[Federal Register Volume 83, Number 91 (Thursday, May 10, 2018)]
[Notices]
[Pages 21794-21808]
[FR Doc No: 2018-09933]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83177; File No. SR-MSRB-2018-01]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of a Proposed Rule Change, Consisting to
Amendments to Rule G-21, on Advertising, Proposed New Rule G-40, on
Advertising by Municipal Advisors, and a Technical Amendment to Rule G-
42, on Duties of Non-Solicitor Municipal Advisors

May 7, 2018.

I. Introduction

    On January 24, 2018, the Municipal Securities Rulemaking Board (the
``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder,\2\ a proposed rule consisting of amendments to MSRB
Rule G-21, on advertising (``proposed amended Rule G-21''), proposed
new MSRB Rule G-40, on advertising by municipal advisors (``proposed
Rule G-40''), and a technical amendment to MSRB Rule G-42, on duties of
non-solicitor municipal advisors (``proposed amended Rule G-42,''
together with proposed amended Rule G-21 and proposed Rule G-40, the
``proposed rule change''). The proposed rule change was published for
comment in the Federal Register on February 7, 2018.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 82616 (February 1, 2018)
(the ``Notice of Filing''), 83 FR 5474 (February 7, 2017).
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    The Commission received four comment letters on the proposed rule
change.\4\ On March 16, 2018, the MSRB granted an extension of time for
the Commission to act on the filing until May 7, 2018. On April 30,
2018, the

MSRB responded to the comment letters.\5\ This order approves the
proposed rule change.
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    \4\ See Letter to Secretary, Commission, from Leslie M. Norwood,
Managing Director and Associate General Counsel, Securities Industry
and Financial Markets Association (``SIFMA''), dated February 28,
2018 (the ``SIFMA Letter''); Letter to Secretary, Commission, from
Susan Gaffney, Executive Director, National Association of Municipal
Advisors (``NAMA''), dated February 28, 2018 (the ``NAMA Letter'');
Letter to Secretary, Commission, from Michael Nicholas, Chief
Executive Officer, Bond Dealers of America (``BDA''), dated February
28, 2018 (the ``BDA Letter''); Letter to Secretary, Commission, from
Catherine Humphrey-Bennett, Municipal Advisory Compliance Officer,
PFM Financial Advisors LLC and PFM Asset Management LLC
(collectively, ``PFM''), dated February 28, 2018 (the ``PFM
Letter''). Staff from the Office of Municipal Securities discussed
the proposed rule change with representatives from BDA on April 10,
2018.
    \5\ See Letter to Secretary, Commission, from Pamela K. Ellis,
Associate General Counsel, MSRB, dated April 30, 2018 (the
``Response Letter''), available at https://www.sec.gov/comments/sr-msrb-2018-01/msrb201801-3551215-162309.pdf.
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II. Description of Proposed Rule Change

    As described more fully in the Notice of Filing, the MSRB stated
that the purpose of proposed amended Rule G-21 is to, among other
things: enhance the MSRB's fair-dealing provisions by promoting
regulatory consistency among Rule G-21 and the advertising rules of
other financial regulators; and promote regulatory consistency between
Rule G-21(a)(ii), the definition of ``form letter,'' and the Financial
Industry Regulatory Authority, Inc. (``FINRA'') Rule 2210's definition
of ``correspondence.'' \6\ Proposed amended Rule G-21 also would make a
technical amendment in paragraph (e), which the MSRB stated would
streamline the rule.\7\
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    \6\ See Notice of Filing.
    \7\ Id.
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    The MSRB stated that concurrent with its efforts to enhance Rule G-
21 and promote regulatory consistency among Rule G-21 and the
advertising rules of other financial regulators through proposed
amended Rule G-21, it prepared proposed Rule G-40 to address
advertising by municipal advisors.\8\ The MSRB added that, similar to
proposed amended Rule G-21, proposed Rule G-40 would: provide general
provisions that define the terms ``advertisement'' and ``form letter,''
and would set forth the general standards and content standards for
advertisements; provide the definition of professional advertisements,
and would define the standard for those advertisements; and would
require the approval by a principal, in writing, before the first use
of an advertisement.\9\ Also, proposed Rule G-40, similar to proposed
amended Rule G-21, would apply to all advertisements by a municipal
advisor, as defined in proposed Rule G-40(a)(i).\10\ However, the MSRB
noted, unlike proposed amended Rule G-21, proposed Rule G-40 would
contain certain substituted terms that are more relevant to municipal
advisors, and proposed Rule G-40 would omit the three provisions in
Rule G-21 that concern product advertisements (i.e., product
advertisements, new issue product advertisements, and municipal fund
securities product advertisements).\11\
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    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ Id.
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    The proposed rule change also would make technical and non-
substantive amendments to Rule G-42. Specifically, Rule G-42(f)(iv)
defines municipal advisory activities as ``those activities that would
cause a person to be a municipal advisor as defined in subsection
(f)(iv) of this rule.'' \12\ The proposed rule change would provide a
technical amendment to Rule G-42(f)(iv) to correct the cross-reference.
Proposed amended Rule G-42 would replace the reference to subsection
(f)(iv) in Rule G-42(f)(iv) with the intended reference to subsection
(f)(iii). Rule G-42(f)(iii) defines the term ``municipal advisor'' for
purposes of Rule G-42.\13\
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    \12\ Id.
    \13\ Id.
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    The MSRB requested that the proposed rule change be effective nine
months from the date of Commission approval.\14\
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    \14\ Id.
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A. Proposed Amended Rule G-21

    The MSRB stated that to enhance Rule G-21's fair dealing
requirements, as well as to promote regulatory consistency among Rule
G-21 and the advertising rules of other financial regulators, proposed
amended Rule G-21 would provide more specific content standards than
current Rule G-21.\15\ The MSRB also stated that proposed amended Rule
G-21 also would include revisions to the rule's general standards for
advertisements.\16\
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    \15\ Id.
    \16\ Id.
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a. Content Standards of Proposed Amended Rule G-21
    In the Notice of Filing, the MSRB stated that proposed amended Rule
G-21(a)(iii) would add content standards to make explicit many of the
MSRB's fair dealing obligations that follow from the MSRB's
requirements set forth in Rule G-21 and Rule G-17, on conduct of
municipal securities and municipal advisory activities, and the
interpretive guidance the MSRB has provided under those rules, and to
specifically address them to advertising.\17\ The MSRB stated that the
proposed rule change would not supplant the MSRB's regulatory guidance
provided under Rule G-17.\18\ The MSRB also stated that proposed
amended Rule G-21 would enhance Rule G-21's fair dealing provisions by
requiring that:
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    \17\ Id.
    \18\ Id.
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     An advertisement be based on principles of fair dealing
and good faith, be fair and balanced and provide a sound basis for
evaluating the facts about any particular municipal security or type of
municipal security, industry, or service, and that a dealer not omit
any material fact or qualification if such omission, in light of the
context presented, would cause the advertisement to be misleading;
     an advertisement not contain any false, exaggerated,
unwarranted, promissory or misleading statement or claim;
     a dealer limit the types of information placed in a legend
or footnote of an advertisement so as to not inhibit a customer's or
potential customer's understanding of the advertisement;
     an advertisement provide statements that are clear and not
misleading within the context that they are made, that the
advertisement provide a balanced treatment of the benefits and risks,
and that the advertisement is consistent with the risks inherent to the
investment;
     a dealer consider the audience to which the advertisement
will be directed and that the advertisement provide details and
explanations appropriate to that audience;
     an advertisement not predict or project performance, imply
that past performance will recur or make any exaggerated or unwarranted
claim, opinion or forecast; and
     an advertisement not include a testimonial unless it
satisfies certain conditions.\19\
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    \19\ Id.
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    The MSRB stated that, by so doing, proposed amended Rule G-
21(a)(iii) would promote regulatory consistency with FINRA Rule
2210(d)(1)'s and FINRA Rule 2210(d)(6)'s content standards for
advertisements.\20\ The MSRB stated that the other topics and standards
addressed by other provisions of FINRA Rule 2210(d) have not been
historically addressed by Rule G-21 and/or may not be relevant to the
municipal securities market, and the MSRB did not include those topics
in the MSRB's request for comment on draft amendments to Rule G-21.\21\
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    \20\ Id.
    \21\ Id.
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    Proposed amended Rule G-21 also would expand upon the guidance
provided by Rule A-12, on registration. Rule A-12(e) permits a dealer
to state that it is MSRB registered in its advertising, including on
its website.\22\

Proposed amended Rule G-21(a)(iii)(H) would continue to permit a dealer
to state that it is MSRB registered.\23\ However, the MSRB noted that
proposed amended Rule G-21(a)(iii)(H) would provide that a dealer shall
only state in an advertisement that it is MSRB registered as long as,
among other things, the advertisement complies with the applicable
standards of all other MSRB rules and neither states nor implies that
the MSRB endorses, indemnifies, or guarantees the dealer's business
practices, selling methods, the type of security offered, or the
security offered.\24\ The MSRB stated that, by so doing, the proposed
rule change would promote regulatory consistency with FINRA Rule
2210(e)'s analogous limitations on the use of FINRA's name and any
other corporate name owned by FINRA.\25\
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    \22\ Id.
    \23\ Id.
    \24\ Id.
    \25\ Id.
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b. General Standards of Proposed Rule G-21
    The MSRB stated that proposed amended Rule G-21(a)(iv), (b)(ii),
and (c)(ii) would promote regulatory consistency among Rule G-21's
general standard for advertisements, standard for professional
advertisements, and standard for product advertisements (collectively,
the ``general standards'') and the content standards of FINRA Rule
2210(d). Currently, the MSRB stated, Rule G-21's general standards
prohibit a dealer, in part, from publishing or disseminating material
that is ``materially false or misleading.'' \26\ Proposed amended Rule
G-21 would replace the phrase ``materially false or misleading'' with
``any untrue statement of material fact'' as well as add ``or is
otherwise false or misleading.'' The MSRB stated that it believes that
this harmonization with FINRA Rule 2210(d) would be consistent with
Rule G-21's current general standards and would ensure consistent
regulation between similar regulated entities.\27\
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    \26\ Id.
    \27\ Id.
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c. Reconcile MSRB Rule G-21 Definition of ``Form Letter'' With FINRA
Rule 2210 Definition of ``Correspondence''
    Currently, the MSRB stated, Rule G-21(a)(ii) defines a ``form
letter,'' in part, as a written letter distributed to 25 or more
persons.\28\ The MSRB stated that the analogous provision in FINRA's
communications with the public rule to Rule G-21(a)(ii) is FINRA Rule
2210's definition of correspondence.\29\ The MSRB noted that FINRA Rule
2210(a)(2)'s definition of correspondence, however, defines
``correspondence,'' in part, as written communications distributed to
25 or fewer retail investors.\30\ The MSRB stated that it understands
that the one-person difference between Rule G-21 and FINRA Rule 2210
has created confusion and compliance challenges for dealers.\31\ The
MSRB stated that, to respond to this concern, proposed amended Rule G-
21(a)(ii) would eliminate that one-person difference, and, therefore,
under proposed amended Rule G-21, a form letter, in part, would be
defined as a written letter distributed to more than 25 persons.\32\
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    \28\ Id.
    \29\ Id.
    \30\ Id.
    \31\ Id.
    \32\ Id.
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    Supplementary Material .03 to proposed amended Rule G-21 would
explain the term ``person'' when used in the context of a form letter
under Rule G-21(a)(ii).\33\ Specifically, the MSRB noted, Supplementary
Material .03 would explain that the number of ``persons'' is determined
for the purposes of a response to a request for proposal (``RFP''),
request for qualifications (``RFQ'') or similar request at the entity
level.\34\
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    \33\ Id.
    \34\ Id.
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d. Technical Amendment to Rule G-21
    In the Notice of Filing, the MSRB stated that proposed amended Rule
G-21 would contain a technical amendment to Rule G-21(e).\35\ The MSRB
also stated that, to streamline and clarify the MSRB's rules, the
proposed rule change would delete references to the Financial Industry
Regulatory Authority, Inc. in Rule G-21(e)(ii)(F) and Rule G-21(e)(vi)
because, for example, reference to any applicable regulatory body is
sufficient and no limitation to any more narrow subset is intended.\36\
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    \35\ Id.
    \36\ Id.
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B. Proposed Rule G-40

