[Federal Register Volume 79, Number 150 (Tuesday, August 5, 2014)]
[Notices]
[Pages 45546-45556]
[FR Doc No: 2014-18381]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72706; File No. SR-MSRB-2014-06]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change Consisting of
Proposed New Rule G-44, on Supervisory and Compliance Obligations of
Municipal Advisors; Proposed Amendments to Rule G-8, on Books and
Records To Be Made by Brokers, Dealers and Municipal Securities
Dealers; and Proposed Amendments to Rule G-9, on Preservation of
Records

July 29, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 24, 2014, the Municipal Securities Rulemaking Board (the
``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the MSRB. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The MSRB is filing with the Commission a proposed rule change
consisting of proposed new Rule G-44, on supervisory and compliance
obligations of municipal advisors; proposed amendments to Rule G-8, on
books and records to be made by brokers, dealers and municipal
securities dealers; and proposed amendments to Rule G-9, on
preservation of records (the ``proposed rule change''). The MSRB
requests that the proposed rule change be approved with an
implementation date six months after the Commission approval date for
all changes except for proposed Rule G-44(d), which municipal advisors
would be required to implement eighteen months after the Commission
approval date.
    The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2014-Filings.aspx, at the MSRB's principal office, and at the Commission's
Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The MSRB has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Following the financial crisis of 2008, Congress enacted the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank
Act'').\3\ The Dodd-Frank Act establishes a new federal regulatory
regime requiring municipal advisors to register with the SEC, deeming
them to owe a fiduciary duty to their municipal entity clients and
granting the MSRB rulemaking authority over them. The MSRB, in the
exercise of that authority, is currently developing a comprehensive
regulatory framework for municipal advisors. A significant element of
that regulatory framework is proposed Rule G-44, which would establish
supervisory and compliance obligations of municipal advisors when
engaging in municipal advisory activities. Proposed Rule G-44 utilizes
a primarily principles-based approach to supervision and compliance in
order to, among other things, accommodate the diversity of the
municipal advisor population, including small and single-person
entities. Proposed Rule G-44 is accompanied by proposed amendments to
Rules G-8 and G-9 to establish fundamental books-and-records
requirements for municipal advisors, including those related to their
supervisory and compliance obligations.
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    \3\ Public Law 111-2013, 124 Stat. 1376 (2010).
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Proposed Rule G-44
    Proposed Rule G-44 follows a widely accepted model in the
securities industry consisting of a reasonably designed supervisory
system complemented by the designation of a chief compliance officer
(``CCO''). The proposed rule draws on aspects of existing supervision
and compliance regulation under other regimes, including those for
broker-dealers under rules of the MSRB and Financial Industry
Regulatory Authority (``FINRA'') and for investment advisers under the
Investment Advisers Act of 1940 (``Advisers Act'').
    In summary, proposed Rule G-44 would require:
     A supervisory system reasonably designed to achieve
compliance with applicable securities laws;
     Written supervisory procedures;
     The designation of one or more municipal advisor
principals to be responsible for supervision;
     Compliance processes reasonably designed to achieve
compliance with applicable securities laws;
     An annual certification regarding those compliance
processes;
     The designation of a CCO to administer those compliance
processes; and
     At least annual reviews of compliance policies and
supervisory procedures.
    The proposed amendments to Rules G-8 and G-9, in summary, would
require each municipal advisor to make and keep records of its:
     Written supervisory procedures;
     Designations of persons as responsible for supervision;
     Written compliance policies;
     Designations of persons as CCO;
     Reviews of compliance policies and supervisory procedures;
and
     Annual certifications regarding compliance processes.
    Paragraph (a) of proposed Rule G-44 is the core provision, which
would require all municipal advisors to establish, implement and
maintain a system to supervise their municipal advisory activities and
those of their associated persons that is reasonably designed to
achieve compliance with all applicable securities laws and regulations,
including applicable MSRB rules (defined as ``applicable rules'').
Paragraph (a) specifies that final responsibility for proper
supervision rests with the municipal advisor. Subparagraph (a)(i)
requires the establishment, implementation, maintenance and enforcement
of written supervisory procedures reasonably designed to achieve
compliance with applicable rules. Paragraph .01 of the Supplementary
Material specifies several factors that municipal advisors' written
supervisory procedures must take into consideration, including the
advisor's size, organizational structure, nature and scope of
activities, number of offices, disciplinary and legal history of its
associated persons, the likelihood that associated persons may be
engaged in relevant outside business activities, and any indicators of
irregularities or misconduct (i.e., ``red flags''). This guidance
allows municipal advisors to tailor their supervisory procedures to,
among other things, their size, particular business model and
structure. Paragraph .02 of the Supplementary Material emphasizes the
flexibility of the proposed rule to accommodate small municipal advisor
firms, even those with only one associated person. Proposed Rule G-
44(a)(i) also specifies requirements to promptly amend supervisory
procedures (i) to reflect changes in applicable rules and (ii) as
changes occur in the municipal advisor's supervisory system; and to
communicate the procedures and amendments to the municipal advisor's
relevant associated persons.
    Proposed Rule G-44(a)(ii) would require municipal advisors to
designate one or more municipal advisor principals to be responsible
for the supervision required by the proposed rule. Paragraph .03 of the
Supplementary Material specifies the authority and specific
qualifications required for municipal advisor principals designated as
responsible for supervisory functions. According to the proposed rule,
they must have the authority to carry out the supervision for which
they are responsible, including the authority to implement the
municipal advisor's established written supervisory procedures and take
any other action necessary to fulfill their responsibilities. They also
must have sufficient knowledge, experience and training to understand
and effectively discharge their supervisory responsibilities.\4\
Paragraph .03 of the Supplementary Material also specifies that, even
if not designated as a supervisory principal, whether a person has
responsibility for supervision under the proposed rule would depend on
whether, under the facts and circumstances of a particular case, the
person has the requisite degree of responsibility, ability or authority
to affect the conduct of the employee whose behavior is at issue.
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    \4\ The MSRB intends to propose amendments to MSRB Rules G-2 and
G-3 to create the ``municipal advisor principal'' classification,
define the term and require qualification in accordance with the
rules of the Board. The MSRB expects those changes to become
effective well in advance of the proposed implementation dates of
the proposed rule change. Although the MSRB does not expect a
municipal advisor principal examination to be in place by the time
of the implementation dates of the proposed rule change, the MSRB
may develop such an examination in the future. The absence of such
an examination does not preclude the creation of the classification.
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    Paragraph (b) of proposed Rule G-44 would require municipal
advisors to implement processes to establish, maintain, review, test
and modify

