal advisor and investors
understand and consider the benefits of municipal advisor
registration, including disclosure of conflicts of interest and
disciplinary history.
---------------------------------------------------------------------------

    With respect to the issuance of municipal securities, the increased
likelihood of using a municipal advisor could lead to reduced issuance
costs and better financing terms for municipal entity clients, which
could improve capital formation and indirectly have a positive impact
on taxpayers. As discussed in the Proposal, one empirical study
suggests that the use of municipal advisors is associated with better
borrowing terms, lower reoffering yields, and narrower underwriter
gross spreads,\1830\ particularly in instances where the advisors are
of a higher quality.\1831\ Municipal advisors can play an important
role in the issuance process by successfully negotiating to lower these
costs. As these studies did not include advisory fees in calculating
the cost savings, it is possible that some of these savings may be
offset by the fees municipal entities and obligated persons pay to
municipal advisors.\1832\ Therefore, the Commission believes that the
final rules and forms could incentivize municipal entities and
obligated persons to use municipal advisors, which could encourage
municipal entities to issue debt (as opposed to pursuing other
financial options), thereby increasing capital formation.
---------------------------------------------------------------------------

    \1830\ See generally Vijayakumar and Daniels, supra note 34. See
also Proposal, 76 FR 874.
    \1831\ See generally Allen and Dudney, supra note 38 (``For the
$16.8 million mean issue size in our sample, the present value
benefits of choosing a high-quality advisor for negotiated issues
are estimated to be $63,193 to $116,511 for 20-year term issues
($40,136 to $74,001 for ten-year term issues), depending on the
measure of advisor quality used, and $84,915 to $171,805 for revenue
issues ($53,933 to $109,121 for ten-year term issues).''). See also
Proposal, 76 FR 874.
    \1832\ But see Allen and Dudney, supra note 38
(``[C]onversations with financial advisors lead us to believe that
fee differences between low and high advisors would not be large
enough to offset the interest savings from using a quality
advisor.'').
---------------------------------------------------------------------------

c. Non-Resident Municipal Advisors
    Rule 15Ba1-6 sets forth the general procedures for serving non-
residents on Form MA-NR. Pursuant to Rule 15Ba1-6 and the instructions
to Form MA-NR, each non-resident municipal advisor applying for
registration, at the time of filing of the municipal advisor's
application on Form MA, must file with the Commission a written
irrevocable consent and power of attorney on Form MA-NR to appoint an
agent in the United States upon whom may be served any process,
pleadings, or other papers in any action brought against the non-
resident person. In addition, each municipal advisor applying for
registration shall, at the time of filing the relevant Form MA-I, file
with the Commission a written irrevocable consent and power of attorney
on Form MA-NR for each non-resident general partner, non-resident
managing agent, and non-resident natural person who is a person
associated with the municipal advisor and engages in municipal advisory
activities on its behalf.\1833\ Rule 15Ba1-6(d) will require each non-
resident municipal advisor to provide an opinion of counsel that the
municipal advisor can, as a matter of law, provide the Commission with
access to the books and records of the municipal advisor and submit to
inspection and examination by the Commission.
---------------------------------------------------------------------------

    \1833\ See Rule 15Ba1-6(a)(2).
---------------------------------------------------------------------------

    Pursuant to Rule 15Ba1-6(b), any change to the name or address of
each agent for service of process must be communicated promptly to the
Commission by filing a new Form MA-NR. Rule 15Ba1-6(c) requires each
non-resident municipal advisor, general partner and managing agent of a
registered municipal advisor, and each natural person associated with a
registered municipal advisor that engages in municipal advisory
activities on its behalf to promptly appoint a successor agent for
service of process and file a new Form MA-NR if the non-resident
municipal advisor, general partner, managing agent, or associated
person discharges its identified agent for service of process or if its
agent for service of process is unwilling or unable to accept service
on behalf of the non-resident municipal advisor, general partner,
managing agent, or associated person. Rule 15Ba1-6(d) requires each
non-resident municipal advisory firm to provide an opinion of counsel
that the non-resident municipal advisory firm can, as a matter of law,
provide the Commission with access to its books and records and can, as
a matter of law, submit to inspection and examination by the
Commission.
    Non-resident municipal advisors will incur costs to complete Form
MA-NR and obtain an opinion of counsel.\1834\ Non-resident municipal
advisory firms may incur one-time costs to establish new internal
controls, such as procedures for obtaining the information required by
Form MA-NR. These one-time costs are included in the estimates below.
In the Proposal, the Commission estimated that the initial cost for
non-resident municipal advisory firms, non-resident general partners,
and non-resident managing agents to complete Form MA-NR and for non-
resident municipal advisory firms to obtain an opinion of counsel that
the municipal advisory firm can provide prompt access to its books and
records and can be subject to onsite inspection and examination would
be approximately $8,300.\1835\ The Commission did not receive any
comments on this estimate. The Commission now estimates the initial PRA
cost to complete Form MA-NR and obtain opinions of counsel will be
approximately $12,042.\1836\ The