    The MSRB stated that proposed Rule G-40, similar to Rule G-21,
would set forth general provisions, address professional advertisements
and require principal approval in writing for advertisements by
municipal advisors before their first use.\37\ However, the MSRB noted
that proposed Rule G-40 would not address product advertisements, as
that term is defined in Rule G-21.\38\ The MSRB also noted that
proposed Rule G-40(a) would define the terms advertisement, form letter
and municipal advisory client, and would provide content and general
standards for advertisements by a non-solicitor or a solicitor
municipal advisor.\39\
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    \37\ Id.
    \38\ Id.
    \39\ Id.
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a. Definitions
    According to the MSRB, the term ``advertisement'' in proposed Rule
G-40(a)(i) would parallel the term ``advertisement'' in proposed
amended Rule G-21(a)(i), but would be tailored for municipal
advisors.\40\ The MSRB stated that an advertisement would refer, in
part, to any promotional literature distributed or made generally
available to municipal entities, obligated persons, municipal advisory
clients, or the public by a municipal advisor.\41\ Further, the MSRB
stated that an advertisement would include the promotional literature
used by a solicitor municipal advisor to solicit a municipal entity or
obligated person on behalf of the solicitor municipal advisor's
municipal advisory client.\42\
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    \40\ Id.
    \41\ Id.
    \42\ Id.
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    In addition, the MSRB stated that, similar to proposed amended Rule
G-21(a)(i), proposed Rule G-40(a)(i) would exclude certain types of
documents from the definition of advertisement.\43\ Under proposed Rule
G-40, the documents that would be excluded would be preliminary
official statements, official statements, preliminary prospectuses,
prospectuses, summary prospectuses or registration statements.\44\
According to the MSRB, these exclusions recognize the differences
between the role of a dealer under Rule G-21 and the role of a
solicitor municipal advisor under proposed Rule G-40.\45\ The MSRB also
stated that, as with Rule G-21, an abstract or summary of those
documents or other such similar documents prepared by the municipal
advisor would be considered an advertisement.\46\ As an example, the
MSRB stated that a municipal advisor may assist with the preparation of
an official statement.\47\ The MSRB also stated that an official
statement would be excluded from the definition of an

advertisement.\48\ According to the MSRB, under proposed Rule G-
40(a)(i), the municipal advisor that assists with the preparation of an
official statement generally would not be assisting with an
advertisement and the municipal advisor's work on the official
statement generally would not be subject to the requirements of
proposed Rule G-40.\49\
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    \43\ Id.
    \44\ Id.
    \45\ Id.
    \46\ Id.
    \47\ Id.
    \48\ Id.
    \49\ Id.
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    The term ``form letter'' in proposed Rule G-40 would be identical
to the definition of that term set forth in proposed amended Rule G-
21(a)(ii).\50\ A form letter would be defined as any written letter or
electronic mail message distributed to more than 25 persons within any
period of 90 consecutive days.\51\
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    \50\ Id.
    \51\ Id.
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    Proposed Rule G-40, similar to proposed amended Rule G-21, would
include Supplementary Material .01 to clarify the number of ``persons''
for a response to an RFP, RFQ or similar request, when used in the
context of a form letter under proposed Rule G-40(a)(ii), is determined
at the entity level.\52\
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    \52\ Id.
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    Proposed Rule G-40(a)(iii), unlike Rule G-21, includes the
definition of the term ``municipal advisory client.'' \53\ The MSRB
stated that the definition of municipal advisory client would be
substantially similar in all material respects to the definition of
that term as set forth in the recent amendments to Rule G-8, effective
October 13, 2017, to address municipal advisory client complaint
recordkeeping.\54\ The MSRB stated that the definition of municipal
advisory client would account for differences in the activities of non-
solicitor and solicitor municipal advisors.\55\
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    \53\ Id.
    \54\ Id.
    \55\ Id.
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b. Proposed Rule G-40--Content Standards
    The MSRB stated that proposed Rule G-40(a)(iv) sets forth content
standards for advertisements.\56\ According to the MSRB, those content
standards would be substantially similar in all material respects to
the content standards set forth in proposed amended Rule G-21.\57\ The
MSRB noted that proposed Rule G-40 would replace certain terms used in
proposed amended Rule G-21 with terms more applicable to municipal
advisors.\58\ The MSRB stated that it believes that incorporating
content standards for advertisements into proposed Rule G-40 would
ensure consistent regulation between regulated entities in the
municipal securities market, as well as promote regulatory consistency
between dealer municipal advisors and non-dealer municipal
advisors.\59\
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    \56\ Id.
    \57\ Id.
    \58\ Id.
    \59\ Id.
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    As further described by the MSRB in the Notice of Filing, proposed
Rule G-40 would require that:
     An advertisement be based on the principles of fair
dealing and good faith, be fair and balanced and provide a sound basis
for evaluating the municipal security or type of municipal security,
municipal financial product, industry, or service and that a municipal
advisor not omit any material fact or qualification if such omission,
in light of the context presented, would cause the advertisement to be
misleading;
     an advertisement not contain any false, exaggerated,
unwarranted, promissory or misleading statement or claim;
     a municipal advisor limit the types of information placed
in a legend or footnote of an advertisement so as to not inhibit a
municipal advisory client's or potential municipal advisory client's
understanding of the advertisement;
     an advertisement provide statements that are clear and not
misleading within the context that they are made, that the
advertisement provides a balanced treatment of risks and potential
benefits, and that the advertisement is consistent with the risks
inherent to the municipal financial product or the issuance of the
municipal security;
     a municipal advisor consider the audience to which the
advertisement will be directed and that the advertisement provide
details and explanations appropriate to that audience;
     an advertisement not predict or project performance, imply
that past performance will recur or make any exaggerated or unwarranted
claim, opinion or forecast; and
     an advertisement not refer, directly or indirectly, to any
testimonial of any kind concerning the municipal advisor or concerning
the advice, analysis, report or other service of the municipal
advisor.\60\
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    \60\ Id.
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    The MSRB also stated in the Notice of filing that, by so doing,
proposed Rule G-40's content generally would promote regulatory
consistency with proposed amended Rule G-21.\61\
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    \61\ Id.
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    However, unlike proposed amended Rule G-21, proposed Rule G-40
would prohibit a municipal advisor from using a testimonial in an
advertisement.\62\ The MSRB stated that this prohibition is based in
part on the fiduciary duty that a non-solicitor municipal advisor (as
opposed to a dealer) owes its municipal entity clients.\63\ The MSRB
noted that investment advisers also are subject to fiduciary duty
standards.\64\
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    \62\ Id.
    \63\ Id.
    \64\ Id.
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    The MSRB stated that it believes that a testimonial in an
advertisement by a municipal advisor would present significant issues,
including the ability to be misleading.\65\ The MSRB noted that in
adopting Rule 206(4)-1 under the Investment Advisers Act of 1940, as
amended (the ``Advisers Act''), the rule that applies to advertisements
by registered investment advisers, the SEC found that the use of
testimonials in advertisements by an investment adviser was
misleading.\66\ The MSRB stated that Rule 206(4)-1 provides that the
use of a testimonial by an investment adviser would constitute a
fraudulent, deceptive, or manipulative act, practice, or course of
action.\67\ The MSRB stated that it believes prohibiting the use of
testimonials by municipal advisors under proposed Rule G-40 would
protect municipal entities and obligated persons, help ensure
consistent regulation between analogous regulated entities, and help
ensure a level playing field between municipal advisors/investment
advisers and other municipal advisors.\68\
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    \65\ Id.
    \66\ Id.
    \67\ Id.
    \68\ Id.
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    The MSRB stated that, apart from the content standards discussed
above, proposed Rule G-40(a)(iv)(H), similar to proposed amended Rule
G-21(a)(iii)(H), also would expand upon the guidance provided by Rule
A-12, on registration.\69\ Rule A-12(e) permits a municipal advisor to
state that it is MSRB registered in its advertising, including on its
website. Proposed Rule G-40(a)(iv)(H) would continue to permit a
municipal advisor to state that it is MSRB registered, but it would
also provide that a municipal advisor shall only state in an
advertisement that it is MSRB registered as long as, among other
things, the advertisement complies with the applicable standards of all
other MSRB rules and neither states nor