written compliance policies and supervisory procedures. Proposed Rule
G-44(b) would specify that the reviews of compliance policies and
supervisory procedures must be conducted at least annually. Paragraph
.04 of the Supplementary Material would provide, however, that
municipal advisors should consider the need, in order to comply with
all of the other requirements of the proposed rule, for more frequent
reviews. The paragraph also would provide guidance on what, at a
minimum, municipal advisors should consider during their reviews of
compliance policies and supervisory procedures. These considerations
include any compliance matters that arose since the previous review,
any changes in municipal advisory activities and any changes in
applicable law.
    Paragraph (c) of proposed Rule G-44 would require municipal
advisors to designate one individual as their CCO. Paragraph .05 of the
Supplementary Material would explain the role of a CCO and the
importance of that role. Specifically, a CCO is a primary advisor to
the municipal advisor on its overall compliance scheme and the policies
and procedures that the municipal advisor adopts in order to comply
with applicable law. To fulfill this role, a CCO should have competence
in the process of (1) gaining an understanding of the services and
activities that need to be the subject of written compliance policies
and written supervisory procedures; (2) identifying the applicable
rules pertaining to those services and activities; (3) developing
policies and procedures that are reasonably designed to achieve
compliance with applicable law; and (4) developing programs to test
compliance with the municipal advisor's policies and procedures.\5\
Paragraph .05 would further explain that the CCO can be a principal of
the firm or a person external to the firm; though, in that case, the
person must have the described competence and the municipal advisor
retains ultimate responsibility for its compliance obligations. This
approach to the CCO function in the proposed rule, which would give
municipal advisors the option to outsource the CCO role, follows the
approach applicable to investment advisers under the Advisers Act.\6\
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    \5\ These qualifications of a CCO draw on those specified in
FINRA's CCO requirement for its member firms. See FINRA Rule 3130
Supplementary Material .05.
    \6\ See Section 202(25) of the Advisers Act, 15 U.S.C. 80b-
2(25), and Rule 206(4)-7, 17 CFR 275.206(4)-7.
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    Paragraph .06 of the Supplementary Material specifies that the CCO,
and any compliance officers that report to the CCO, shall have
responsibility for and perform the compliance functions required by the
proposed rule. Paragraph .07 of the Supplementary Material provides
that a municipal advisor's CCO may hold any other position within the
municipal advisor, including senior management positions, so long as
the person can discharge the duties of CCO in light of all of the
responsibilities of any other positions. This guidance is especially
relevant to small municipal advisors, including sole proprietorships
and other one-person entities. It makes clear that a single individual
may, for example, serve under appropriate circumstances as chief
executive officer (``CEO''), supervisory principal and CCO. In
addition, as discussed above, the CCO may be external to the firm, such
as an outside consultant.
    Paragraph (d) of proposed Rule G-44 would require municipal
advisors to have their CEO(s) (or equivalent officer(s)) annually
certify in writing that the municipal advisor has in place processes to
establish, maintain, review, test and modify written compliance
procedures and written supervisory procedures reasonably designed to
achieve compliance with applicable rules. FINRA member firms that also
are municipal advisors are already required under FINRA Rule 3130 to
make annually a substantially similar certification with respect to
applicable federal securities laws and regulations, including MSRB
rules. In light of this existing FINRA requirement, proposed Rule G-
44(d) would provide for an exception from the annual certification
requirement for municipal advisors that are subject to a substantially
similar FINRA requirement. Paragraph .08 of the Supplementary Material
provides that the execution of the certification and any consultation
rendered in connection with the certification does not by itself
establish business line responsibility.
    Paragraph (e) of proposed Rule G-44 would provide an exemption for
banks engaging in municipal advisory activities in the exercise of bank
fiduciary powers from Rule G-44 and the related books and records
requirements if the municipal advisor certifies in writing annually
that it is, with respect to those activities, subject to federal
supervisory and compliance obligations and books and record
requirements that are substantially equivalent to the supervisory and
compliance obligations in Rule G-44 and the books and records
requirements of Rule G-8(h)(iii). The ability to so certify and utilize
this exemption is provided because it is unnecessary for a municipal
advisor to comply with each other provision of proposed Rule G-44 if it
is subject to substantially equivalent supervisory and compliance
obligations as part of the extensive federal regulatory regime to which
banks are already subject.
    Paragraph (f) of proposed Rule G-44 would provide a definition of
the term ``municipal advisor'' for purposes of the rule as a person
that is registered or required to be registered as a municipal advisor
under Section 15B of the Act and rules and regulations thereunder.
Proposed Amendments to Rules G-8 and G-9
    The proposed amendments to Rules G-8 \7\ and G-9 would be the first
revisions to those rules to address the books and records that must be
made and preserved by municipal advisors registered or required to be
registered with the SEC. As a fundamental element, new Rule G-8(h)(i)
would require each municipal advisor to keep all of the general
business records described in Exchange Act Rule 15Ba-1-8(a)(1)-(8). New
Rule G-8(h)(v) would require each municipal advisor to make and keep
records related to its supervisory and compliance obligations. It would
require each municipal advisor to make and keep its written supervisory
procedures and written compliance policies, records of designations of
persons as CCO and of persons responsible for supervision, records of
reviews of its written compliance policies and written supervisory
procedures, annual certifications as to compliance processes, and, if
applicable, certifications regarding the exemption for federally
regulated banks.
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    \7\ Proposed Rule G-8(h) includes reserved subparagraphs (ii)-
(iv) for books and records provisions that the MSRB may propose in
relation to other rules for municipal advisors. The MSRB will make
conforming changes to this proposal as appropriate depending on
relevant future rulemaking actions by the MSRB and SEC.
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    The proposed amendments to Rule G-9 would require each municipal
advisor to preserve the books and records described in Rule G-8(h),
including records related to the municipal advisor's supervisory and
compliance obligations, for a period of not less than five years. This
five-year preservation requirement would be consistent with the
requirement of Exchange Act Rule 15Ba1-8 (on books and records to be
made and maintained by municipal advisors).\8\ New subsection (h) to
Rule G-9 would require, however, that records of the

designations of persons responsible for supervision and designations of
persons as CCO be preserved for the period of designation of each
person designated and for at least six years following any change in
such designation. This six-year preservation requirement is supported
by, among other things, the importance of such documents in later
ascertaining the identity of responsible persons during particular
periods of time. Moreover, it would be consistent with the current
provisions of Rule G-9 for records of similar designations by brokers,
dealers and municipal securities dealers.
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    \8\ See 17 CFR 240.15Ba1-8(b)(1).
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    The proposed amendments to existing Rule G-9(e) would expressly
provide that municipal advisors may retain records using electronic
storage media or by other similar medium of record retention, subject
to the retrieval and reproduction requirements of Rule G-9. The
allowance for this means of compliance would be made generally
applicable, so as to expressly accommodate the use of electronic
storage media by dealers as well as municipal advisors.
    Proposed Rule G-9(i) would require compliance with Exchange Act
Rule 15Ba1-8(b)(2) and (c),\9\ regarding records related to the
formation and cessation of business. Proposed Rule G-9(j) would require
non-resident municipal advisors to comply with Exchange Act Rule 15Ba1-
8(f),\10\ regarding records of non-resident municipal advisors.
Proposed Rule G-9(k) would provide that whenever a record is preserved
by a municipal advisor on electronic storage media, if the manner of
storage complies with Exchange Act Rule 15Ba1-8(d),\11\ it will be
deemed to be preserved in a manner that is in compliance with the
requirements of Rule G-9. This provision would give municipal advisors
the choice to comply with either the SEC's or the MSRB's preservation
requirements.
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    \9\ 17 CFR 240.15Ba1-8(b)(2) & (c).
    \10\ 17 CFR 240.15Ba1-8(f).
    \11\ 17 CFR 240.15Ba1-8(d).
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2. Statutory Basis
    Section 15B(b)(2) of the Act \12\ provides that
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    \12\ 15 U.S.C. 78o-4(b)(2).