anticipated costs are higher than those estimated in the Proposal
because Commission staff is including certain associated persons in
this estimate.\1837\
---------------------------------------------------------------------------

    \1834\ See supra Section VII.D.5 (estimating the number of
persons required to complete Form MA-NR).
    \1835\ $5,100 (estimated cost for non-resident municipal
advisory firms, non-resident general partners, and non-resident
managing agents to complete Form MA-NR) + $3,200 (estimated cost for
non-resident municipal advisory firms to obtain an opinion of
counsel) = $8,300. See Proposal, 76 FR 877.
    \1836\ (48 hours (estimated initial hourly burden under the
rules for all respondents to complete a Form MA-NR) x $166 (combined
hourly rate for a Compliance Manager and Compliance Clerk)) + ((6
hours (estimated initial hourly burden under the rules for all
respondents to obtain opinion of counsel) x $379 (hourly rate for an
in-house attorney)) + (2 (non-resident municipal advisory firms
expected to provide opinion of counsel) x $900 (average estimated
cost to hire outside counsel for providing an opinion of counsel)))
= $12,042. See supra notes 1544-1548 and accompanying text
(estimating the initial hourly burden under the rules for all
respondents to complete a Form MA-NR and the initial hourly burden
under the rules for all respondents to obtain opinion of counsel);
supra note 1779 (discussing the hourly rate for an in-house
attorney); supra note 1812 (calculating the combined hourly rate).
    \1837\ See supra Section III.A.6.a. The estimated costs are also
higher due to an increase in the hourly rate of an in-house attorney
and inclusion of the cost non-resident municipal advisory firms will
incur to hire outside counsel to provide an opinion of counsel.
---------------------------------------------------------------------------

    In addition, as discussed below, the Commission anticipates there
will be ongoing costs related to filing Form MA-NR.\1838\ In the
Proposal, the Commission estimated that the ongoing annual costs for
non-resident municipal advisory firms, non-resident general partners,
and non-resident managing agents to complete Form MA-NR and for non-
resident municipal advisory firms to obtain an opinion of counsel that
the municipal advisory firm can provide prompt access to its books and
records and can be subject to onsite inspection and examination would
be approximately $1,440.\1839\ The Commission did not receive any
comments on this estimate. The Commission now estimates that the
ongoing annual PRA cost for non-resident municipal advisory firms to
update Form MA-NR and/or file a new Form MA-NR and for non-resident
municipal advisory firms to obtain new opinions of counsel, as
described above, will be approximately $2,369.\1840\ The anticipated
costs are higher than those estimated in the Proposal due to an
increase in the hourly rate of an in-house attorney and inclusion of
the cost non-resident municipal advisory firms will incur to hire
outside counsel to provide an opinion of counsel.
---------------------------------------------------------------------------

    \1838\ Non-resident municipal advisors will incur recurring
costs to monitor and maintain the information required by Form MA-
NR. These costs are included in the estimates below.
    \1839\ $340 (estimated ongoing annual cost for non-resident
municipal advisory firms, non-resident general partners, and non-
resident managing agents to complete Form MA-NR) + $1,100 (estimated
ongoing annual cost for non-resident municipal advisory firms to
obtain an opinion of counsel) = $1,440. See Proposal, 76 FR 877.
    \1840\ (2 hours (estimated ongoing annual hourly burden under
the rules for respondents to complete a Form MA-NR) x $166 (combined
hourly rate for a Compliance Manager and Compliance Clerk)) + ((3
hours (estimated ongoing annual hourly burden under the rules for
all respondents to obtain opinion of counsel) x $379 (hourly rate
for an in-house attorney)) + (1 (non-resident municipal advisory
firms expected to provide opinion of counsel) x $900 (average
estimated cost to hire outside counsel for providing an opinion of
counsel))) = $2,369. See supra note 1556-1558 (estimating the
ongoing annual hourly burden under the rules for respondents to
complete a Form MA-NR and estimating the ongoing burden to provide
an opinion of counsel); supra note 1779 (discussing the hourly rate
for an in-house attorney); supra note 1812 (calculating the combined
hourly rate). This estimate is lower than the estimate in the
Proposal due to a reduction in the combined hourly rate. See supra
note 1812 (discussing the reduction in the combined hourly rate).
---------------------------------------------------------------------------