implies that the MSRB endorses, indemnifies, or guarantees the
municipal advisor's business practices, services, skills, or any
specific municipal security or municipal financial product.\70\
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    \69\ Id.
    \70\ Id.
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c. Proposed Rule G-40--General Standard for Advertisements
    In the Notice of Filing, the MSRB stated that proposed Rule G-
40(a)(v) would set forth a general standard with which a municipal
advisor must comply for advertisements.\71\ The MSRB stated that that
standard would require, in part, that a municipal advisor not publish
or disseminate, or cause to be published or disseminated, any
advertisement relating to municipal securities or municipal financial
products that the municipal advisor knows or has reason to know
contains any untrue statement of material fact or is otherwise false or
misleading.\72\ The MSRB believes that the knowledge standard as the
general standard for advertisements is appropriate.\73\ According to
the MSRB, proposed Rule G-40 is similar to proposed amended Rule G-
21(a)(iv) in all material respects, except proposed Rule G-40
substitutes ``municipal advisor'' for the term ``dealer'' and,
consistent with Section 15B(e)(4) of the Act, applies with regard to
municipal financial products in addition to municipal securities.\74\
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    \71\ Id.
    \72\ Id.
    \73\ Id.
    \74\ Id.
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d. Proposed Rule G-40--Professional Advertisements
    Proposed Rule G-40(b) would define the term ``professional
advertisement,'' and would provide the standard for such
advertisements. As defined in proposed Rule G-40(b)(i), a professional
advertisement would be an advertisement ``concerning the facilities,
services or skills with respect to the municipal advisory activities of
the municipal advisor or of another municipal advisor.'' Proposed Rule
G-40(b)(ii) would provide, in part, that a municipal advisor shall not
publish or disseminate any professional advertisement that contains any
untrue statement of material fact or is otherwise false or misleading.
    In the Notice of Filing, the MSRB stated that the strict liability
standard for professional advertisements in proposed Rule G-40(b)(ii)
is consistent with the MSRB's long-standing belief that a regulated
entity should be strictly liable for an advertisement about its
facilities, skills, or services, and that a knowledge standard is not
appropriate.\75\ The MSRB also stated that it has held this belief
since it developed its advertising rules for dealers over 40 years ago.
According to the MSRB, proposed Rule G-40(b) would be substantially
similar in all material respects to proposed amended Rule G-21(b).\76\
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    \75\ Id.
    \76\ Id.
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e. Proposed Rule G-40--Principal Approval
    Proposed Rule G-40(c) would require that each advertisement that is
subject to proposed Rule G-40 be approved in writing by a municipal
advisor principal--as defined under MSRB Rule G-3(e)(i)--before its
first use. Proposed Rule G-40(c) also would require that the municipal
advisor keep a record of all such advertisements. The MSRB stated that
proposed Rule G-40(c) is similar in all material respects to proposed
amended Rule G-21(f).\77\ The MSRB also stated that if the SEC approves
the proposed rule change, municipal advisors should update their
supervisory and compliance procedures required by Rule G-44, on
supervisory and compliance obligations of municipal advisors, to
address compliance with proposed Rule G-40(c).\78\
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    \77\ Id.
    \78\ Id.
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f. Proposed Rule G-40--Product Advertisements
    Proposed Rule G-40 would omit the provisions set forth in Rule G-21
regarding product advertisements, new issue product advertisements, and
municipal fund security product advertisements. The MSRB stated that it
understands, at this juncture, that municipal advisors most likely do
not prepare such advertisements, as municipal advisors generally
advertise their municipal advisory services and not products.\79\
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    \79\ Id.
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III. Summary of Comments Received and MSRB's Responses to Comments

    As noted previously, the Commission received four comment letters
in response to the Notice of Filing. The MSRB responded to the comment
letters on the Notice of Filing in its Response Letter.\80\
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    \80\ See Response Letter.
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A. Comments Received Regarding Proposed Amended Rule G-21

    In response to the Notice of Filing, two commenters primarily
addressed proposed Rule G-21.\81\ Specifically, these commenters
focused on (i) proposed amended Rule G-21's consistency with FINRA Rule
2210, (ii) the provision of additional exclusions from the definition
of an ``advertisement,'' (iii) the allowance of hypothetical
illustrations in advertisements, (iv) the provision of jurisdictional
guidance under Rule G-21 relating to dealer/municipal advisors, and (v)
the economic analysis the MSRB provided regarding proposed amended Rule
G-21.\82\ Both commenters recommended that the Commission disapprove
the proposed rule change.\83\
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    \81\ See BDA Letter and SIFMA Letter.
    \82\ Id.
    \83\ Id.
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a. Request for Additional Amendments to Proposed Amended Rule G-21 To
Promote Consistency With FINRA Rule 2210
    Commenters supported proposed amended Rule G-21's promotion of
regulatory consistency with FINRA Rule 2210, but believed that the
amendments should be further harmonized with FINRA Rule 2210 by
adopting that rule's (i) definition of ``communications'' and the
distinctions in FINRA Rule 2210 that follow from that definition\84\
and (ii) provisions on the use of testimonials,\85\ or by incorporating
FINRA Rule 2210 by reference into Rule G-21.\86\ Further, to promote
regulatory consistency among proposed amended Rule G-21 and proposed
Rule G-40 and FINRA Rule 2210, commenters suggested that the
definitions and product advertisement and professional advertisement
sections could be deleted from proposed amended Rule G-21 and proposed
Rule G-40.\87\
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    \84\ Id.
    \85\ Id.
    \86\ See BDA Letter.
    \87\ See BDA Letter and SIFMA Letter.
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i. Proposed Amended Rule G-21 Definition of ``Communication''
    BDA and SIFMA suggested that the MSRB go beyond the MSRB's stated
purpose of the proposed amendments, i.e., to promote, in part,
regulatory consistency among proposed amended Rule G-21 and the
advertising rules of other financial regulators. Instead, BDA and SIFMA
suggested that the MSRB ``harmonize'' Rule G-21 with FINRA Rule 2210 by
adopting FINRA Rule 2210's definition of ``communications'' and the
distinctions in the rule that follow from that definition. BDA stated
that ``[i]n order for harmonization of MSRB rules with FINRA rules to
be successful, MSRB must follow this general framework for MSRB Rule G-

21.'' Further, SIFMA commented that the ``MSRB has not justified the
need for differences from the FINRA advertising rule.'' In particular,
commenters favored the harmonization with FINRA Rule 2210's
communications definition because institutional communications would no
longer be subject to pre-approval by a principal. BDA and SIFMA
submitted that, if the MSRB were to do so, dealers then could apply
common approval processes for institutional communications across all
asset classes. Alternatively, SIFMA suggested that, to provide even
greater clarity, the MSRB revise proposed amended Rule G-21(a)(i) and
proposed Rule G-40(a)(i) to add the term ``otherwise'' before the
phrase ``made generally available to municipal entities, obligated
persons, municipal advisory clients or the public . . .'' \88\ BDA
stated that principal pre-approval of advertisements imposes
``completely unnecessary burdens on dealers'' and that ``[i]f MSRB has
a rule that applies different definitions and different sets of
responsibilities to municipal securities and does not differentiate
between communications sent to retail and institutional customers, it
will have created a new and unnecessarily increased regulatory burden
along with considerable confusion for broker-dealers.'' \89\
---------------------------------------------------------------------------

    \88\ See SIFMA Letter.
    \89\ See BDA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that it believes that BDA's and
SIFMA's comments fail to recognize the statutory principles set forth
in the Act that underlie the differences between FINRA's communications
rule and the MSRB's advertising rule.\90\ To explain the differences
between the MSRB's advertising rule and FINRA's communication rule, the
MSRB provided a description of the statutory authority granted by the
Act to the MSRB and FINRA to promulgate rules to regulate its
registrants and members, respectively, and provided a recitation of
differences between the corporate and municipal securities market that,
the MSRB stated, necessitate differences between FINRA's communication
rule and the MSRB's advertising rules.\91\ The MSRB noted that, unlike
FINRA members, MSRB registrants are not ``members'' of the MSRB.\92\
Rather, the MSRB stated, a dealer or municipal advisor becomes subject
to MSRB rules based on the dealer's or municipal advisor's activities;
those activities may require the dealer or municipal advisor to
register with the SEC and the MSRB.\93\ The MSRB further stated that
the corporate securities markets and municipal securities markets are
different--if only because, unlike with a corporate bond, interest on a
municipal security may not be subject to federal income tax.\94\
---------------------------------------------------------------------------

    \90\ See Response Letter.
    \91\ Id.
    \92\ Id.
    \93\ Id.
    \94\ Id.
---------------------------------------------------------------------------

    The MSRB also stated that because the Act limits the MSRB's
jurisdiction to the municipal securities market, the MSRB's rulemaking
authority also is limited, in part, to dealers effecting transactions
in municipal securities and advice provided to or on behalf of
municipal entities by such dealers, and by municipal advisors with
respect to municipal financial products, the issuance of municipal
securities, and solicitations of municipal entities or obligated
persons undertaken by dealers and municipal advisors.\95\ The MSRB also
noted that, similar to FINRA's rules, the MSRB's rules are designed to
protect investors and the public interest.\96\ However, the MSRB noted
that, unlike FINRA's rules, Section 15B of the Act requires that the
MSRB's rules also be designed to protect municipal entities and
obligated persons.\97\ The MSRB further stated that Section 15B of the
Act does not provide the MSRB with the authority to enforce its own
rules.\98\ Rather, the MSRB noted, the MSRB's rules are enforced by
other financial regulators, including FINRA and the SEC.\99\
---------------------------------------------------------------------------

    \95\ Id.
    \96\ Id.
    \97\ Id.
    \98\ Id.
    \99\ Id.
---------------------------------------------------------------------------

    The MSRB stated that, in furtherance of the intent of Congress that
the MSRB develop a prophylactic framework of regulation for the
municipal securities industry, the MSRB developed its fair practice
rules, including its advertising rules, to codify basic standards of
fair and ethical business conduct for municipal securities
professionals.\100\ The MSRB stated that its advertising rules serve an
important function to help prevent fraud from entering the marketplace
and to protect investors, particularly retail investors, consistent
with the MSRB's mission to protect municipal securities investors.\101\
The MSRB further stated that, since 1978, when the MSRB first adopted
its advertising rules, the MSRB has based its advertising regulation on
the MSRB's fair practice principles and the important supervisory
function of principal pre-approval along with liability provisions and
document retention requirements to regulate advertisements by
dealers.\102\ By so doing, the MSRB stated, the MSRB's regulatory
regime in general relied on the firm and its policies and procedures
related to the supervision of an advertisement, with the degree of
liability for the advertisement based on advertisement type.\103\ The
MSRB added that, consistent with the MSRB's reliance on other financial
regulators to enforce MSRB rules, a dealer neither files any of its
advertisements with, nor receives a substantive review of any of those
advertisements, by the MSRB.\104\ Rather, according to the MSRB, the
dealer must retain records relating to the advertisement, and those
records must be available for inspection by other financial
regulators.\105\ Thus, the MSRB stated, MSRB's advertising regulations
in general draw a sharp distinction from FINRA Rule 2210.\106\
---------------------------------------------------------------------------