    The Board shall propose and adopt rules to effect the purposes
of this title with respect to transactions in municipal securities
effected by brokers, dealers, and municipal securities dealers and
advice provided to or on behalf of municipal entities or obligated
persons by brokers, dealers, municipal securities dealers, and
municipal advisors with respect to municipal financial products, the
issuance of municipal securities, and solicitations of municipal
entities or obligated persons undertaken by brokers, dealers,
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municipal securities dealers, and municipal advisors.

    Section 15B(b)(2)(A)(i) of the Act \13\ provides that the MSRB's
rules shall
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    \13\ 15 U.S.C. 78o-4(b)(2)(A)(i).

appropriately classify municipal securities brokers, municipal
securities dealers, and municipal advisors (taking into account
relevant matters, including types of business done, nature of
securities other than municipal securities sold, and character of
business organization), and persons associated with municipal
securities brokers, municipal securities dealers, and municipal
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advisors.

    Section 15B(b)(2)(C) of the Act \14\ provides that the MSRB's rules
shall
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    \14\ 15 U.S.C. 78o-4(b)(2)(C).

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,
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municipal entities, obligated persons, and the public interest.

    The MSRB believes that the proposed rule change is consistent with
Sections 15B(b)(2), 15B(b)(2)(A)(i) and 15B(b)(2)(C) of the Act because
it would require municipal advisors to adopt a supervisory structure
and compliance processes in order to help ensure knowledge of, and
compliance with, applicable securities laws and regulations, including
applicable MSRB rules. The applicable securities laws include, without
limitation, relevant provisions of the Act and Commission rules
thereunder, including the Commission's registration, form submission
and recordkeeping requirements for municipal advisors.\15\ Supervision
and compliance functions are fundamental to preventing securities law
violations from occurring, while they also promote early detection and
prompt remediation of violations when they do occur. Such functions are
complementary to an enforcement program designed to deter violations of
securities laws by imposing penalties for violations after they occur.
The MSRB believes that, for example, requiring each firm's chief
executive officer (or equivalent officer) to provide an annual
certification will help ensure that compliance processes are given
sufficient attention at the highest levels of management and will help
foster compliance, without adding a significant burden.
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    \15\ Registration of Municipal Advisors, Rel. No. 34-70462
(Sept. 20, 2013) (``SEC Final Rule''), 78 FR 67467 (Nov. 12, 2013).
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    Section 15B(b)(2)(L)(iv) of the Act \16\ requires that rules
adopted by the Board
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    \16\ 15 U.S.C. 78o-4(b)(2)(L)(iv).

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,
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provided that there is robust protection of investors against fraud.

    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(L)(iv) of the Act. While the proposed rule change
would affect all municipal advisors, including small municipal
advisors, it would be a necessary and appropriate regulatory burden in
order to promote compliance with MSRB rules. Proposed Rule G-44
utilizes a primarily principles-based approach to supervision in order
to, among other things, accommodate the diversity of the municipal
advisor population, including small municipal advisors and sole
proprietorships. Paragraph .02 of the Supplementary Material notes that
even a municipal advisor with only one associated person can have a
sufficient supervisory system under proposed Rule G-44. Under the same
paragraph, one person may be designated as responsible for supervision
and the rule would allow for written supervisory procedures to be
tailored based on factors such as the size of the firm. The MSRB
believes that all municipal advisors, regardless of size, will benefit
from a requirement that they document with specificity how they plan to
comply with applicable rules.
    The MSRB also believes that the proposed rule change is consistent
with Section 15B(b)(2)(G) of the Act,\17\ which provides that the
MSRB's rules shall
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    \17\ 15 U.S.C. 78o-4(b)(2)(G).

prescribe records to be made and kept by municipal securities
brokers, municipal securities dealers, and municipal advisors and
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the periods for which such records shall be preserved.

    The proposed rule change would require each municipal advisor to
make and keep all of the general business records described in Exchange
Act Rule 15Ba-1-8(a)(1)-(8). It also would require each municipal
advisor to make and keep records of written supervisory procedures and
compliance policies, designations of persons as CCO and of persons
responsible for supervision, reviews of the adequacy of written
compliance policies and written supervisory procedures, the annual

certifications as to compliance processes, and, if applicable, annual
certifications regarding the exemption for federally regulated
fiduciary activities of banks. The proposed rule change also contains
preservation requirements for the required records, including a
modernization of the rule language made generally applicable to dealers
as well as municipal advisors, which expressly allows preservation on
electronic storage media. The MSRB believes that the proposed
amendments to Rules G-8 and G-9 related to recordkeeping and records
preservation will promote compliance and facilitate enforcement of
proposed Rule G-44, other MSRB rules, and other applicable securities
laws and regulations.