d. Alternatives
    One alternative to the rules and forms adopted today would be for
the Commission to make the temporary registration regime permanent. In
this alternative, municipal advisors currently registered under the
temporary registration regime would not incur the new costs to register
with the Commission.\1841\ Similarly, new entrants to the municipal
advisor market would incur the comparatively lower costs to register
under the temporary registration regime.\1842\ In establishing the
temporary registration regime, however, the Commission intended to
adopt a permanent registration regime that would, among other things,
require municipal advisors to provide more information on Form MA than
that required by Form MA-T, including information regarding conflicts
of interest and increased information regarding disciplinary history.
By requiring this additional information and requiring submission
through the Commission's EDGAR system, Commission staff will be able to
retrieve and analyze the data it needs more efficiently, which should
enhance the Commission's ability to carry out its mission with respect
to municipal advisory activities effectively. In addition, as discussed
above, the permanent registration regime could improve the municipal
advisor selection process and incentivize municipal advisors not to
engage in misconduct.\1843\
---------------------------------------------------------------------------

    \1841\ See supra Section VIII.D.3.b.
    \1842\ See supra Section VIII.C.2.
    \1843\ See supra Section VIII.D.3.b.
---------------------------------------------------------------------------

    Similarly, the Commission believes that to make the temporary
registration regime permanent rather than to establish the permanent
registration regime adopted today may not enhance competition in the
market. As discussed above, the Commission believes that requiring
municipal advisors to disclose the information required by the final
rules and forms will lead to a number of benefits beyond the temporary
registration regime. For example, municipal entities, obligated
persons, the general public, and others will be able to access
information about municipal advisors electronically through the
Commission's EDGAR system and easily cross-reference information
submitted through IARD and CRD. Enhancing the ability of municipal
entities and obligated persons to compare and consider municipal
advisors in the municipal advisor selection process could result in
increased quality-based competition relative to the baseline, which
could, in turn, lead to reduced issuance costs and better financing
terms.\1844\
---------------------------------------------------------------------------

    \1844\ See supra notes 1830-1832 and accompanying text.
---------------------------------------------------------------------------

    The Commission also considered whether to provide an alternative
registration program for persons that are already registered with the
Commission in another capacity. Some commenters indicated that Form MA
is largely duplicative of other registration forms (e.g., Form BD, Form
ADV) required for other persons (e.g., broker-dealers, investment
advisers).\1845\ One commenter suggested persons already registered
with the Commission could check an additional box on their primary
registration forms, or the Commission could provide a short-form
registration process.\1846\
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    \1845\ See, e.g., SIFMA Letter I; Financial Services Roundtable
Letter; NASAA Letter.
    \1846\ See SIFMA Letter I.
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    As discussed above, the Commission has determined not to create a
separate registration program for entities that are already registered
with the Commission in another capacity. The Commission does not
believe that such an approach would achieve the goal of creating a
registration system specific to municipal advisors. Form MA, while
modeled primarily on Form ADV and Form BD, is designed to capture
information regarding the activities of municipal advisors and the
markets that they serve that would not otherwise be captured in other
forms. This information will permit the Commission to decide whether to
grant or deny an application for registration; to manage the
Commission's regulatory and examination programs; and to make such
information available to the MSRB to better inform its regulation of
municipal advisors. In addition, having information about municipal
advisors in a single location could improve the municipal advisor
selection process.\1847\
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    \1847\ See supra Section VIII.D.3.b.
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    Further, the Commission believes that, based on the expertise and
experience of its enforcement and examinations staff, for purposes of
regulation, it is appropriate to collect information regarding the
financial industry and other activities of associated persons involved
in the municipal securities market, including swap dealers, major swap
participants,