    \100\ Id.
    \101\ Id.
    \102\ Id.
    \103\ Id.
    \104\ Id.
    \105\ Id.
    \106\ Id.
---------------------------------------------------------------------------

    In response to BDA's comment that having different definitions and
different sets of responsibilities imposed by proposed amended Rule G-
21 and FINRA Rule 2210 would result in ``new and unnecessarily
increased regulatory burden along with considerable confusion for
broker-dealers. . . .'', the MSRB stated that the requirements in
proposed amended Rule G-21, however, are not newly proposed and that
they have been, and continue to be, core principles on which the MSRB's
advertising regulation is based.\107\ The MSRB added that Rule G-21
currently requires that a municipal securities principal or general
securities principal approve each advertisement in writing prior to
first use.\108\ The MSRB stated that it continues to believe that it is
an important supervisory function to have a principal pre-approve an
advertisement regardless of the intended recipient of the advertisement
along with the liability provisions associated with the advertisement
type.\109\ The MSRB also stated that supervisory pre-approval, as
opposed to submission of an advertisement and substantive review of an
advertisement by MSRB staff, serves as an important investor protection
in what has been recognized as a municipal bond market that ``embraces
a multi-faceted, complex array of state and local public debt.'' \110\

The MSRB stated that it has determined not to depart from the
longstanding principles on which the MSRB has based its advertising
regulations.\111\
---------------------------------------------------------------------------

    \107\ Id.
    \108\ Id.
    \109\ Id.
    \110\ Id.
    \111\ Id.
---------------------------------------------------------------------------

ii. Use of Testimonials Under Proposed Amended Rule G-21
    BDA urged the MSRB to permit testimonials in dealer advertising to
better harmonize Rule G-21 with FINRA Rule 2210.\112\ BDA stated that
to do otherwise would result in confusion and an inconsistent
``patchwork'' approach to make portions of FINRA rules applicable to
dealers under MSRB rules.\113\ The MSRB stated that proposed amended
Rule G-21, in fact, would permit dealer advertisements to contain
testimonials under the same conditions as are currently set forth in
FINRA Rule 2210(d)(6).\114\
---------------------------------------------------------------------------

    \112\ See BDA Letter.
    \113\ Id.
    \114\ See Response Letter.
---------------------------------------------------------------------------

iii. Incorporation of FINRA Rule 2210 by Reference Into Proposed
Amended Rule G-21
    SIFMA commented that, while it supported the MSRB's efforts to
level the playing field between dealers and municipal advisors, the
better way to level that playing field, as well as to promote
harmonization with FINRA's rules, is for the MSRB to incorporate FINRA
Rule 2210 by reference into the MSRB's rules.\115\ Nevertheless, SIFMA
did not propose that the MSRB incorporate FINRA Rule 2210 in its
entirety by reference into Rule G-21.\116\ Rather, SIFMA submitted that
certain provisions of FINRA Rule 2210(c) relating to the filing of
advertisements with FINRA and the review procedures for those
advertisements were unnecessary and burdensome and should not be
included.\117\ Further, SIFMA recognized that there may be a need for
certain MSRB regulation of dealer and municipal advisor
advertising.\118\ SIFMA stated that ``[w]ith respect to advertising or
public communications for most municipal securities products (except
for municipal advisory business and municipal fund securities), we feel
there is no compelling reason to establish a different rule set than
that which exists under FINRA Rule 2210.'' \119\
---------------------------------------------------------------------------

    \115\ See SIFMA Letter.
    \116\ Id.
    \117\ Id.
    \118\ Id.
    \119\ Id.
---------------------------------------------------------------------------

    The MSRB responded to SIFMA's comments by stating that the
differences between FINRA's and the MSRB's statutory mandates account
for certain of the differences between FINRA's communications rules and
the MSRB's advertising rule, and that commenters' suggestions fail to
recognize the importance of those differences.\120\ The MSRB stated
that FINRA's communications rules regulate the activities of its
members in the broader corporate securities markets, where the
securities ``are relatively homogenous within major categories.'' \121\
Further, the MSRB stated, FINRA enforces its own rules.\122\ By
contrast, the MSRB stated, the MSRB's statutory mandate is limited to
the regulation of dealers and municipal advisors in the municipal
securities market, a market that embraces a multi-faceted, complex
array of state and local public debt as well as municipal fund
securities, such as interests in 529 savings plans.\123\ Moreover, the
MSRB reiterated that it does not enforce its rules; other financial
regulators enforce MSRB rules.\124\
---------------------------------------------------------------------------

    \120\ See Response Letter.
    \121\ Id.
    \122\ Id.
    \123\ Id.
    \124\ Id.
---------------------------------------------------------------------------

    The MSRB further noted that, as it had previously discussed in the
Notice of Filing, Rule G-21 is one of the MSRB's core fair practice
rules that has been in effect since 1978.\125\ In proposing those
rules, the MSRB stated the purpose of the fair practice rules is to
codify basic standards of fair and ethical business conduct for
municipal securities professionals.\126\ The MSRB stated that it has
based its advertising rules on the MSRB's fair practice principles and
the important supervisory function of principal pre-approval along with
liability provisions to regulate advertisements by dealers.\127\ The
MSRB stated that it believes that it would not fully meet its
responsibilities under the Act to promote a fair and efficient
municipal market with appropriately tailored regulation if it were to
simply incorporate an advertising rule designed for other markets, as
suggested by SIFMA, particularly when advertising regulation has been
the subject of a long-standing MSRB fair practice rule to help prevent
fraud from entering the municipal securities market.\128\
---------------------------------------------------------------------------

    \125\ Id.
    \126\ See Response Letter and Notice of Filing.
    \127\ See Response Letter.
    \128\ Id.
---------------------------------------------------------------------------

    Further, the MSRB noted that if the MSRB were to incorporate FINRA
Rule 2210 by reference, and if FINRA or its staff were to provide an
interpretation of FINRA Rule 2210, the MSRB could appear to be adopting
that interpretation without considering the interpretation's
ramifications for the special characteristics of the municipal
securities market. The MSRB stated that, consistent with its statutory
mandate, FINRA adopts rules for the broader corporate securities
markets that include the corporate equity and debt markets.\129\ The
MSRB further stated that FINRA's rules are not tailored to the unique
regulatory needs of the municipal securities market.\130\ The MSRB
stated that, at a minimum, if it were to incorporate FINRA Rule 2210 by
reference, the MSRB would have to consider the ramifications of any
future interpretations of FINRA Rule 2210 for the municipal securities
market.\131\
---------------------------------------------------------------------------

    \129\ Id.
    \130\ Id.
    \131\ Id.
---------------------------------------------------------------------------

    In addition, the MSRB stated that there are municipal securities
dealers that are not members of FINRA; those municipal securities
dealers should not necessarily be expected to keep abreast of FINRA
rule interpretations.\132\ The MSRB stated that after carefully
considering SIFMA's suggestions, including the recognition of the
important differences between the municipal securities market and the
corporate securities market, the MSRB determined not to incorporate
FINRA Rule 2210 by reference into Rule G-21.\133\
---------------------------------------------------------------------------

    \132\ Id.
    \133\ Id.
---------------------------------------------------------------------------

iv. Definition of Standards for Product and Professional Advertisements
    BDA commented that the definitions of standards for product
advertisements and professional advertisements were ``made redundant by
the inclusion of the proposed general and content standards of proposed
G-21 and G-40[,]'' and that ``these provisions should be deleted to
signify that these types of communications are covered by the general
and content standards of the proposed rule.'' \134\
---------------------------------------------------------------------------

    \134\ See BDA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that although the provisions in
proposed amended Rule G-21 and proposed Rule G-40 are analogous to the
current provisions in Rule G-21, there are differences in those
provisions.\135\ For example, the MSRB noted, Rule G-21(b) contains a
strict liability standard relating to the publication or dissemination
of professional advertisements.\136\ The MSRB stated that since it
first proposed Rule G-21, the MSRB has believed that ``a strict
standard of responsibility for securities

professionals [is necessary] to assure that their advertisements are
accurate.'' \137\ The MSRB stated that it has based its advertising
regulation on the MSRB's long-standing fair practice principles and the
important supervisory function of principal pre-approval along with
liability and document retention provisions to regulate advertisements
by dealers.\138\ The MSRB stated that, after careful consideration, it
determined at this time not to delete the standards for product and
professional advertisements.\139\
---------------------------------------------------------------------------

    \135\ See Response Letter.
    \136\ Id.
    \137\ See Response Letter and Notice of Filing.
    \138\ See Response Letter.
    \139\ Id.
---------------------------------------------------------------------------

b. Potential Additional Exclusions From the Definition of
``Advertisement''
    Commenters suggested additional exclusions from the definition of
an advertisement related to private placement memoranda \140\ and
responses to RFPs or RFQs.\141\
---------------------------------------------------------------------------

    \140\ See BDA Letter and SIFMA Letter.
    \141\ Id.
---------------------------------------------------------------------------

i. Private Placement Memoranda and Limited Offering Memoranda
    BDA and SIFMA commented that, as part of its harmonization effort,
the MSRB should exclude private placement memoranda and limited
offering memoranda from the definition of advertisement in proposed
amended Rule G-21.\142\ SIFMA suggested that such harmonization would
be consistent with the exception from FINRA's content standards found
in FINRA Rule 2210(d)(9).\143\ SIFMA also suggested that private
placement memoranda and limited offering memoranda be excluded from the
definition of an ``advertisement'' in proposed Rule G-40.\144\ BDA
noted that ``private placement memoranda and limited offering memoranda
are frequently used as offering memoranda and thus should be excluded
alongside preliminary offering statements [from the definition of an
``advertisement''].'' \145\
---------------------------------------------------------------------------

    \142\ Id.
    \143\ See SIFMA Letter.
    \144\ Id.
    \145\ See BDA Letter.
---------------------------------------------------------------------------