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

    Section 15B(b)(2)(C) of the Act requires that MSRB rules not be
designed to impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. In determining
whether this standard has been met, the MSRB has been guided by the
Board's recently-adopted policy to more formally integrate economic
analysis into the rulemaking process. In accordance with this policy
the Board has evaluated the potential impacts of the proposed rule
change, including in comparison to reasonable alternative regulatory
approaches.
    The MSRB 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, since the supervision and compliance
requirements, or substantially equivalent federal requirements, and the
books and records requirements would apply equally to all municipal
advisors to the extent their municipal advisory activities are not
already supervised under existing Rule G-27.\18\ The MSRB has
considered whether it is possible that the costs associated with the
supervision and compliance requirements of the proposed rule, relative
to the baseline, may affect the competitive landscape by leading some
municipal advisors to exit the market, curtail their activities or
consolidate with other firms. For example, some municipal advisors may
determine to consolidate with other municipal advisors in order to
benefit from economies of scale (e.g., by leveraging existing
compliance resources of a larger firm) rather than to incur separately
the costs associated with the proposed rule.
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    \18\ Rule G-27 is the MSRB's supervisory rule applicable to
brokers, dealers and municipal securities dealers.
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    It is also possible that the competitive landscape can be affected
by leading some municipal advisors, particularly small municipal
advisors, to exit the market. Such exits from the market may lead to a
reduced pool of municipal advisors. However, as the SEC recognized in
its final rule on the permanent registration of municipal advisors, the
market for municipal advisory services is likely to remain competitive
despite the potential exit of some municipal advisors (including small
entity municipal advisors), consolidation of municipal advisors, or
lack of new entrants into the market.\19\
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    \19\ See SEC Final Rule at 505, 78 FR 67467, at 67608.
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    It is also possible that competition for municipal advisory
services can be affected by whether incremental costs associated with
requirements of the proposed rule are passed on to advisory clients.
The amount of costs passed on may be influenced by the size of the
municipal advisory firm. For smaller municipal advisors with fewer
clients, the incremental costs associated with the requirements of the
proposed rule may represent a greater percentage of annual revenues,
and, thus, such advisors may be more likely to pass those costs along
to their advisory clients. As a result, the competitive landscape may
be altered by the potentially impaired ability of smaller firms to
compete for advisory clients.
    The Dodd-Frank Act provides that MSRB rules may not impose a
regulatory burden on small municipal advisors that is not necessary or
appropriate in the public interest and for the protection of investors,
municipal entities, and obligated persons provided that there is robust
protection of investors against fraud. The MSRB is sensitive to the
potential impact of the requirements contained in proposed Rule G-44
and the proposed amendments to Rules G-8 and G-9 on small municipal
advisors. The MSRB understands that some small municipal advisors and
sole proprietors, unlike larger municipal advisory firms, may not
employ full-time compliance staff and that the cost of ensuring
compliance with the requirements of the proposed rule may be
proportionally higher for these smaller firms. The MSRB believes that
the proposed rule change is consistent with the Dodd-Frank Act's
provision with respect to burdens imposed on small municipal advisors.
    The MSRB solicited comment on the potential burdens of the proposed
rule change in a notice requesting comment on a draft Rule G-44 and
draft amendments to Rules G-8 and G-9, and a separate notice requesting
comment on additional draft amendments to Rules G-8 and G-9 that were
initially published in connection with draft MSRB Rule G-42, which
notices incorporated the MSRB's preliminary economic analyses.\20\ The
specific comments and responses thereto are discussed in Part 5.
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    \20\ MSRB Notice 2014-04 (Feb. 25, 2014) (``Request for
Comment''); MSRB Notice 2014-01 (Jan. 9, 2014).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The MSRB received twelve comment letters in response to the Request
for Comment,\21\ and two comment letters specifically addressing the
relevant draft record-keeping requirements published in connection with
draft MSRB Rule G-42.\22\ The comment letters are summarized below by
topic.
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    \21\ Comments were received in response to the Request for
Comment from: American Bankers Association: Letter from Cristeena G.
Naser, Vice President and Senior Counsel, dated May 1, 2014
(``ABA''); Bond Dealers of America: Letter from Michael Nicholas,
Chief Executive Officer, dated April 28, 2014 (``BDA''); Edwin C.
Blitz Investments, Inc.: Email from Edwin Blitz dated March 18, 2014
(``Blitz''); Investment Company Institute: Letter from Tamara K.
Salmon, Senior Associate Counsel, dated April 15, 2014 (``ICI'');
LIATI Group, LLC: Email from Weldon Fleming dated March 10, 2014
(``LIATI''); MSA Professional Services, Inc.: Letter from Gilbert A.
Hantzsch, Chief Executive Officer, dated April 28, 2014 (``MSA'');
National Association of Independent Public Finance Advisors: Letter
from Jeanine Rodgers Caruso, President, dated April 28, 2014
(``NAIPFA''); Raftelis Financial Consultants, Inc.: Letter from
Alexis F. Warmath, Vice President, and Christopher P.N. Woodcock,
President, Woodcock & Associates, Inc., dated April 28, 2014
(``Raftelis''); Roberts Consulting, LLC: Email from Jonathan Roberts
dated March 13, 2014 (``Roberts''); Securities Industry and
Financial Markets Association: Letter from David L. Cohen, Managing
Director, Associate General Counsel, dated April 25, 2014
(``SIFMA''); Tibor Partners, Inc.: Email from William Johnston dated
February 25, 2014 (``Tibor''); and Yuba Group: Letter from Linda
Fan, Managing Partner, dated April 28, 2014 (``Yuba'').
    \22\ Cooperman Associates: Letter from Joshua G. Cooperman dated
March 10, 2014 (``Cooperman''); and Lamont Financial Services:
Letter from Robert A. Lamb, President, dated March 10, 2014
(``Lamont'').
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Support for the Proposed Rule
    SIFMA states that it supports the MSRB's efforts to ensure that
municipal advisors adopt a supervisory structure for engaging in
municipal advisory activities and are properly supervised. SIFMA
supports the required elements of supervisory systems contained in
proposed Rule G-44 as it follows a widely accepted model in the
securities industry. NAIPFA comments that the

proposed rule strikes an appropriate balance between a principles-based
and a prescriptive approach and encourages the MSRB to retain the
overall tone and structure of the proposed rule. ICI supports the
proposal and comments that its requirements are consistent with those
imposed on other securities professionals.
Flexibility for Smaller Municipal Advisors
    BDA comments that the proposed rule is too flexible in allowing
small firms to determine and carve out an accommodation for themselves.
BDA further states that the MSRB should set forth minimum standards
that all municipal advisor firms must meet when establishing
supervisory and compliance procedures, but allow firms to decide how to
implement them. BDA states that small firms should not be allowed to
diminish their obligations. Similarly, MSA states that the proposed
rules appear to hold larger firms to a higher standard than smaller
firms and recommends a prescriptive approach that places clear
regulatory requirements on all firms, regardless of size. In contrast,
NAIPFA comments that the proposed rule appropriately accommodates small
and single person municipal advisors by, among other things, allowing
supervisory systems to be tailored to the size of the firm. Yuba
comments that the proposed rule is biased towards larger firms and does
not make adequate accommodations for smaller and single-person firms
since larger firms are able to spread the actual and opportunity costs
of compliance over a larger number of clients and employees. MSA asks
whether large firms will be held to a stricter compliance standard than
small firms with respect to the development and implementation of
policies and procedures.
    The MSRB acknowledges that the proposed rule change contains
standards that may vary based on firm size. The MSRB believes that the
appropriateness of supervisory procedures is dependent on a firm's size
since, for example, procedures that may be appropriate for a two-person
firm would likely not be effective for a much larger firm. The proposed
rule change deliberately gives firms flexibility to tailor their
supervisory system to their particular firm. The MSRB believes that the
proposed rule change strikes an appropriate balance between burdens on
small advisors and flexibility for small advisors. This balance is
evident from the comments, some of which state that the proposed rule
is too burdensome for small advisors, while others state that the
proposed rule gives small advisors too much flexibility.
Sole-Proprietorships
    NAIPFA comments that the MSRB may want to consider exempting single
person firms from developing a compliance manual. According to NAIPFA,
since sole-proprietors will be obligated to monitor their own
activities and will be disproportionately burdened by the proposed
rule, requiring them to undertake such activities will not result in
any appreciable benefit to municipal entities or obligated persons.
Tibor comments that it is a one-man operation with one client and that
the proposed rule will ultimately deprive its client from access to
valuable advice. Roberts asks what written policies on supervision sole
proprietors can have and asks why it is necessary for a sole proprietor
to assign the responsibility for the management of monitoring this
supervision to the sole individual at the firm. Roberts also asks what
the sole-proprietor should do in any self-imposed self-evaluation and
why deal files are not enough.
    The MSRB acknowledges that the costs associated with the proposed
rule could fall disproportionately on small municipal advisors,
including sole-proprietorships; however, to address this concern, the
proposed rule change states that a municipal advisor with few
personnel, or even only one associated person, can have a sufficient
supervisory system and that written supervisory procedures can be
tailored to the firm's size. Requiring sole-proprietors to have a
supervisory system in place is important because oversight of a firm's
municipal advisory activities is essential regardless of firm size.
Proposed Rule G-44 deliberately does not contain specific prescriptions
as to the procedures a sole proprietor should have as such detail would
undermine the flexibility of the proposed rule and the primarily
principles-based approach utilized. Under the proposed rule's flexible
principles, procedures would be required to be reasonably designed to
achieve compliance, and such reasonableness will depend in part on the
municipal advisor's size and particular business model. The MSRB
believes, as noted, that all municipal advisors, regardless of size,
will benefit from a requirement that they document with specificity how
they plan to comply with applicable rules. Developing appropriate
systems and documenting and following written procedures is a well
established practice among businesses, regardless of size, for
facilitating compliance with regulation in a broad range of other areas
(e.g., taxes, human resources).
Self-Certification
    BDA states that Rule G-44 should require all municipal advisors to
complete a periodic self-certification regarding the meeting of
professional qualification standards by its associated persons, as well
as to certify the municipal advisor's ability to comply, and history of
complying, with all applicable regulatory requirements. BDA states that
it is critical for municipal advisors to self-certify that they are
meeting the same professional qualification standards as broker-dealers
regardless of size much like rules for broker-dealers and comments
that, since self-certification is already required of broker-dealers,
municipal advisors that are already broker-dealers should not be unduly
burdened. MSA comments that periodic self-certifications seem practical
and feasible but that certification metrics should be outlined by the
MSRB for consistency among all regulated firms, regardless of size. In
contrast, NAIPFA sees no value in requiring municipal advisor
representatives to complete a periodic self-certification since it
would appear to simply create an additional regulatory burden without
any appreciable benefits. NAIPFA opposes the creation of a self-
certification requirement unless an objective basis can be provided
showing that it would result in a decrease in the number of compliance
violations.
    The MSRB has revised the proposal to create a self-certification in
response to the BDA and MSA comments, though the proposed requirement
is less broad. The commenters referenced a certification regarding the
meeting of professional qualification standards and the ability to
comply, and history of complying, with all applicable regulatory
requirements. The proposed self-certification, like that in FINRA Rule
3130, is with regard to processes to establish, maintain, review, test
and modify written supervisory procedures reasonably designed to
achieve compliance with applicable rules. The MSRB does not believe it
is feasible or should be necessary to show in advance, as NAIPFA
suggests, that the proposed self-certification will result in a
decrease in the number of compliance violations.
Outsourcing CCO Function
    NAIPFA comments that municipal advisors should be able to outsource
the CCO function and that there should be no requirement that the CCO
be either a principal or associated person of a

