[Federal Register Volume 76, Number 4 (Thursday, January 6, 2011)]
[Proposed Rules]
[Pages 824-969]
[FR Doc No: 2010-32445]

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Part II

Securities and Exchange Commission

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17 CFR Parts 240 and 249

Registration of Municipal Advisors; Proposed Rule

Federal Register / Vol. 76, No. 4 / Thursday, January 6, 2011 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-63576; File No. S7-45-10]
RIN 3235-AK86

Registration of Municipal Advisors

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: Section 975 of Title IX of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (``Dodd-Frank Act'') amended Section 15B of
the Securities Exchange Act of 1934 (as amended, the ``Exchange Act'')
to require municipal advisors, as defined below, to register with the
Securities and Exchange Commission (``Commission'' or ``SEC'')
effective October 1, 2010. To enable municipal advisors to temporarily
satisfy this requirement, the Commission adopted an interim final
temporary rule and form, Exchange Act rule 15Ba2-6T and Form MA-T,
effective October 1, 2010. Rule 15Ba2-6T will expire on December 31,
2011.
    The Commission is proposing new rules 15Ba1-1 through 15Ba1-7 and
new Forms MA, MA-I, MA-W, and MA-NR under the Exchange Act. These
proposed rules and forms are designed to give effect to provisions of
Title IX of the Dodd-Frank Act that, among other things, would
establish a permanent registration regime with the Commission for
municipal advisors and would impose certain record-keeping requirements
on such advisors.

DATES: Comments should be received on or before February 22, 2011.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number S7-45-10 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number S7-45-10. This file number
should be included on the subject line if e-mail 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/proposed.shtml). Comments will also 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 a.m. and 3 p.m. 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.

FOR FURTHER INFORMATION CONTACT: Martha Haines, Assistant Director and
Chief, Office of Municipal Securities, at<PHONE_NUMBER>; Dave Sanchez,
Attorney Fellow, Office of Municipal Securities, at<PHONE_NUMBER>;
Victoria Crane, Assistant Director, Office of Market Supervision, at
(202) 551-5744; Ira Brandriss, Special Counsel, Office of Market
Supervision, at<PHONE_NUMBER>; Jennifer Dodd, Special Counsel, Office
of Market Supervision, at<PHONE_NUMBER>; Steve Kuan, Special Counsel,
Office of Market Supervision, at<PHONE_NUMBER>; Daniel Gien, Attorney-
Adviser, Office of Market Supervision, at<PHONE_NUMBER>; Yue Ding, Law
Clerk, Office of Market Supervision, at<PHONE_NUMBER>; or any of the
above at Division of Trading and Markets, Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-6628.

SUPPLEMENTARY INFORMATION: The Commission is proposing rules 15Ba1-1 to
15Ba1-7 [17 CFR 240.15Ba1-1 to 240.15Ba1-7] under the Exchange Act, and
Forms MA, MA-I, MA-W, and MA-NR [17 CFR 249.1300, 1310, 1320, and
1330].