    The MSRB stated that it understands BDA's comment as follows:
because private placement memoranda and limited offering memoranda are
used as a preliminary offering statement would be used, a private
placement memorandum and a limited offering memorandum should be
excluded from the definition of an ``advertisement'' on the same basis
that a preliminary offering statement is excluded from that
definition.\146\ The MSRB, however, stated that after careful
consideration it determined not to exclude private placement memoranda
and limited offering memoranda from the definition of an
advertisement.\147\ The MSRB stated that the purpose of the proposed
rule change, in part, was not to fully harmonize Rule G-21 with FINRA
Rule 2210, as suggested by commenters.\148\ Rather, the purpose of the
proposed rule change, in part, was to promote regulatory consistency
among the advertising rules of other financial regulators.\149\ The
MSRB also noted that FINRA Rule 2210 does not provide a similar
exclusion.\150\ The MSRB added that, for almost 40 years, it has
limited the exclusions to the definition of an advertisement to issuer
prepared documents that are widely disseminated.\151\ The MSRB stated
that, similarly, FINRA Rule 2210 does not exclude a private placement
memorandum from the definition of a ``communication.'' \152\ Rather,
the MSRB stated, FINRA Rule 2210 provides limited exclusions from FINRA
Rule 2210(c)'s filing requirements and from Rule 2210(d)'s content
standards for prospectuses, preliminary prospectuses, fund profiles,
offering circulars and similar documents that have been filed with the
SEC or any state and similar offering documents concerning securities
offerings that are exempt from SEC and state registration requirements
and free writing prospectuses that are exempt from filing with the
SEC.\153\ The MSRB stated that the exclusions from FINRA Rule 2210
avoid regulatory duplication.\154\ Moreover, the MSRB noted, SIFMA
stated that dealers or municipal advisors may have played a role in
preparing the private placement memoranda or limited offering
memoranda.\155\ The MSRB stated that FINRA clearly has stated that in
such cases, FINRA Rule 2210 would apply to dealers.\156\
---------------------------------------------------------------------------

    \146\ See Response Letter.
    \147\ Id.
    \148\ Id.
    \149\ Id.
    \150\ Id.
    \151\ Id.
    \152\ Id.
    \153\ Id.
    \154\ Id.
    \155\ Id.
    \156\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it continues to believe that it can best
fulfill its mission to protect investors, municipal entities, obligated
persons, and the public interest by retaining the narrow exclusions
from the definition of an advertisement that are currently set forth in
Rule G-21 and that would be set forth in proposed Rule G-40.\157\ In so
doing, the MSRB stated that it believes, consistent with its regulatory
charge and mission, that it is best able to prevent potential fraud
from entering the municipal securities market.\158\ Thus, the MSRB
stated that it has determined, consistent with FINRA Rule 2210, not to
exclude those materials from the scope of proposed amended Rule G-
21.\159\
---------------------------------------------------------------------------

    \157\ Id.
    \158\ Id.
    \159\ Id.
---------------------------------------------------------------------------

    BDA also commented that, ``[a]s part of its harmonization effort,
the MSRB should exclude [from the scope of Rule G-21] materials that
are comparable to offering materials that accompany preliminary
official statements, such as investor roadshow presentations and other
similar materials information [sic].'' \160\
---------------------------------------------------------------------------

    \160\ See BDA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that an investor road show may be a
written offer that contains a presentation about an offering by one or
more members of the issuer's management and includes discussion of one
or more of the issuer, such management and the securities being
offered.\161\ The MSRB further stated that a written investor road show
in general is a free writing prospectus that is not required to be
filed with the SEC.\162\ The MSRB stated that it recognizes that an
investor road show may be used in connection with a private placement,
as well as to accompany a preliminary official statement provided to
institutional investors, and, in some cases, the investor road show may
be made available to retail investors in municipal securities.\163\
---------------------------------------------------------------------------

    \161\ See Response Letter.
    \162\ Id.
    \163\ Id.
---------------------------------------------------------------------------

ii. Response to an RFP or RFQ
    BDA and SIFMA commented that the MSRB should amend Rule G-21 (BDA,
SIFMA, and NAMA also made similar comments with respect to proposed
Rule G-40) to exclude a response to an RFP or RFQ from the definition
of an advertisement.\164\ Commenters submitted that it was not
appropriate for the MSRB to regulate responses to requests for
proposals or qualifications the same way that the MSRB regulates
``retail communications''--i.e., possibly requiring principal approval
in writing before sending the response to the RFP or RFQ to an
issuer.\165\
---------------------------------------------------------------------------

    \164\ See BDA Letter and SIFMA Letter.
    \165\ Id.
---------------------------------------------------------------------------

    The MSRB stated that it agrees, and provided supplementary material
in the proposed rule change to provide clarification to proposed
amended Rule

G-21's definition of a ``form letter''.\166\ The MSRB stated that it
believes that a response to an RFP or RFQ would generally not be within
the definition of an advertisement primarily because such responses
would not meet the definition of a form letter in proposed amended Rule
G-21(a)(ii) and proposed Rule G-40(a)(ii).\167\ The MSRB stated that
Supplementary Material .03 to proposed amended Rule G-21 and
Supplementary Material .01 to proposed Rule G-40 explain that an entity
that receives a response to an RFP, RFQ or similar request would count
as one ``person'' for the purposes of the definition of a form letter
no matter the number of employees of the entity who may review the
response.\168\ Further, the MSRB stated that the unilateral publication
of a response to an RFP or RFQ or similar request by an issuer official
would not make that response an advertisement.\169\ The MSRB noted
that, nevertheless, such responses are subject to MSRB Rule G-17, on
conduct of municipal securities and municipal advisory activities.\170\
The MSRB added that, given the supplementary material contained in
proposed amended Rule G-21 and proposed Rule G-40, the MSRB believes
that no additional provisions are necessary at this time to address
commenters' concerns.\171\
---------------------------------------------------------------------------

    \166\ See Response Letter.
    \167\ Id.
    \168\ Id.
    \169\ Id.
    \170\ Id.
    \171\ Id.
---------------------------------------------------------------------------

    SIFMA requested guidance under proposed Rule G-40 about whether an
email that only includes required regulatory disclosures that is sent
to more than 25 municipal advisory clients through blind copies would
constitute an advertisement.\172\ In response, the MSRB stated that
such emails containing only required regulatory disclosures would not
constitute advertisements under proposed Rule G-40.\173\ The MSRB added
that those emails would not be published or used in any electronic or
other public media and would not constitute written or electronic
promotional literature.\174\ The MSRB also stated that if an email that
contained a required regulatory disclosure also included material that
was promotional in nature and sent to more than 25 persons within any
period of 90 consecutive days, that email could constitute an
advertisement and would be subject to proposed Rule G-40.\175\
---------------------------------------------------------------------------

    \172\ See SIFMA Letter.
    \173\ See Response Letter.
    \174\ Id.
    \175\ Id.
---------------------------------------------------------------------------

c. Hypothetical Illustrations
    The Response Letter noted that FINRA had recently requested comment
on draft amendments to FINRA Rule 2210 to create an exception to the
rule's prohibition on projecting performance to permit a firm to
distribute a customized hypothetical investment planning illustration
that includes the projected performance of an investment strategy.\176\
SIFMA commented that the MSRB should include a similar exception in the
proposed rule change.\177\ The MSRB noted that it had asked in its
initial Request for Comment whether it should consider a similar
proposal, in part to promote regulatory consistency among the
advertising regulations of financial regulators.\178\ The MSRB noted
that the comment period on FINRA's draft amendments to FINRA Rule 2210
closed March 27, 2017, and FINRA has not yet announced any next
rulemaking steps.\179\ The MSRB determined that it would be premature
to include provisions to address FINRA's draft amendments to Rule 2210
in the proposed rule change before FINRA determines how to proceed with
those draft amendments and before the SEC has taken action with respect
to the proposed rule change.\180\ The MSRB also stated that such action
currently would not promote regulatory consistency among the
advertising regulations of financial regulators, but that it will
continue to monitor the FINRA initiative.\181\
---------------------------------------------------------------------------

    \176\ See Response Letter and MSRB Notice 2017-04, Request for
Comment on Draft Amendments to MSRB Rule G-21, on Advertising, and
on Draft Rule G-40, on Advertising by Municipal Advisors (Feb. 16,
2017) (``Request for Comment'').
    \177\ See SIFMA Letter.
    \178\ See Response Letter and Request for Comment.
    \179\ See Response Letter.
    \180\ Id.
    \181\ Id.
---------------------------------------------------------------------------

d. Dealer/Municipal Advisor Jurisdictional Guidance
    SIFMA commented that the MSRB should provide guidance and/or
exemptions from proposed amended Rule G-21 for dealer/municipal
advisors.\182\ Specifically, SIFMA suggested that the MSRB amend Rule
G-21 to clarify that the activities of dealer/municipal advisors are
governed by proposed Rule G-40 when those dealer/municipal advisors are
engaging in municipal advisor advertising.\183\
---------------------------------------------------------------------------

    \182\ See SIFMA Letter.
    \183\ Id.
---------------------------------------------------------------------------

    In response, the MSRB stated that it believes, consistent with its
statutory mandate, that a dealer or a municipal advisor only becomes
subject to MSRB rules based on its activities, and that the MSRB's
advertising rules are based, in part, on the activities in which the
dealers or municipal advisors engage.\184\ The MSRB noted, for example,
that if a dealer/municipal advisor publishes a print advertisement
relating to the sale of municipal bonds, those activities would be
subject to Rule G-21.\185\ Similarly, the MSRB stated, if the dealer/
municipal advisor prepares a professional advertisement about its
municipal advisory services that it then circulates to municipal
entities, that advertisement would be subject to proposed Rule G-
40.\186\ The MSRB agreed that as currently drafted, certain provisions
of proposed amended Rule G-21 and proposed Rule G-40 are similar.\187\
For example, the MSRB stated, as noted by commenters, the content
standards of each rule are similar.\188\ The MSRB stated that to the
extent that there are differences between proposed amended Rule G-21
and proposed Rule G-40, those differences are based, in part, on the
activities in which a dealer or municipal advisor engages.\189\ Thus,
the MSRB concluded that such jurisdictional guidance may not be needed
at this time because of the similarities between proposed amended Rule
G-21 and proposed Rule G-40.\190\
---------------------------------------------------------------------------

    \184\ See Response Letter.
    \185\ Id.
    \186\ Id.
    \187\ Id.
    \188\ Id.
    \189\ Id.
    \190\ Id.
---------------------------------------------------------------------------

    Nevertheless, the MSRB stated that jurisdictional guidance relating
to dealer/municipal advisors under Rule G-21 may be beneficial in the
future, and the MSRB expects to begin to address such issues in its
next fiscal year.\191\ The MSRB believes that its regulation of
financial advisory activities (as an element of municipal securities
activity) should remain in place at least until its advertising rule
for municipal advisors is approved by the Commission and the
professional qualification examinations for municipal advisors have
been filed by the MSRB with the Commission.\192\ The MSRB also stated
that it had recently approved the filing of the Municipal Advisor
Principal Qualification Examination Content Outline (Series 54) to
formally establish the Series 54 examination.\193\ However, in
recognition, in part, of the challenges faced by dealer/municipal
advisors, the MSRB expects to begin to address such jurisdictional
issues during its next

fiscal year.\194\ Thus, after careful consideration of the commenter's
suggestions, the MSRB\195\ determined not to revise proposed amended
Rule G-21 to reflect the commenter's request.
---------------------------------------------------------------------------