municipal advisor. SIFMA does not object to the proposal's flexibility
with respect to outsourcing the CCO function. Raftelis comments that
the ability of municipal advisors to outsource the CCO function may be
essential for fairly small firms to be able to address the proposed
rule's requirements. BDA asks the MSRB to make clear within the
language of proposed Rule G-44 that the firm remains ultimately
responsible for any decisions made by the CCO, whether the position is
outsourced or not. BDA acknowledges that this is included in Paragraph
.05 of the Supplementary Material but states that it should be included
in rule text beyond the Supplementary Material. MSA agrees that the
ability to outsource the CCO position could help promote and improve
the fiduciary duties required of municipal advisors, but questions
whether municipal advisors will elect to use outside CCOs due to
liability and exposure concerns since compliance ultimately falls to
the municipal advisor firms.
    No commenters opposed the option provided in the proposed rule to
outsource the CCO role. The MSRB believes that the statement in
paragraph .05 of the Supplementary Material that the municipal advisor
retains ultimate responsibility for its compliance obligations is
adequate; therefore, the MSRB is not revising the rule text in response
to BDA's comment.
Recordkeeping Requirements
    SIFMA supports the proposed amendments to Rules G-8 and G-9 related
to municipal advisor supervisory and compliance obligations and
comments that the proposed recordkeeping and retention requirements are
reasonable and are in line with existing MSRB requirements. NAIPFA
requests that proposed Rule G-9(h) be amended to state that the records
described in Rule G-8(h)(iii)(B) and (D) are required to be preserved
only for the duration of a person's designation as a supervisor and/or
CCO and for at least five years following any change in such
designation to harmonize this portion of Rule G-9 with similar portions
of Exchange Act Rule 15Ba1-8 \23\ relating to items such as the
requirement that firms retain records relating to the ``names of
persons who are currently, or within the past five years were,
associated with the municipal advisor.'' NAIPFA further comments that
since Exchange Act Rule 15Ba1-8 mandates a five-year retention period
following a person's disassociation, it would make sense to impose a
similar five-year retention requirement under proposed rule G-9(h).
Finally, NAIPFA states that establishing a six-year retention
requirement when all other similar retention requirements are five
years creates an inconsistent and overly complex regulatory regime with
no appreciable benefit. MSA observed it would be premature to attempt
to quantify record-keeping costs at this time as there are still
unanswered questions regarding what types of information will be
required for regulatory retention compliance.
---------------------------------------------------------------------------

    \23\ 17 CFR Sec.  240.15Ba1-8.
---------------------------------------------------------------------------

    As discussed in the Request for Comment, there is a six-year
retention period for records relating to designations of persons
responsible for supervision and as CCO to be consistent with the
current provisions of Rule G-9 for records of similar designations by
brokers, dealers and municipal securities dealers. This longer
requirement is also supported by the importance of such records in
ascertaining the identity of responsible persons during particular
periods of time. The proposed rule change requires the other records
related to municipal advisor supervisory and compliance obligations to
be preserved for five years to be consistent with the preservation
requirements of Exchange Act Rule 15Ba1-8. Therefore, the MSRB is not
proposing any revisions in response to NAIPFA's comments on the
retention periods.
    On the subject of the fundamental record-keeping requirements
initially proposed in connection with draft MSRB Rule G-42, Cooperman
requested that the MSRB provide a draft of a prototype baseline
policies and procedures guide that smaller financial advisor firms can
adopt or modify, as needed. Cooperman also requested that the MSRB
clarify that maintenance of documents and emails on a firm's email site
or through its internet service provider will comply with records
retention requirements. Lamont asked whether all emails and client
records should be saved in the same folder in electronic media. In
addition, Lamont stated that costs will be substantial and not
necessarily spread among all clients, that recordkeeping will be
extremely time consuming and will result in lost productivity, and that
the costs will impact small profit margins in the short term ``before
prices can be adjusted by the [municipal advisor] and the client.''
    The MSRB has declined at this time to provide a policies and
procedures guide in part because it may be impracticable for the MSRB
to develop policies and procedures that would appropriately address the
scope and diversity of business models and particular practices of the
numerous municipal advisor firms. With regard to records retention, the
proposed amendments to Rule G-9 contain relatively principles-based
requirements, including the standard that records be available for
ready retrieval, inspection and production of copies. The draft
amendments to Rule G-9 would not prescribe the specific details of how
or where electronic records must be preserved. Additionally, if a
municipal advisor would prefer to comply with the SEC's electronic
record retention requirements (SEC Rule 15Ba1-8(d)), as interpreted by
the SEC, the proposed amendments to Rule G-9 would provide that
alternative. The issue of compliance costs being passed on to municipal
entity and obligated person clients is addressed separately below.
Comparison to Rule G-27
    SIFMA states that it commends the MSRB for proposing a supervisory
regime of similar robustness to the requirements of Rule G-27,
resulting in a level playing field for all municipal advisors. SIFMA
comments that municipal advisors should consider as a business practice
some of the specific requirements contained in Rule G-27 that are not
in the proposed rule. BDA states that the draft rule sets a lower
baseline than Rule G-27 and some of the requirements imposed on
municipal securities dealers in Rule G-27 should be extended to
municipal advisors.
    The MSRB recognizes that the approach taken in the proposed rule is
different than that in Rule G-27. Rule G-27 reflects evolving broker-
dealer industry practices and many of its more prescriptive elements
reflect the fact that many dealers, unlike municipal advisors in their
capacity as municipal advisors, hold customer funds and securities for
safekeeping. In any event, complete parallelism between Rules G-44 and
G-27 is not possible given that broker-dealers do not owe a fiduciary
duty and therefore are subject to different underlying standards of
conduct. BDA did not provide any details regarding which aspects of
Rule G-27 should be applied to municipal advisors and why it would be
appropriate to do so. The MSRB does not believe that it is appropriate
at this time to apply any additional provisions from Rule G-27 to
municipal advisors and is, therefore, not amending the proposed rule in
response to these comments.