Table of Contents

I. Introduction
    A. Background
    1. Overview of Municipal Securities Market
    a. Municipal Advisors
    b. Municipal Entities and Municipal Financial Products
    2. Historical Regulation of Municipal Securities and Municipal
Advisors
    a. Municipal Securities Market
    b. Municipal Advisors
    B. Interim Final Temporary Rule 15Ba2-6T and Form MA-T
II. Discussion
    A. Proposed Rules for the Permanent Registration of Municipal
Advisors
    1. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor''
and Related Terms
    a. Statutory Definition of ``Municipal Advisor''
    b. Interpretation of the Term ``Municipal Advisor''; Definition
of Related Terms
    c. Exclusions From the Definition of ``Municipal Advisor''
    2. Proposed Rule 15Ba1-2
    a. Application for Municipal Advisor Registration
    b. Instructions and Glossary
    c. Information Requested in Form MA
    d. Information Requested in Form MA-I
    3. Proposed Rule 15Ba1-3
    a. Withdrawal From Municipal Advisor Registration
    b. Form MA-W
    4. Proposed Rule 15Ba1-4: Amendment to Application for
Registration and Self-Certification
    5. Proposed Rule 15Ba1-5: General Procedures for Serving Non-
Residents and Form MA-NR
    6. Proposed Rule 15Ba1-6: Registration of Successor to Municipal
Advisor
    B. Approval or Denial of Registration
    C. Proposed Rule 15Ba1-7: Books and Records to be Made and
Maintained by Municipal Advisors
III. General Request for Comment
IV. Paperwork Reduction Act
    A. Summary of Collection of Information
    B. Proposed Use of Information
    C. Respondents
    D. Total Initial and Annual Reporting and Record-Keeping Burdens
    1. Form MA
    2. Form MA-I
    3. Amendments to Form MA and Form MA-I
    4. Withdrawal From Municipal Advisor Registration
    5. Non-Resident Municipal Advisors
    6. Outside Counsel
    7. Maintenance of Books and Records
    8. Total Burden
    E. Collections of Information Are Mandatory
    F. Request for Comment
V. Economic Analysis
    A. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor''
and Related Terms
    B. Registration System
    1. Benefits
    2. Costs
    C. Non-Resident Municipal Advisors
    1. Benefits
    2. Costs
    D. Record keeping
    1. Benefits
    2. Costs
    E. Request for Comment on Economic Analysis
VI. Consideration of Impact on the Economy
VII. Initial Regulatory Flexibility Analysis
    A. Reasons and Objectives for the Proposed Rules
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Reporting, Record keeping, and Other Compliance Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    G. General Request for Comment
VIII. Statutory Basis and Text of Proposed Amendments