    \191\ Id.
    \192\ Id.
    \193\ Id.
    \194\ Id.
    \195\ Id.
---------------------------------------------------------------------------

e. Economic Analysis of Proposed Amended Rule G-21
    SIFMA commented that the advertising rules should be structured
based on activity and not by registration.\196\
---------------------------------------------------------------------------

    \196\ See SIFMA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that it does consider the nature and
scope of dealer and municipal advisor activities when it develops
rules, and that the proposed rule change, in fact, is based on
respective activities of dealers and municipal advisors.\197\
Additionally, the MSRB stated that although dealer/municipal advisors
will be governed by both proposed amended Rule G-21 and proposed Rule
G-40, dual-registrants should recognize that advertisements that are
solely related to dealer activities would only be subject to proposed
amended Rule G-21.\198\ Likewise, the MSRB noted, advertisements that
are solely related to municipal advisory activities would only be
subject to proposed Rule G-40.\199\ The MSRB also stated that because
the baseline is current Rule G-21, the MSRB believes that at least some
of the costs associated with dealer advertising compliance are already
reflected in existing costs.\200\ The MSRB believes that many of the
new or increased costs associated with proposed amended Rule G-21 would
be up-front costs from initial compliance development such as updating
or rewriting policies and procedures.\201\ Finally, the MSRB stated
that the proposed amended Rule G-21 will promote regulatory consistency
with FINRA's rules that should, in fact, promote efficiency and be
beneficial to regulated entities.\202\
---------------------------------------------------------------------------

    \197\ See Response Letter.
    \198\ Id.
    \199\ Id.
    \200\ Id.
    \201\ Id.
    \202\ See Response Letter.
---------------------------------------------------------------------------

B. Comments Received Regarding Proposed Rule G-40

    Two comment letters primarily focused on proposed Rule G-40.\203\
These commenters focused on (i) the ability of the MSRB to regulate
advertising by municipal advisors through other MSRB rules without
proposed Rule G-40, (ii) suggested revisions to proposed Rule G-40's
content standards, (iii) the suggested adoption of the relief that SEC
staff provided to investment advisers relating to testimonials in
advertisements, (iv) principal pre-approval, (v) guidance relating to
municipal advisor websites and the use of social media, and (vi) the
economic analysis.\204\ One commenter agreed with many of the
provisions of proposed new Rule G-40.\205\ The other commenter,
although in agreement that municipal advisors should engage in
advertisements based on the principles of fair dealing and good faith,
recommended that the MSRB withdraw proposed Rule G-40.\206\
---------------------------------------------------------------------------

    \203\ See NAMA Letter and PFM Letter.
    \204\ Id.
    \205\ See PFM Letter.
    \206\ See NAMA Letter.
---------------------------------------------------------------------------

a. Ability To Regulate Municipal Advisor Advertising Through Other
Rules
    NAMA commented that proposed Rule G-40 is not necessary because the
protections offered by Rule G-17 provide sufficient investor protection
from misleading statements.\207\
---------------------------------------------------------------------------

    \207\ Id.
---------------------------------------------------------------------------

    In response, the MSRB stated that adopting the course of action
suggested by NAMA not only would be inconsistent with the MSRB's
statutory mandate, but also would create an un-level playing field in
the municipal securities market.\208\ The MSRB stated that the United
States Congress charged the MSRB with the responsibility to create a
new regulatory regime for municipal advisors that, in part, requires
the MSRB to protect municipal entities as well as obligated
persons.\209\ The MSRB added that to fulfill those statutory
responsibilities, the MSRB has tailored its developing municipal
advisor regulatory regime, as appropriate, to reflect the differences
in the roles and responsibilities of municipal advisors and dealers in
the municipal securities market.\210\ The MSRB stated that it has long
recognized that the market for municipal advisory services is separate
and distinct from the market for services of municipal securities
brokers and dealers, and as such, it is appropriate and reasonable to
tailor MSRB rules for municipal advisors.\211\
---------------------------------------------------------------------------

    \208\ See Response Letter.
    \209\ Id.
    \210\ Id.
    \211\ Id.
---------------------------------------------------------------------------

    The MSRB stated that one of the ways that fraud may enter the
market for municipal advisory services is through advertising.\212\ The
MSRB added that, consistent with its statutory mandate, the MSRB
designed proposed Rule G-40 to help prevent fraudulent and manipulative
practices in the market for municipal advisory services, and tailored
proposed Rule G-40 to reflect the types of advertisements that
municipal advisors publish.\213\ The MSRB stated that regulating
advertising by municipal advisors through Rule G-17 would be
inconsistent with the MSRB's statutory mandate to protect municipal
entities and obligated persons.\214\ According to the MSRB, Rule G-17
sets forth the MSRB's fair dealing principles; Rule G-17 does not
provide particular guidance on how a municipal advisor should apply
those principles to its advertisements.\215\ By contrast, the MSRB
noted, proposed Rule G-40 provides the detail needed to enable
municipal advisors through specific conduct to better comply with those
fair dealing principles as they relate to advertising.\216\
---------------------------------------------------------------------------

    \212\ Id.
    \213\ Id.
    \214\ Id.
    \215\ Id.
    \216\ Id.
---------------------------------------------------------------------------

    Moreover, the MSRB believes that relying on Rule G-17 to regulate
municipal advisor advertising would create an un-level playing field,
and would be contrary to the recommendations of other market
participants.\217\ The MSRB stated that this un-level playing field
would be between municipal advisors (subject to Rule G-17, but not Rule
G-21) and dealers (subject to both Rules G-17 and G-21) and among
municipal advisors that are not registered as dealers and municipal
advisors that are also registered as dealers or investment advisers
(subject to Rule G-21 and FINRA Rule 2210 or Rule 206(4)-1 under the
Investment Advisers Act of 1940, as amended, (the ``Advisers Act''), as
relevant).\218\ Further, the MSRB noted that other commenters believed
that having a separate rule to address advertising by municipal
advisors would be helpful as dealers and municipal advisors have
different roles and responsibilities in the municipal securities
market.\219\ Therefore, after careful consideration, the MSRB
determined to address advertising by municipal advisors through
proposed Rule G-40.\220\
---------------------------------------------------------------------------

    \217\ Id.
    \218\ Id.
    \219\ Id.
    \220\ Id.
---------------------------------------------------------------------------

b. Definition of ``Advertisement'' Under Proposed Rule G-40
    NAMA commented that the general information exclusions from the
definition of ``advice'' under Rule 15Ba1-1(d)(1)(ii) under the Act
that

would permit a municipal advisor to not register with the SEC should
equally apply as exclusions to the MSRB's municipal advisor advertising
rule.\221\
---------------------------------------------------------------------------

    \221\ See NAMA Letter.
---------------------------------------------------------------------------

    In response to NAMA's comment, the MSRB stated that the purpose of
proposed Rule G-40, in part, is to ensure that municipal advisor
advertising does not contain any untrue statement of material fact and
is not otherwise false or misleading. The MSRB also stated that
regardless of whether certain information rises to the level of advice,
that information may be advertising used to market to potential
municipal advisory clients.\222\ The MSRB believes this type of
information should be covered by proposed Rule G-40, as the MSRB is
obligated to protect municipal entities under the Act.\223\ The MSRB
reiterated that Congress mandated that the MSRB protect investors;
municipal entities, including issuers of municipal securities;
obligated persons; and the public interest.\224\ Thus, after
considering commenters' suggestions, the MSRB determined not to include
additional exceptions from the definition of an ``advertisement'' in
proposed Rule G-40.\225\
---------------------------------------------------------------------------

    \222\ See Response Letter.
    \223\ Id.
    \224\ Id.
    \225\ Id.
---------------------------------------------------------------------------

c. Proposed Rule G-40's Content Standards
    In the NAMA Letter, NAMA requested that the MSRB revise proposed
Rule G-40 to provide more definitive content standards.\226\ In
particular, NAMA stated that the content standards in proposed Rule G-
40 should reflect a clearer separation between the content standards
applicable to product advertisements and the content standards
applicable to professional advertisements.\227\ NAMA suggested that
this separation was important because the clear majority of municipal
advisors only engage in professional services advertising.\228\ To that
end, NAMA suggested that there should be separate content standards for
product advertisements and for professional advertisements, that the
liability provisions in proposed Rule G-40 should be reduced, and that
the requirement that all advertisements be fair and balanced should be
deleted.\229\
---------------------------------------------------------------------------

    \226\ See NAMA Letter.
    \227\ Id.
    \228\ Id.
    \229\ Id.
---------------------------------------------------------------------------

    In response, the MSRB stated that it believes that such separate
standards could needlessly increase the complexity of proposed Rule G-
40 without any offsetting benefit of enhancing the ability of a
municipal advisor to comply with proposed Rule G-40. Moreover, the MSRB
stated, NAMA's suggestions about the content standards for professional
advertisements would lessen the strict liability provisions set forth
in proposed Rule G-40(b)(ii) that would apply to professional
advertisements.\230\
---------------------------------------------------------------------------

    \230\ See Response Letter.
---------------------------------------------------------------------------

    NAMA also suggested that the MSRB completely delete the MSRB's
general standard for advertisements set forth in proposed Rule G-
40(a)(v).\231\ The general standard for advertisements requires, in
part, that a municipal advisor shall not publish an advertisement
relating to municipal securities or municipal financial products that
the municipal advisor knows or has reason to know contains any untrue
statement of material fact or is otherwise false or misleading.\232\
The MSRB stated that the liability provisions are important to the
MSRB's advertising regulation, and since 1978, the MSRB has imposed
strict liability with respect to professional advertisements.\233\ The
MSRB also stated that it has resisted prior suggestions that the MSRB
lessen that standard for professional advertisements.\234\ The MSRB
continues to believe that (i) the liability provisions are key elements
to its advertising regulation, (ii) the liability provisions in its
advertising regulations should be consistent between dealers and
municipal advisors, and (iii) the liability provisions in the MSRB's
advertising regulations should not be lessened.
---------------------------------------------------------------------------

    \231\ See NAMA Letter.
    \232\ See Response Letter.
    \233\ Id.
    \234\ Id.
---------------------------------------------------------------------------