and engineers and engineering firms. The Commission believes that to
allow investment advisers to register as municipal advisors using Form
ADV would not provide comparable information about certain associated
persons of municipal advisors.
    In addition, requiring municipal advisors to file a registration
form specifically tailored to their municipal advisory activities is
consistent with the broader public interest to make available to the
public information about municipal advisors. Absent a form specific to
municipal advisors, a municipal entity or obligated person seeking
information about a municipal advisor may not realize that the data was
available on Form BD or Form ADV. The Commission believes that persons
seeking to compile, compare, and analyze data pertaining to the entire
universe of registered municipal advisors, and regulators overseeing
compliance with the rules and regulations applicable to municipal
advisors, should be able to access relevant information easily within
one system.\1848\
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    \1848\ The ability to incorporate by reference any required
information about the disciplinary history of an applicant or
associated person from a DRP or other disclosure that already has
been filed relieves the regulatory burden on applicants who can do
so. However, the Commission recognizes that such incorporation by
reference may make it somewhat more difficult for regulators and
other market participants to compile, compare, and analyze data
regarding municipal advisors within one system.
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    As proposed and adopted, Form MA will permit municipal advisors, to
the extent that the disclosures required on Form MA have been disclosed
on Form ADV or BD, to incorporate such information by reference.\1849\
Specifically, each of the DRPs of Form MA permits incorporation by
reference to DRPs with similar disclosure requirements that are already
on file with regulators. The disclosures required on the DRPs are
generally the disclosures where the most significant amount of detail
is requested on Form MA and on which applicants will likely need to
expend the most time and effort.\1850\ The Commission believes allowing
incorporation by reference is appropriate because it will reduce
redundancy and costs that some municipal advisors will incur in
completing Form MA.\1851\
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    \1849\ See supra Section III.A.2.
    \1850\ See supra Section III.A.2.b.
    \1851\ As discussed above, the Commission's estimates of the
time required to complete Form MA and Form MA-I represent averages.
The Commission emphasizes that, depending on the specific
circumstances of the municipal advisory firm, the initial burden to
complete Form MA and Form MA-I will vary greatly from respondent to
respondent given uncertainty about the number of municipal advisors
that will incorporate by reference and the extent of information
that will be incorporated by reference. Accordingly, although Form
MA and Form MA-I generally allow incorporation by reference of
certain information, the Commission does not have the information
necessary to provide a reasonable estimate of the extent to which
the ability to incorporate by reference will reduce the burden
estimates for Form MA and MA-I for a particular firm.
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    Another alternative to the rules and forms adopted today would be
to require, as the Commission proposed, each natural person municipal
advisor to register with the Commission on Form MA-I separately. The
Commission received several comments objecting to this requirement.
Some commenters argued that there was no statutory justification to
register natural persons as municipal advisors separately.\1852\
Commenters also stated that registering individuals would be
excessively burdensome,\1853\ including on small municipal
advisors.\1854\ Another commenter stated that dual reporting on Form MA
and Form MA-I could lead to confusion and inadvertent inconsistencies
in the information.\1855\ As discussed above, the Commission has
decided not to require natural person municipal advisors (other than
sole proprietors) to register as municipal advisors (although such
persons will be subject to the other requirements of the municipal
advisor regulatory regime).\1856\ Had the Commission required natural
person municipal advisors to register with the Commission, these
persons would have incurred aggregate costs of approximately
$5,602,500.\1857\ The Commission recognizes, however, that municipal
advisory firms will now bear this cost to submit Form MA-I for natural
person municipal advisors, which as discussed above will be
$5,602,500.\1858\
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    \1852\ See, e.g., SIFMA Letter I; MSRB Letter.
    \1853\ See, e.g., SIFMA Letter I; Deloitte Letter.
    \1854\ See, e.g., Acacia Financial Group Letter.
    \1855\ See Deloitte Letter.
    \1856\ See supra Section III.A.2.a.
    \1857\ 33,750 (estimated initial burden for completion and
submission of Form MA-I during the first year) x $166 (combined
hourly rate for a Compliance Manager and Compliance Clerk) =
$5,602,500. See supra note 1495 and accompanying text; supra note
1812 (calculating the combined hourly rate).
    \1858\ See supra note 1857 and accompanying text.
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4. Books and Records To Be Made and Maintained by Municipal Advisors
(Rule 15Ba1-8)
    As part of the permanent registration regime mandated by the Dodd-
Frank Act, Rule 15Ba1-8 sets forth requirements for books and records
relating to the business of municipal advisors. Among other things, the
rule requires that municipal advisory firms maintain and preserve all
books and records required to be made and kept under the rule for a
period of not less than five years, the first two years in an easily
accessible place.\1859\
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    \1859\ See supra Section III.C.
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a. Recordkeeping Costs and Benefits
    Municipal advisors are likely to incur a number of costs in
connection with the recordkeeping requirements, including recurring
costs related to the maintenance and storage of books and records, as
required by the rule. Municipal advisory firms will also need to
provide applicable training to ensure compliance with the recordkeeping
requirements. In the Proposal, the Commission estimated that the
ongoing annual labor cost for all municipal advisory firms to comply
with the recordkeeping requirement would be approximately
$9,050,000.\1860\ The Commission now estimates that the annual labor
cost for all municipal advisory firms to comply with the recordkeeping
requirement will be approximately $8,777,860.\1861\
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    \1860\ See Proposal, 76 FR 878.
    \1861\ 910 (number of Form MA applicants) x 182 hours (estimated
average hourly burden for municipal advisory firms to comply with
the books and records requirement) x $53 (hourly rate for a General
Clerk) = $8,777,860. See supra notes 1688-1691 and accompanying
text. The $53 per hour figure for a General Clerk is from the
SIFMA's Office Salaries in the Securities Industry 2012, as modified
by Commission staff to account for an 1,800-hour work-year and
multiplied by 2.93 to account for bonuses, firm size, employee
benefits, and overhead. The Commission is updating the hourly rate
for a General Clerk from $50 to $53 to conform to SIFMA's Office
Salaries in the Securities Industry 2012. This estimate is lower
than the estimate in the Proposal because the Commission estimates
there will be fewer initial Form MA applicants than was estimated in
the Proposal. See supra notes 1442-1446 and accompanying text.
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    Municipal advisors should already maintain books and records as
part of their day-to-day operations. The recordkeeping requirement,
however, provides specific parameters relating to the retention and
maintenance of certain books and records that may be more extensive
than current market practices. Nevertheless, the Commission does not
believe that currently operating municipal advisory firms that already
keep business records similar to those required by the rule will be
subject to significant additional recordkeeping costs as a result of
the rule. For example, municipal advisors already registered with the
Commission as broker-dealers and/or investment advisers likely already
retain this type of information.
    As noted above, the Commission recognizes that these costs may
impact those municipal advisory firms that are not already registered
under another