Economic Analysis--General
    SIFMA comments that the MSRB's preliminary economic analysis
incorporated in the request for comment justifies the supervisory and
recordkeeping requirements in the proposed rule. MSA comments that
there is little publicly available information about the municipal
advisor industry and, as such, benefits to municipal entities would
seem clear as they relate to required informational transparency and
the requirement of a supervisory structure. However, MSA states that
explaining the costs and benefits of regulatory compliance to the
benefiting municipalities is an element that has not received adequate
attention.
    The MSRB has engaged in, and will continue to engage in, education
and outreach initiatives to municipal entities, obligated persons and
the general public regarding the MSRB's regulation of municipal
advisors.
    NAIPFA comments that there is a lack of objective evidence
indicating that firms have engaged in widespread violations of their
fiduciary duties, and therefore a need does not exist for the MSRB to
articulate supervisory or compliance obligations at this time since the
costs (including significant impacts on competition, market efficiency,
and capital formation), time and effort that will be required to be
expended by municipal advisors will likely outweigh any incremental
benefits that may be realized by municipal entities and obligated
persons. Raftelis comments that the requirement to maintain written
records of supervisory and compliance policies and procedures may be
unnecessary, may not provide any additional benefits, and may be overly
burdensome and costly. Raftelis comments that with respect to the
specific services provided by firms that serve the water and wastewater
utility industry and whose role as a municipal advisor is fairly
limited, the benefits of the proposed rules will be small and there is
a risk that information and services relied on by government-owned
utilities to facilitate the process of borrowing money may become more
expensive and less readily available.
    Proposed Rule G-44 is intended to prevent unlawful conduct and to
help detect and promptly address unlawful conduct when it does occur.
The need for proposed Rule G-44 arises from the MSRB's regulatory
oversight of municipal advisors as provided under the Dodd-Frank Act.
The Dodd-Frank Act establishes a federal regulatory regime that
requires municipal advisors to register with the SEC and grants the
MSRB broad rulemaking authority over municipal advisors. The MSRB, in
the exercise of that authority, is in the process of developing a
regulatory framework for municipal advisors. Supervision and compliance
functions play an important role in promoting and fostering compliance
by municipal advisors with all applicable securities laws, including
applicable MSRB rules. Supervision and compliance functions are
designed to prevent violations from occurring, while they also promote
early detection and prompt remediation of violations when they do
occur. Such functions are complementary to an enforcement program
designed to deter violations of securities laws by imposing penalties
for violations after they occur.
    For similar reasons, the regulation of supervisory and compliance
functions is well established within the financial services industry.
The model of requiring a reasonably designed supervisory system
complemented by the designation of a CCO to be responsible for
compliance processes is a widely accepted regulatory model across the
financial services industry. To achieve comparable levels of compliance
with applicable securities laws as seen with other financial services
professionals, there is a need for a MSRB rule establishing municipal
advisors' supervisory and compliance obligations.
    The MSRB believes that the proposed rule change will help to
prevent violations of fiduciary duties and does not believe that prior
evidence of such violations is necessary to support implementation of
the proposed rule change. Proposed Rule G-44 follows a widely accepted
model in the securities industry of a reasonably designed supervisory
system complemented by the designation of a CCO and draws on aspects of
existing supervision and compliance regulation under related regimes.
Economic Analysis--Small Firms and Sole Proprietorships
    Many of the comments on the proposed rule and proposed amendments
were directed to the costs of compliance for small municipal advisors.
Yuba, a seven-person firm, provided specific cost estimates related to
complying with draft Rules G-42 and G-44 during the first six months of
2014 that exceeded $125,000, or nearly $18,000 per person. Yuba states
that the opportunity cost of time spent on compliance is time that is
not available for client matters, which directly impacts the firm's
bottom line negatively. Yuba encourages the MSRB to evaluate the
potential impact and costs of compliance on small firms both with
respect to increased out-of pocket costs and the opportunity cost of
the firm's time. Yuba further states that, with fewer people and no
other business lines than their advisory work, smaller firms will be
impacted much more than larger firms. Yuba recommends that the MSRB
better accommodate smaller firms by consolidating regulatory
communications and rules into fewer publications and webinars.
    Roberts, a sole proprietorship municipal advisory firm, states that
the supervision requirement for a one-person firm creates an undue
burden as the supervision would require Roberts to supervise himself.
Roberts comments that a larger organization can spread the costs, time,
and attorney's fees to produce a procedures manual and still be able to
source and do a deal for profit. Roberts also comments that the MSRB
needs to consider the rules in the context of the whole when
determining the burden because one rule in isolation is not an undue
burden but the totality of all of the rules will cause sole proprietors
to struggle.
    LIATI has two persons involved in municipal advisory activities and
comments that the imposition of a supervisory scheme similar to that
required by FINRA will be a major cost in terms of time and money to
initiate and maintain.
    As discussed above, the MSRB has acknowledged that the costs
associated with the proposed rule change could fall disproportionately
on small municipal advisory firms. To address this concern, the
proposed rule allows for small advisors, and advisors with other
particular traits, to reasonably vary their supervisory procedures as
appropriate. Proposed Rule G-44 states that a municipal advisor with
few personnel, or even only one associated person, can have a
sufficient supervisory system under the proposed rule, that written
supervisory procedures can be tailored to the firm's size, and that the
CCO role may be outsourced. As new municipal advisor rules are
proposed, the MSRB has carefully considered, and will continue to
carefully consider, the burden of municipal advisor regulation as a
whole.
Costs Passed to Municipal Entities and Obligated Persons
    NAIPFA comments that the costs of implementing the proposed rules
will directly or indirectly be passed to municipal entities and
obligated persons. MSA comments that the development and implementation
of policies and procedures, annual filing