    NAMA commented that the content standards of the proposed rule
change were not clear, and suggested that proposed Rule G-40(a)(iv)(A)
be deleted because it is repetitive of Rule G-17.\235\ The MSRB
responded that proposed Rule G-40(a)(iv)(A) would require, in part,
that an advertisement be fair and balanced, and those principles would
apply to an advertisement of any service.\236\ The MSRB stated that it
developed the content standards based, in part, on analogous
advertising regulations of other financial regulators, primarily those
of FINRA, as well as those of the SEC and the National Futures
Association.\237\ The MSRB stated that similar content standards to
those set forth in proposed Rule G-40(a)(iv)(A) have long been
understood by the financial entities subject to regulation by those
financial regulators.\238\ In addition, the MSRB stated that reliance
only on Rule G-17 to regulate municipal advisor advertising would
result in municipal advisors not having the specificity needed based on
their activities to enable municipal advisors to better comply with
those principles.\239\ Nevertheless, the MSRB stated, if the SEC were
to approve proposed Rule G-40, the MSRB would publish guidance about
proposed Rule G-40's content standards before proposed Rule G-40 were
to become effective.\240\ Thus, after careful consideration and for the
reasons stated above, the MSRB determined not to revise proposed Rule
G-40's content standards.\241\
---------------------------------------------------------------------------

    \235\ See NAMA Letter.
    \236\ See Response Letter.
    \237\ Id.
    \238\ Id.
    \239\ Id.
    \240\ Id.
    \241\ Id.
---------------------------------------------------------------------------

d. Use of Testimonials Under Proposed Rule G-40
    NAMA, PFM, and SIFMA commented on proposed Rule G-40(iv)(G)'s
prohibition on the use of testimonials in municipal advisor
advertisements.\242\ Their comments ranged from the view that
testimonials should be excluded from proposed Rule G-40 \243\ to the
view that, while the prohibition on the use of testimonials may be
warranted, the MSRB should provide guidance under proposed Rule G-
40(iv)(G) relating to the use of client lists and case studies.\244\
Specifically, NAMA suggested that ``if any version of Rule G-40 is
ultimately adopted, then the current circumstances argue strongly in
favor of the MSRB removing testimonials from Rule G-40 for now and, if
necessary, consider any future amendment to deal with testimonials in a
way that is consistent with FINRA's and the SEC's overall treatment.''
\245\ SIFMA suggested that proposed Rule G-40 be harmonized with FINRA
Rule 2210(d)(6) which permits testimonials in advertisements by
dealers, ``subject to the content standards and requirements that
apply.'' \246\ NAMA also commented that at a minimum, testimonials
should ``be treated the same under both Rules G-21 and G-40.'' \247\
NAMA and PFM commented that, if proposed Rule G-40 were to prohibit
testimonials by municipal advisors, then the MSRB

should provide certain interpretive relief from that prohibition.\248\
NAMA suggested that the MSRB narrow that prohibition by adopting all
the SEC staff's guidance that is applicable to investment advisers
relating to testimonials.\249\ NAMA also commented that the definition
of advertisement should ``provide for client lists and case studies to
be exempt from advertising consistent with the SEC's prior action and
current investment adviser practices.'' \250\ PFM requested that the
MSRB provide clarification relating to the use of client lists and case
studies.\251\
---------------------------------------------------------------------------

    \242\ See NAMA Letter, PFM Letter and SIFMA Letter.
    \243\ See NAMA Letter.
    \244\ See PFM Letter.
    \245\ See NAMA Letter.
    \246\ See SIFMA Letter.
    \247\ See NAMA Letter.
    \248\ See NAMA Letter and PFM Letter.
    \249\ See NAMA Letter.
    \250\ Id.
    \251\ See PFM Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that it considered commenters'
suggestions, and continues to believe that a testimonial presents
significant issues, including the ability of the testimonial to be
misleading.\252\ The MSRB stated that dealers and municipal advisors
have different types of relationships and roles with their customers or
municipal advisory clients, respectively, and have different models for
providing advice.\253\ The MSRB further stated that those differences
are recognized in the Act, particularly with regard to the fiduciary
duties owed by a municipal advisor to its municipal entity
clients.\254\ Citing to the Act, the MSRB noted that dealers do not owe
a similar fiduciary duty to their customers.\255\ The MSRB stated that,
recognizing the fiduciary duty owed by municipal advisors to their
municipal entity clients, the MSRB considered the regulations of other
financial regulators where the regulated entity owes a fiduciary duty
to its clients.\256\ Thus, the MSRB stated that it recognizes that
other comparable financial regulations, such as Rule 206(4)-1 under the
Advisers Act, prohibit advisers from including testimonials in
advertisements and noted that investment advisers are subject to
fiduciary standards.\257\ The MSRB also stated, as discussed in the
Notice of Filing, that it is aware of the interpretive guidance
provided by the SEC staff relating to testimonials.\258\
---------------------------------------------------------------------------

    \252\ See Response Letter.
    \253\ Id.
    \254\ Id.
    \255\ Id.
    \256\ Id.
    \257\ See Response Letter and Notice of Filing.
    \258\ Id.
---------------------------------------------------------------------------

    For the reasons set forth in the Notice of Filing and the Request
for Comment, the MSRB determined not to revise proposed Rule G-40 to
delete the testimonial ban or to adopt all SEC staff guidance related
to the testimonial ban under Rule 206(4)-1.\259\ The MSRB stated that
if the SEC were to approve proposed Rule G-40, the MSRB would publish
guidance about the use of municipal advisory client lists and case
studies by municipal advisors before Rule G-40 were to become
effective.\260\
---------------------------------------------------------------------------

    \259\ See Response Letter, Request for Comment and Notice of
Filing.
    \260\ See Response Letter.
---------------------------------------------------------------------------

e. Principal Pre-Approval Under Proposed Rule G-40
    BDA commented that principal pre-approval was not needed or could
be limited to certain types of advertisements.\261\ BDA commented that
clients of municipal advisors are institutions, and that as
institutions, they do not need many of the ``mechanistic protections
applicable to dealer relationships with retail investors.'' \262\ BDA
commented that it ``does not believe that a principal needs to approve
every municipal advisor advertisement . . . [but that] the MSRB should
allow either a municipal advisor principal or a general securities
principal to approve advertisements, consistent with Rule G-21.'' \263\
Similarly, SIFMA commented that proposed Rule G-40(c) should allow for
a general securities principal to approve advertisements consistent
with Rule G-21.\264\
---------------------------------------------------------------------------

    \261\ See BDA Letter.
    \262\ Id.
    \263\ Id.
    \264\ See SIFMA Letter.
---------------------------------------------------------------------------

    In response, the MSRB stated that an important element of the
MSRB's statutory mandate is to protect municipal entities and obligated
persons.\265\ The MSRB noted that the Congress determined that
municipal entities do need protection under the federal securities
laws, and charged the MSRB with developing a municipal advisor
regulatory scheme to so do.\266\ Moreover, the MSRB stated, there is no
general securities principal qualification applicable to municipal
advisors.\267\ Therefore, the MSRB stated that it interprets BDA's and
SIFMA's comments as suggesting that a general securities principal who
may review dealer advertisements under Rule G-21 should also be able to
review municipal advisor advertising under proposed Rule G-40.\268\ The
MSRB responded that, in that case, it believes that it would be
inconsistent with the MSRB's regulatory framework for municipal
advisors to have a general securities principal review municipal
advisor advertising, as a general securities principal would not be
qualified under Rule G-3, on professional qualification requirements,
to do so.\269\ The MSRB stated that it believed qualification as a
general securities principal under FINRA's Series 24 examination would
not ensure that the general securities principal would be aware of the
regulatory requirements applicable to municipal advisors as those
requirements are not tested as part of that examination.\270\ Further,
the MSRB noted that it believes it would be inconsistent with an
important part of the MSRB's mission to protect state and local
governments and other municipal entities to have a general securities
principal, with little regulatory assurance of minimum knowledge of
applicable MSRB rules, approve advertising by a municipal advisor.\271\
Thus, the MSRB stated that it determined not to revise proposed Rule G-
40 to permit a general securities principal to approve advertising by
municipal advisors.\272\
---------------------------------------------------------------------------

    \265\ See Response Letter.
    \266\ Id.
    \267\ Id.
    \268\ Id.
    \269\ Id.
    \270\ Id.
    \271\ Id.
    \272\ Id.
---------------------------------------------------------------------------

f. Guidance Relating to Municipal Advisor Websites and the Use of
Social Media
    In the NAMA Letter, NAMA requested more specific guidance about the
content posted on a municipal advisor's website and about the use of
social media by a municipal advisor.\273\ Specifically, NAMA requested
guidance about whether material posted on a municipal advisor's website
would constitute an advertisement under proposed Rule G-40.\274\
Further, NAMA requested guidance on the use of social media.\275\
---------------------------------------------------------------------------

    \273\ See NAMA Letter.
    \274\ Id.
    \275\ Id.
---------------------------------------------------------------------------

    In response, the MSRB stated that the definition of advertisement
under proposed Rule G-40 is broad, and similar to Rule G-21, would
apply to any ``material . . . published or used in any electronic or
other public media . . . .'' \276\ Thus, the MSRB stated, because a
website is electronic and public, any material posted on a municipal
advisor's website would be an advertisement if that material comes
within the definition of an advertisement.\277\ The MSRB added that
simply publishing material on a website would not exclude material that

otherwise would qualify as an advertisement under proposed Rule G-
40(a)(i).\278\ As such, the MSRB stated, proposed Rule G-40 would apply
to any material posted on a municipal advisor's public website or more
generally, on any website, if that material comes within the other
terms of the definition of an advertisement as set forth in proposed
Rule G-40(a)(i).\279\
---------------------------------------------------------------------------

    \276\ See Response Letter.
    \277\ Id.
    \278\ Id.
    \279\ Id.
---------------------------------------------------------------------------

    In response to NAMA's request for additional interpretive guidance
regarding the use social media by municipal advisors, the MSRB stated
that it believes that such guidance would be timely after any SEC
approval of an advertising rule for municipal advisors.\280\ The MSRB
further stated that if the SEC were to approve proposed Rule G-40, such
that the terms of a rule that will be going into effect are determined,
the MSRB would publish social media guidance before the effective date
of such rule.\281\
---------------------------------------------------------------------------

    \280\ Id.
    \281\ Id.
---------------------------------------------------------------------------

g. Economic Analysis of Proposed Rule G-40
    Several comments were received comments on the Economic Analysis
that the MSRB performed on the proposed rule change from both NAMA and
SIFMA.\282\ NAMA suggested that the MSRB did not properly considered
the aggregate burden that rulemaking has placed on municipal advisor
firms.\283\ NAMA also commented that the MSRB did not appropriately
consider the burden placed on small firms.\284\ SIFMA suggested that
proposed Rule G-40 mirror proposed amended Rule G-21 to reduce costs
for dual-registrants.\285\
---------------------------------------------------------------------------