I. Introduction

A. Background

    On July 21, 2010, President Obama signed into law the Dodd-Frank
Act.\1\ The Dodd-Frank Act was enacted, among other things, to promote
the financial stability of the United States by improving
accountability and transparency in the financial system.\2\ With
Section 975 of Title IX of the Dodd-Frank Act, Congress amended Section
15B of the Exchange Act \3\ to, among other things, make it unlawful
for municipal advisors \4\ to provide certain advice to, or solicit,
municipal entities \5\ or certain other persons without registering
with the Commission.\6\
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    \1\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ See Public Law 111-203 Preamble.
    \3\ 15 U.S.C. 78o-4. All references in this Release to the
Exchange Act refer to the Exchange Act as amended by the Dodd-Frank
Act.
    \4\ See infra Section II.A.1. (discussing the term ``municipal
advisor'').
    \5\ See infra note 82, and accompanying text (discussing the
term ``municipal entity'').
    \6\ See Section 975(a)(1)(B) of the Dodd-Frank Act; 15 U.S.C.
78o-4(a)(1)(B).
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1. Overview of Municipal Securities Market
a. Municipal Advisors
    Until the passage of the Dodd-Frank Act, the activities of
municipal advisors were largely unregulated and municipal advisors were
generally not required to register with the Commission or any other
Federal, State or self-regulatory entity with respect to their
municipal advisory activities. As discussed below in this section, some
entities that are now subject to registration as municipal advisors
pursuant to Section 15B of the Exchange Act, and rules or regulations
promulgated thereunder, currently are subject to regulation by various
Federal and State regulators in other capacities. These entities
include brokers, dealers, municipal securities dealers, investment
advisers, and banks. Such regulations, however, generally do not apply
to their activities as municipal advisors.
    Municipal advisors engage in municipal advisory activities in a
variety of contexts. For example, municipal advisors participate in the
majority of issuances of municipal securities.\7\ According to the
Municipal Securities Rulemaking Board (``MSRB'' or ``Board''),
approximately $315 billion (70%) \8\ of the municipal debt issued in
2008 was issued with the participation of municipal advisors commonly
referred to as ``financial advisors.'' \9\ Research also suggests that
participation by municipal advisory firms in the issuance of municipal
securities is rising, with the MSRB noting a 63% participation rate in
2006, a 66% participation rate in 2007, and a 70% participation rate in
2008.\10\ A study that looked at historical involvement by ``financial
advisors'' identified participation rates of approximately 50% in a
nearly twenty-year period ending in 2002.\11\
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    \7\ With respect to the issuance of municipal securities,
municipal advisors (which may include entities registered as broker-
dealers acting as municipal advisors) engage in such activities as
assisting municipal entities in developing a financing plan,
assisting in the selection of other parties to the financing such as
bond counsel and underwriters, coordinating the rating process,
ensuring adequate disclosure, and evaluating and negotiating the
financing terms. See JayaramanVijayakumar and Kenneth N. Daniels,
2006, The Role and Impact of Financial Advisors in the Market for
Municipal Bonds (``Vijayakumar and Daniels''), Journal of Financial
Services Research, 30:43, at 46.
    \8\ See Municipal Securities Rulemaking Board, ``Unregulated
Municipal Market Participants: A Case for Reform'' (Apr. 2009),
available at http://www.msrb.org/News-and-Events/Press-Releases/
Press-Releases/~/media/Files/Special-Publications/
MSRBReportonUnregulatedMarketParticipants--April09.ashx (``MSRB
Study'').
    \9\ See id. (referring to municipal advisors as ``financial
advisors''). Approximately 43% of the $453 billion of municipal debt
issued in 2008 (by par amount of bonds) (or 62% of the $315 billion
of municipal debt issued with financial advisors) was issued with
the assistance of ``financial advisors'' that were not part of
dealer firms regulated by the MSRB. Id.
    \10\ See id.
    \11\ See Arthur Allen and Donna Dudney, May 2010, Does the
Quality of Financial Advice Affect Prices? The Financial Review 45:
389 (``Allen and Dudney'') (analyzing data from 1984 to 2002).
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    Municipal advisors also engage in municipal advisory activities
with respect to municipal financial products.\12\ For example, as
derivatives have developed in the municipal securities market, some
municipal advisory firms developed expertise in that area. These
municipal advisory firms are generally referred to as ``swap
advisors.'' \13\ Swap advisors may provide advice solely with respect
to a municipal derivative transaction or may provide such advice in
connection with other types of municipal advisory activities.
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    \12\ See infra note 93 and accompanying text (discussing the
term ``municipal financial products'').
    \13\ See MSRB study, supra note 8.
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    In addition, municipal advisors may provide advice to municipal
entities concerning investment strategies. These advisory firms assist
in investing proceeds from bond offerings as well as manage other
public monies. Such public monies include, for example, the general
funds of states and local governments, public pension plans and funds
dedicated to other public programs, such as public transportation,
police and fire protection, public health, and public education. In
addition, municipal advisors provide risk management, asset allocation,
financial planning and cash management services and help State and
local governments find and evaluate other advisors that manage public
funds and provide other types of services.\14\ As discussed in more
detail below, unless excluded, these firms generally will have to
register as municipal advisors under Section 15B of the Exchange
Act.\15\ Municipal advisors subject to registration may include Federal
and State registered investment advisers, depending on the activities
in which they are engaged.\16\
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    \14\ See Investment Advisers Act Release No. IA-2910 (August 3,
2009), 74 FR 39840, 39840-41 (August 7, 2009) (``Political
Contributions Proposed Rule'').
    \15\ See infra Section II.A.1. (discussing the term ``municipal
advisor'').
    \16\ See id.
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    Depending on their role with respect to investment strategies for
municipal entities, commercial banks subject to regulation by various
Federal and State regulators may also engage in activities that would
subject them to registration as municipal advisors. Such commercial
banks may act as trustees with respect to an issuance of municipal
securities or otherwise provide advice with respect to municipal
financial products. Other persons that are subject to registration as
municipal advisors include those who solicit municipal entities on
behalf of the types of municipal advisors discussed above, as well as
on behalf of brokers, dealers, municipal securities dealers and other
parties.
b. Municipal Entities and Municipal Financial Products
    The municipal securities market consists of over 51,000
issuers,\17\ a diverse group that includes states, their political
subdivisions such as cities, towns and counties, and their
instrumentalities such as school districts or port authorities. These
public bodies are governed by State and local laws, including State
constitutions, statutes, city charters, and municipal codes.\18\ Such
constitutions, statutes, charters, and codes impose on municipal
issuers a vast and varied multiplicity of requirements relating to