and/or certification requirements, and the preservation of client
records will result in additional costs that will be passed to
municipalities. Raftelis comments that costs imposed on municipal
advisors as a result of the proposed rules will almost certainly be
passed on to municipal entities or obligated persons. Raftelis also
states its belief that the proposed rules will add at least five
percent to the cost of providing debt issuance support services for its
clients, while providing little benefit to the client.
    The MSRB is sensitive to the potential that the costs of the
proposed rule change may be passed on to municipal entities and
obligated persons and this is a factor that the MSRB has considered as
part of its economic analysis. The MSRB believes that any increase in
municipal advisory fees charged to advisory clients attributable to the
incremental costs of the proposed rule compared with the baseline state
may be, in the aggregate, minimal in that the cost per municipal
advisory firm likely would be spread across the number of advisory
engagements for each firm. The MSRB believes that the benefits to
municipalities and obligated persons of the proposed rule change
outweigh the potential for increased costs being passed on to these
entities. The MSRB will continue to consider the impact that increased
costs will have on municipal entities and obligated persons as it
continues to develop a regulatory framework for municipal advisors.
Prescriptive vs. Principles-Based Approach
    Raftelis comments that, although it seems unlikely that a more
prescriptive approach would be helpful or advantageous to municipal
entities, the current principles-based approach is made less effective
due to the ambiguous nature of the language and lack of applicable and
useful guidance. Raftelis further comments that, given the broad nature
of the types of services and types of firms that may be impacted by the
proposed rule change, it will be extremely difficult to provide
reasonable guidance that covers all situations.
    The MSRB agrees that the proposed principles-based approach is
appropriate considering the broad array of firms and types of services
impacted by these rules. The MSRB believes that stating more specific
obligations in the rule or guidance, however, would undermine the
flexibility to create supervisory systems that are reasonably based on,
among other things, the municipal advisor's size, organizational
structure, nature and scope of activities, and number of offices. The
proposed principles-based approach affords municipal advisors
flexibility in determining the lowest-cost means to meet regulatory
objectives.
Bank Trust Departments and Trust Companies
    ABA comments that, with respect to municipal advisory activities of
bank trust departments and trust companies (``bank fiduciaries''), the
MSRB should consider the fiduciary regulatory regimes of federal and
state bank regulators as a baseline for compliance and states that the
regulatory regime applicable to bank fiduciaries promotes compliance
with applicable securities laws by requiring bank fiduciaries to
develop and implement compliance and supervisory policies. ABA believes
the regulatory regime applicable to bank fiduciaries satisfies the
principles underlying the proposed rule and that compliance with this
regulatory regime should be deemed to constitute compliance with the
proposed rule as this would further the rule's purpose and avoid
overlaying an unnecessary and costly securities-based compliance
program on a banking-law compliance regime. ABA believes that the
imposition of this costly regulatory regime will provide no additional
protections for municipal entities that are bank fiduciary clients and
will require bank fiduciaries to undertake costly reviews to determine
where there are duplicative or contradictory procedures between the two
systems.
    All municipal advisors should be required, at a minimum, to adhere
to federal supervisory and compliance obligations that are
substantially equivalent to those set forth in the proposed rule change
regardless of their other business activities and regulatory
obligations. In response to this comment, the MSRB has revised proposed
Rule G-44 so that a bank fiduciary that certifies annually pursuant to
proposed Rule G-44(e) that it is subject to federal supervisory and
compliance obligations and books and records requirements that are
substantially equivalent to the supervisory and compliance obligations
of Rule G-44 and the books and records requirements of Rule G-8(h)(iii)
would be exempt from the other provisions of Rule G-44 and Rule G-
8(h)(iii). Bank fiduciaries would remain subject to all other
applicable MSRB rules.
Requests for More Guidance
    NAIPFA comments that it is unclear what the last portion of
paragraph .02 of the Supplementary Material requires in terms of the
development of a compliance policy and requests that additional
substantive guidance be provided that addresses how a single associated
person's procedures should be prepared in line with this provision.\24\
Proposed Rule G-44 requires municipal advisors to develop written
supervisory procedures that are ``reasonably designed to ensure that
the conduct of the municipal advisory activities of the municipal
advisor and its associated persons are in compliance with applicable
rules.'' Raftelis comments that this language is insufficient and asks
how municipal advisors know if the written policies and procedures are
reasonable and sufficient. Raftelis asks whether the MSRB will provide
samples of written procedures and rules to provide a guide for
addressing this requirement and also asks who is responsible for
determining if the written policies and procedures are adequate and if
they will be reviewed by someone at the MSRB and approved. Raftelis
comments that the lack of guidance on what the written policies need to
address increases the burden and cost of compliance. Raftelis further
states that similar comments and concerns are raised by the requirement
for conducting a periodic review and update of the written policies and
procedures. MSA states that paragraph .01 of the Supplementary Material
may not provide enough structure and a more objective, metric-based
approach would be preferable; one which clearly defines the appropriate
number of municipal advisor representatives required to fulfill
regulatory responsibilities. MSA requests direction and clarification
from the MSRB and specifically asks whether the MSRB will be releasing
an outline with guidelines or requirements for each policy and
procedures manual. Finally, Raftelis states that the proposed rule does
not provide adequate guidance for smaller firms that provide a limited
and specialized set of services that fall under the municipal advisor
definition.
---------------------------------------------------------------------------

    \24\ Paragraph .02 of the Supplementary Material provides, in
pertinent part: ``In the case of a municipal advisor with a single
associated person, the written supervisory procedures must address
the manner in which, in the absence of separate supervisory
personnel, such procedures are nevertheless reasonably designed to
achieve compliance with applicable rules.''
---------------------------------------------------------------------------

    The MSRB intends proposed rule G-44 to allow firms a degree of
flexibility to develop written supervisory procedures that are
appropriate for their particular business. There are no plans at this
time to review and pre-approve firms' written supervisory procedures
and each municipal advisor is