regulatory regime to a greater degree than they would impact municipal
advisory firms that have previously registered as investment advisers
or brokers-dealers. With respect to the books and records requirements
of Rule 15Ba1-8, the Commission currently anticipates that municipal
advisory firms may incur one-time costs in establishing the new
internal controls and systems necessary to comply with the
recordkeeping requirements of the rule. The Commission believes that
the costs to establish new internal controls will be less for municipal
advisory firms that are currently regulated with respect to their other
activities because the final rule allows some records to be maintained
in compliance with those other regulations.\1862\ The Commission does
not have the information necessary to provide a reasonable estimate of
the difference in costs for firms that already have internal controls
and systems because these internal controls and systems vary from firm
to firm. The Commission believes that these costs may also be reduced
for municipal advisory firms that have voluntarily adopted similar
recordkeeping practices.\1863\ The Commission anticipates, however,
that these costs may be higher for solicitors and for other municipal
advisory firms that are not otherwise regulated or have not voluntarily
adopted similar recordkeeping practices.
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    \1862\ See Rule 15Ba1-8(e)(1). The Commission's estimated
average burden to comply with the recordkeeping requirements
includes the costs to establish new internal controls and systems
necessary to comply with the recordkeeping requirements. However,
the Commission recognizes that those firms should realize reduced
costs by leveraging the existing internal controls and systems, as
well as familiarity with books and records requirements under other
regulatory regimes.
    \1863\ The Commission does not have the information necessary to
provide a reasonable estimate of the difference in costs for firms
that already have voluntarily adopted similar recordkeeping
practices because these recordkeeping practices vary from firm to
firm. However, the Commission recognizes that to the extent these
recordkeeping practices are already in place, certain municipal
advisors should incur lower costs to comply than those that do not
have recordkeeping practices in place.
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    The Commission has made two substantive modifications to the
recordkeeping requirements since the Proposal. As discussed above, Rule
15Ba1-8(a)(2) will require municipal advisors to maintain general
ledgers, a requirement that was inadvertently left out of proposed Rule
15Ba1-7.\1864\ In addition, as discussed above, Rule 15Ba1-8(a)(8) will
require each municipal advisory firm to retain written consents to