governance, budgeting, accounting, and other financial matters.\19\ The
governing bodies of municipal issuers are as varied as the types of
issuers, ranging from State governments, cities, towns, and counties
with elected officials to commissions and other special purpose
enterprises having appointed members.\20\ Municipal securities are
issued by government entities to pay for a variety of public projects,
for cash flow and other governmental needs, and to fund non-
governmental private projects by acting as a conduit on behalf of
private organizations that wish to obtain tax-exempt interest
rates.\21\ As of March 31, 2010, municipal issuers had an outstanding
principal amount of securities in excess of $2.8 trillion.\22\ In 2009
alone, 15,055 new issuances of municipal securities took place, with a
value of over $474.5 billion.\23\ As of 2009, the average daily trading
volume for the municipal bond market was $12.5 billion, as compared to
$16.8 billion in the corporate bond market and $407.9 billion in the
Treasury bond market.\24\
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    \17\ See Report on Transactions in Municipal Securities, Office
of Economic Analysis and Office of Municipal Securities, the
Division of Trading and Markets, U.S. Securities and Exchange
Commission, (July 1, 2004).
    \18\ See American Bar Association, Disclosure Roles of Counsel
in State and Local Government Securities Offerings 1 (Third Edition,
2009) (``Disclosure of Bond Counsel'').
    \19\ See id. at 2.
    \20\ See id. at 78.
    \21\ The Internal Revenue Code delineates the purposes for which
tax-exempt municipal bonds may be issued for the benefit of
organizations other than states and local governments, i.e., conduit
borrowers. See 26 U.S.C. 142-145, 1394.
    \22\ See Federal Reserve Board, Flow of Funds Accounts, Flows
and Outstandings, First Quarter 2010.
    \23\ See The Bond Buyer Yearbook 14 (SourceMedia Inc.) (2010).
    \24\ See SIFMA, Average Daily Trading Volume in the U.S. Bond
Markets, available at http://www.google.com/url?q=http://www.sifma.org/uploadedFiles/Research/Statistics/StatisticsFiles/CM-US-Bond-Market-Trading-Volume-SIFMA.xls&sa=U&ei=5EHsTLvBFoT58AbPqdGjAQ&ved=0CBYQFjAA&usg=AFQjCNHv-FKIpdi_QB8m7jgvg2ssJJ1ikg (last visited November 23, 2010).
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    Presently, there is no definitive public information regarding the
size of the municipal securities derivative market. Estimates of the
size of the market have been reported to range from $100 billion to
$300 billion, annually, in notional principal amount.\25\ Estimates of
the number of municipal issuers that have engaged in derivative
transactions also vary. Since interest rate swaps are bilateral
contracts entered into privately, there is no comprehensive data on how
many municipal issuers are active in the $450 trillion interest-rate
swap market, although some anecdotal evidence suggests a relatively
wide use. For instance, a review of Pennsylvania Department of
Community and Economic Development records revealed that 185 school
districts, towns and counties in Pennsylvania have engaged in
derivative transactions since 2003, when the State's law was explicitly
changed to allow for such transactions.\26\ However, other estimates
have pointed to a less widespread use of derivatives among municipal
issuers.\27\ Since 2008, the use of derivatives by municipal entities
has declined and many municipal entities have terminated existing
interest rate swaps.\28\
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    \25\ See MSRB Study, supra note 8.
    \26\ See Martin Z. Braun, Deutsche Bank Swap Lures County as
Budgets Crumble, Bloomberg (November 26, 2008).
    \27\ In a 2007 study, Standard & Poor's identified 750 municipal
issuers that used swaps. See Joe Mysak, California Declares War on
State Bond Short-Sellers, Bloomberg Businessweek (Apr. 27, 2010). In
October 2009, Moody's undertook a review of the state and local
governments that it rates with outstanding swaps and identified 500
of such entities. See id. Moody's also estimated that Pennsylvania
issuers accounted for 22% of all municipal derivative transactions,
suggesting that broad participation by municipal entities in
Pennsylvania did not translate into broad participation by municipal
entities nationwide. See Joe Mysak, Swaps Nightmares Become Real for
Amateur Financiers, Bloomberg (Dec. 15, 2009).
    \28\ See, e.g., Michael McDonald, Wall Street Collects $4
Billion From Taxpayers as Swaps Backfire, Bloomberg (Nov. 10, 2010),
available at http://www.bloomberg.com/news/2010-11-10/wall-street-collects-4-billion-from-taxpayers-as-swaps-backfire.html.