    \282\ See NAMA Letter and SIFMA Letter.
    \283\ See NAMA Letter.
    \284\ Id.
    \285\ Id.
---------------------------------------------------------------------------

    As the MSRB noted in the Notice of Filing and the Response Letter,
the MSRB stated that it is planning to conduct a retrospective analysis
on the cumulative impact of the municipal advisor regulatory framework
on the municipal advisory industry once the entire framework is
implemented.\286\ The MSRB stated that such analysis is currently
planned for 2019 when proposed Rule G-40 would become effective, if
approved by the SEC.\287\ Thus, the MSRB stated, it does not believe
that a formal analysis of the entire municipal advisor regulatory
framework could commence prior to 2019.\288\ The MSRB stated that as a
part of the municipal advisor regulatory framework retrospective
analysis, the MSRB is also planning to specifically examine the
frequency with which issuers use municipal advisors over time, pending
availability of data.\289\ The MSRB stated that it believes the costs
associated with the proposed rule change should not be unduly
burdensome for small municipal advisory firms.\290\ The MSRB contended
that for some one-time initial compliance costs, the MSRB believes that
small municipal advisory firms may incur proportionally larger costs
than larger firms.\291\ However, the MSRB noted that for many other
ongoing costs, such as costs associated with principal approval and
recordkeeping requirements, as well as investments in advertisements
previously developed but no longer compliant, the costs should be
proportionate to the size of the firm, assuming that small firms
generally advertise less than larger firms.\292\ Thus, the MSRB stated
that it believes it is unlikely that proposed Rule G-40 would have an
outsized impact on small firms.\293\ The MSRB stated that it believes
that proposed Rule G-40 and proposed amended Rule G-21 are already
substantially similar; the main differences between the two rules are
proposed Rule G-40's ban on testimonials and omission of three
provisions that concern product advertisements.\294\ The MSRB noted
that in developing the substantially similar provisions, the MSRB was
sensitive to the burdens on dealer/municipal advisors and the
efficiencies resulting from consistent provisions.\295\ The MSRB stated
that the degree to which proposed Rule G-40 and proposed amended Rule
G-21 mirror each other is a result of these considerations and that
differences are attributable to aspects of municipal advisory activity
that differs from broker-dealer activity, irrespective of whether the
municipal advisor is a dealer or non-dealer municipal advisor.\296\
---------------------------------------------------------------------------

    \286\ See Response Letter and Notice of Filing.
    \287\ Id.
    \288\ See Response Letter.
    \289\ Id.
    \290\ Id.
    \291\ Id.
    \292\ Id.
    \293\ Id.
    \294\ Id.
    \295\ Id.
    \296\ Id.
---------------------------------------------------------------------------

C. MSRB's General Response to Comments and Commitment To Provide
Interpretive Guidance

    In response to the comments received regarding the proposed rule
change, the MSRB stated that it believes that the proposed rule change
will enhance the MSRB's fair practice rules for dealers by promoting
regulatory consistency among Rule G-21 and the advertising rules of
other financial regulators.\297\ Further, the MSRB stated that as the
proposed rule change is a key element of the MSRB's development of its
core regulatory framework for municipal advisors, the proposed rule
change will enhance the MSRB's fair practice rules by, for the first
time, providing rules about advertising by municipal advisors through
proposed Rule G-40.\298\ Finally, the MSRB stated that, consistent with
the MSRB's goal of providing tools to enhance the ability of dealers
and municipal advisors to comply with MSRB rules, if the SEC were to
approve the proposed rule change, the MSRB would provide the following
guidance before proposed amended Rule G-21 and proposed Rule G-40 would
become effective: \299\
---------------------------------------------------------------------------

    \297\ Id.
    \298\ Id.
    \299\ Id.
---------------------------------------------------------------------------

     Guidance under proposed Rule G-40(a)(iv)(G) relating to
case studies and client lists; \300\
---------------------------------------------------------------------------

    \300\ Id.
---------------------------------------------------------------------------

     Guidance under proposed Rule G-40(c) relating to content
standards; \301\ and
---------------------------------------------------------------------------

    \301\ Id.
---------------------------------------------------------------------------

     Guidance under proposed Rule G-40 relating to a municipal
advisor's use of social media.\302\
---------------------------------------------------------------------------

    \302\ Id.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change,
the comment letters received and the Response Letter. The Commission
finds that the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to the
MSRB.
    In particular, the proposed amended Rule G-21 and proposed Rule G-
40, are consistent with Section 15B(b)(2)(C) of the Act.\303\ Section
15B(b)(2)(C) of the Act requires that the MSRB's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in municipal securities and municipal financial products, to remove
impediments to and perfect the mechanism of a free and open market in
municipal securities and

municipal financial products, and, in general, to protect investors,
municipal entities, obligated persons, and the public interest.\304\
---------------------------------------------------------------------------

    \303\ 15 U.S.C. 78o-4(b)(2)(C).
    \304\ See 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------

    The Commission believes that proposed amended Rule G-21 is
consistent with the provisions of Section 15B(b)(2)(C) \305\ of the Act
because it will help prevent fraudulent and manipulative practices by
prohibiting dealers from making any false, exaggerated, unwarranted,
promissory or misleading statement or claim in an advertisement.
Proposed amended Rule G-21 requires that advertisements be based on the
principles of fair dealing and good faith, be fair and balanced, and
provide a sound basis for evaluating the facts. A dealer will not be
able to omit any material fact or qualification, if the omission, in
light of the context of the material presented, would cause the
advertisement to be misleading. Further, the prescriptive nature of
proposed amended Rule G-21 provides guidelines for dealers to follow
that will help prevent fraudulent and manipulative practices.
---------------------------------------------------------------------------

    \305\ Id.
---------------------------------------------------------------------------

    In addition, the Commission believes that proposed amended Rule G-
21 also will help protect investors and the public interest by helping
ensure that advertisements present a fair statement of the services,
products, or municipal securities advertised.
    The Commission believes that proposed Rule G-40 is consistent with
the provisions of Section 15B(b)(2)(C) \306\ of the Act because it will
help prevent fraudulent and manipulative practices by prohibiting
municipal advisors from making any false, exaggerated, unwarranted,
promissory or misleading statement or claim in an advertisement.
Proposed Rule G-40 requires that advertisements of municipal advisors
be based on the principles of fair dealing and good faith, be fair and
balanced, and provide a sound basis for municipal entities and
obligated persons to evaluate the information presented in such
advertisements. A municipal advisor will not be able to omit any
material fact or qualification if the omission, in light of the context
of the material present, would cause the advertisement to be
misleading. Further, the prescriptive nature of proposed Rule G-40
provides guidelines for municipal advisors to follow that would help
prevent fraudulent and manipulative practices.
---------------------------------------------------------------------------

    \306\ Id.
---------------------------------------------------------------------------

    In addition, the Commission believes that proposed Rule G-40 will
help protect investors, municipal entities, obligated persons and the
public interest by providing prescriptive requirements that will help
ensure that advertisements present a fair statement of the municipal
advisory services advertised.
    The Commission also finds that the proposed rule change is
consistent with Section 15B(b)(2)(L)(iv), in that it does not impose a
regulatory burden on small municipal advisors that is not necessary or
appropriate in the public interest and for the protection of investors,
municipal entities, and obligated persons.\307\ For some one-time
initial compliance costs, small municipal advisory firms may incur
proportionally larger costs than larger firms. However, for many other
ongoing costs, such as costs associated with principal approval and
record-keeping requirements, as well as investments in advertisements
previously developed but that would no longer be compliant, the costs
should be proportionate to the size of the firm. Thus, the Commission
believes it is unlikely that proposed Rule G-40 would have an outsized
impact on small firms.
---------------------------------------------------------------------------

    \307\ See 15 U.S.C. 78o-4(b)(2)(L)(iv).
---------------------------------------------------------------------------

    In approving the proposed rule change, the Commission also has
considered the impact of the proposed rule change, on efficiency,
competition, and capital formation.\308\ The Commission does not
believe that the proposed rule change will impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.
---------------------------------------------------------------------------

    \308\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission believes, through promoting regulatory consistency
of certain MSRB advertising standards with those of other financial
regulators, proposed amended Rule G-21 may improve efficiency in the
form of less unnecessary complexity for dealers and reduced burdens and
compliance costs over time, because such additional regulatory
consistency should assist dealers with developing uniform policies and
procedures. The Commission believes this may also benefit both retail
and institutional investors, where transparency, consistency, truthful
and accurate information and ease of comparison of different financial
services would be highly valued. While dealers may experience increased
costs because of the new requirements, these costs should not be
significant for dealers also registered with FINRA as much of proposed
amended Rule G-21 would align with FINRA Rule 2210. The Commission
believes proposed amended Rule G-21 would not impose an unreasonable
burden on dealers, and the likely benefits, such as the prevention of
fraudulent and manipulative advertising by dealers and the protection
of investors, justify such costs.
    The Commission believes that one benefit of proposed Rule G-40 may
be that municipal advisors provide clients more accurate information
through advertising, which may lead municipal entities and obligated
persons to more informed decision-making when selecting municipal
advisors. Furthermore, the Commission believes that as a result of
municipal advisor compliance with proposed Rule G-40's advertising
standards, municipal entities and obligated persons may be able to more
easily establish objective criteria to use in selecting municipal
advisors that may increase the likelihood that municipal advisors are
hired because of their qualifications as opposed to other reasons. In
addition, the Commission believes that transparency, consistency,
truthful and accurate information in advertising should benefit
municipal entities and obligated persons in general. Although municipal
advisors are likely to incur costs associated with compliance with the
proposed Rule G-40, the cost would be justified by the likely benefits
of the proposed rule, such as the prevention of fraudulent and
manipulative advertising by municipal advisors and the protection of
municipal entities and obligated persons.
    The Commission has reviewed the record for the proposed rule change
and notes that the record does not contain any information to indicate
that the proposed rule change would have a negative effect on capital
formation.
    As noted above, the Commission received four comment letters on the
Notice of Filing. The Commission believes that the MSRB, through its
responses and its commitment to provide additional interpretive
guidance prior to the effective date of the proposed rule change, has
addressed commenters' concerns.
    For the reasons noted above, the Commission believes that the
proposed rule change is consistent with the Act.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\309\ that the proposed rule change (SR-MSRB-2018-01) be, and
hereby is, approved.
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    \309\ 15 U.S.C. 78s(b)(2).
    \310\ 17 CFR 200.30-3(a)(12).

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    For the Commission, pursuant to delegated authority.\310\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09933 Filed 5-9-18; 8:45 am]
 BILLING CODE 8011-01-P