ultimately responsible for ensuring that its written policies and
procedures are adequate. Additionally, the MSRB is not providing an
outline of guidelines or requirements as doing so would undermine the
flexibility of the principles-based approach utilized by the proposed
rule and could not foresee all possible facts and circumstances that
could arise among an extremely diverse population of municipal advisors
operating in a complex market.
    Raftelis asks how large a firm has to be, or how large a municipal
advisory practice has to be, before it is necessary to designate
additional principals as having supervisory roles. MSA asks what the
proper ratio of certified municipal advisor representatives is for
appropriate compliance with municipal advisor activities.
    Proposed Rule G-44(a) would require a supervisory system reasonably
designed to achieve compliance with all applicable rules. Each
municipal advisor would be expected to use its judgment to determine
how many supervisory principals and municipal advisor representatives
are needed for the particular firm to meet this standard.
    MSA asks whether the additional experience, training, and knowledge
metrics referenced for municipal advisor principals will be identified
in subsequent MSRB notices. MSA also asks what metrics the MSRB will
use to determine experience, training and knowledge outside of the
qualification requirements referenced in MSRB Notice 2014-08.
    Under paragraph .03 of the Supplementary Material, municipal
advisor principals must have sufficient knowledge, experience and
training ``to understand and effectively discharge their [supervisor]
responsibilities.'' The MSRB does not currently plan to issue
additional guidance regarding this general requirement, which will
depend on the particular facts and circumstances. Municipal advisors
must use judgment to determine whether a designated supervisory
principal's knowledge, experience and training are sufficient.
    MSA asks whether a CCO and/or designated municipal advisor
principal can also serve in a functional municipal advisor
representative capacity, whether the duties of the CCO and municipal
advisor professional can be vested in the same person, and whether a
person can serve as CCO and municipal advisor principal for a firm.
    Under paragraph .07 of the Supplementary Material, a CCO may hold
any other position within a municipal advisor, including being
designated as a supervisory principal, provided that the person can
discharge the duties of CCO in light of all of the responsibilities of
any other positions. A CCO or municipal advisor principal may serve in
a functional municipal advisor representative capacity.
    MSA asks, if a firm decides to outsource the CCO function, whether
that entity is operating under the municipal advisor registration of
the firm, or whether he or she must be registered as an individual
municipal advisor.
    If a firm outsources the CCO functions, the CCO is not required on
that basis alone to be associated with the municipal advisor and is
also not required to be separately registered as a municipal advisor if
the individual is not engaging in municipal advisory activities as
defined by the Act and the rules and regulations thereunder.
    MSA observed that a previous MSRB proposal contained a provision
that stated that, if a firm chooses to subcontract with an independent
municipal advisor on behalf of its clients, said municipal advisor
could not have been associated with the firm for two years. MSA asks if
the same provisions apply to the CCO position. MSA states that this
requirement, if enforced, may prevent access and participation to the
municipal advisory services market by qualified professionals who could
provide the municipal advisory services at a reduced cost and asks the
MSRB to explain the rationale and intent behind the two-year duration.
    The previously proposed Rule G-44 that was filed with the SEC and
withdrawn in 2011 has no force or effect and the current proposal does
not include a provision similar to that described by MSA.
Implementation Date
    BDA states that the MSRB should delay implementation of all of its
municipal advisor rules and regulations until they have all been
approved by the SEC. BDA further comments that an implementation date
of six months following SEC approval of the last of the rules is fair.
BDA states that this is particularly important for a rule like G-44
which will require firms to use the information in other rules to
establish a complete supervisory system. NAIPFA comments that the MSRB
may wish to consider refraining from implementing the proposed rule at
this time. ICI recommends that the MSRB provide municipal advisors with
a sufficient period of time to be fully compliant with the requirements
since municipal advisors will need to adopt or revise existing
compliance and supervisory systems to comply with the new rule and hire
or appoint necessary qualified personnel. ICI states that the MSRB
should provide advisors with a minimum of twelve months to comply with
the new rule to avoid unduly straining the resources of such advisors.
NAIPFA requests that the proposed rule have a compliance date that is
at least ninety days following the date on which it is effective. SIFMA
requests that the MSRB provide for a reasonable compliance period of no
less than six months.
    The MSRB will not delay implementation of the proposed rules until
all municipal advisor rules have been approved by the SEC. Municipal
advisors are currently subject to a host of applicable federal
securities laws, and benefits would flow from having in place
supervisory and compliance obligations reasonably designed to ensure
compliance with those laws. Moreover, the MSRB believes that it is
important for firms to have a supervisory system and compliance
processes in place that can be updated as new rules are adopted. The
MSRB further believes that an implementation period of six months
following the SEC's approval of proposed Rule G-44 and the proposed
amendments to Rules G-8 and G-9 will provide sufficient time for firms
to develop supervisory systems and compliance processes to comply with
the proposed rule change, except for proposed Rule G-44(d). This
general period meets SIFMA's request and is longer than NAIPFA's
requested implementation period. The MSRB would expect municipal
advisors to comply with proposed Rule G-44(d), on annual certifications
as to compliance processes, by a date eighteen months following SEC
approval.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing,

including whether the proposed rule change is consistent with the Act.
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-MSRB-2014-06 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2014-06. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the MSRB. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2014-06 and should be
submitted on or before August 26, 2014.

    For the Commission, pursuant to delegated authority.\25\
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    \25\ 17 CFR Sec.  200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18381 Filed 8-4-14; 8:45 am]
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[Federal Register: April 18, 2008 (Volume 73, Number 76)]
[Notices]
[Page 21168-21169]
[DOCID:fr18ap08-108]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

RTCA Special Committee 205/EUROCAE Working Group 71: Software
Considerations in Aeronautical Systems Eighth Joint Meeting

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of RTCA Special Committee 205/EUROCAE Working Group 71
meeting.

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SUMMARY: The FAA is issuing this notice to advise the public of a
meeting of RTCA Special Committee 205/EUROCAE Working Group 71:
Software Considerations in Aeronautical Systems.

DATES: The meeting will be held June 23-27, 2008, from 8:30 a.m.-5 p.m
(variable see daily schedule).

ADDRESSES: The meeting will be held at ENSEEIHT (referred as N7) 2, rue
Charles CAMICHEL, Boite Postale 7122, 31071 TOULOUSE Cedex 7, France.

FOR FURTHER INFORMATION CONTACT: (1) RTCA Secretariat, 1828 L Street,
NW., Suite 805, Washington, DC 20036; telephone<PHONE_NUMBER>; fax
(202) 833-9434; Web site http://www.rtca.org; (2) Joint Secretaries,
Europe: Mr. Ross Hannon, telephone +44 78807-46650, e-mail: ross--
<EMAIL_ADDRESS>US: Ms. Leslie Alford, telephone +1-678-363-5948,
e-mail<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Pursuant to section 10(a)(2) of the Federal
Advisory Committee Act (Pub.L. 92-463, 5 U.S.C., Appendix 2), notice is
hereby given for a Special Committee 205/EUROCAE Working Group 71
meeting.

    Note: On arrival at ENSEEIHT please have photo identification
available (either a passport, a drivers license bearing a photograph
or an identity card) to assist in your pass being issued.

     June 23:
     Registration.
     Review of Meeting Agenda and Agreement of Previous
Minutes.

     Reports of Sub-Group Activity since January 2008.
     Other Committee/Other Documents Interfacing Reports.
     Plenary Text Acceptance (for papers posted, commented on
and reworked prior to Plenary).
     New Members Introduction Session.
     Sub-Group Break Out Sessions.
     Closed of Day.
     Executive Committee and SG Chairs/Secretaries Meeting.
     June 24:
     Sub-Groups Break Out Session.
     Mandatory Paper Reading Session.
     Executive Committee and SG Chairs/Secretaries Meeting.
     June 25:
     Sub-Group Break Out Sessions.
     Plenary Text Acceptance (for papers posted, commented on
and reworked prior to Plenary).
     Sub-Group Break Out Sessions.
     Executive Committee and SG Chairs/Secretaries Meeting.
     June 26:
     Sub-Group Break Out Sessions.
     Mandatory Paper Reading Session.
     Executive Committee and SG Chairs/Secretaries Meeting.
     June 27:
     Sub-Group Break Out Sessions.
     Plenary Text Approval (reworked and lated posted papers).
     SGs Reports.
     SGI: SCWG Document Integration Sub-Group.
     SG2: Issue & Rationale Sub-Group.
     SG3: Tool Qualification Sub-Group.
     SG4: Model Based Design & Verification Sub-Group.
     SG5: Object Oriented Technology Sub-Group.
     SG6: Formal Methods Sub-Group.
     SG7: Special Considerations Sub-Group.
     Closing Plenary Session (Other Business, Schedule Meeting,
Closing Remarks, Adjourn).
    Attendance is open to the interested public but limited to space
availability. With the approval of the chairmen, members of the public
may present oral statements at the meeting. Persons wishing to present
statements or obtain information should contact the person listed in
the FOR FURTHER INFORMATION CONTACT section. Members of the public may
present a written statement to the committee at any time.

    Issued in Washington, DC, on April 10, 2008.
Francisco Estrada C.,
RTCA Advisory Committee.
 [FR Doc. E8-8221 Filed 4-17-08; 8:45 am]

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