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    According to recently available United States census data, as of
2008, there were approximately 2,550 state and local government
employee retirement systems.\29\ These ``public pension plans'' had
over $2.2 trillion of assets and represented one-third of all U.S.
pension assets.\30\ Public pension plans might seek advice with respect
to municipal financial products. In addition, third parties might
solicit these public pension plans on behalf of firms seeking to
provide services to these plans.\31\
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    \29\ See U.S. Census Bureau, State & Local Government Employee
Retirement Systems, available at http://www.census.gov/govs/retire.
    \30\ See Federal Reserve Board, Flow of Funds Accounts, Flows
and Outstanding, First Quarter 2009 (at table L.119).
    \31\ See Investment Advisers Act Release No. IA-3043 (July 1,
2010), 75 FR 41018, 41019 (July 14, 2010) (``Political Contributions
Final Rule'').
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    College savings plans (``529 Plans'') that comply with Section 529
of the Internal Revenue Code (``IRC'') provide tax advantages designed
to encourage saving for future college costs.\32\ 529 Plans are
sponsored by states, state agencies, or educational institutions. 529
plan assets have increased from $8.6 billion in 2000 to $104.9 billion
in the fourth quarter of 2008, and the number of 529 plan participants
has increased from 1.3 million in 2000 to 11.2 million in the fourth
quarter of 2008.\33\ Like public pension plans, 529 Plans might be
solicited on behalf of third parties seeking to do business with such
plans.\34\ 529 Plans might also seek advice with respect to municipal
financial products and the issuance of municipal securities.\35\
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    \32\ See 26 U.S.C. 529.
    \33\ See Investment Company Institute, 529 Plan Program
Statistics, December 2008 (May 22, 2009), available at http://www.ici.org/research/stats/529s/529s_12-08.
    \34\ See Political Contributions Final Rule, supra note 31, at
41019.
    \35\ See MSRB, Interpretation Relating to Sales of Municipal
Fund Securities in the Primary Market, Interpretative Notice of Rule
D-12, dated January 18, 2001, available at http://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/Definitional/Rule-D-12.aspx?tab=2 (citing Letter from Catherine McGuire, Chief Counsel,
Division of Trading and Markets, Commission, to Diane G. Klinke,
General Counsel, MSRB, dated February 26, 1999, in response to
letter from Diane G. Klinke, General Counsel, MSRB, to Catherine
McGuire, Chief Counsel, Division of Trading and Markets, Commission,
dated June 2, 1998).
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    In addition to public pension plans and 529 Plans, state and local
government agencies also maintain other pools of assets including their
general funds and other special funds. Governmental entities generally
invest such funds in a combination of individualized investments,
investment agreements or local government investment pools
(``LGIPs'').\36\
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    \36\ 45 states have LGIPs with assets totaling more than $250
billion. See Jeff Pentages, Local Government Investment Pools and
the Financial Crisis: Lessons Learned, October 2009, Government
Finance Review 25. States have several trillion dollars in state
funds, including general funds, public pension plans, and 529 plans.
See e.g.,The National Association of State Treasurers, Reforming
Corporate Governance, State Government News (June/July 2003),
available at http://www.csg.org/knowledgecenter/docs/sgn0307ReformingCorporate.pdf.
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2. Historical Regulation of Municipal Securities and Municipal Advisors
a. Municipal Securities Market
    The Securities Act of 1933 (``Securities Act'') \37\ and the
Exchange Act \38\ were both enacted with broad exemptions for municipal
securities from all of their provisions except for the antifraud
provisions of Section 17(a) of the Securities Act and Section 10(b) of
the Exchange Act.\39\ In the early 1970s, the municipal securities
market was still relatively small.\40\ Up until that time, the standard
issue was usually a general obligation bond, with fairly

standard features, and the typical participants were banks,
underwriters, and bond counsel.\41\
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    \37\ 15 U.S.C. 77a et seq.
    \38\ 15 U.S.C. 78a et seq.
    \39\ See, e.g., Securities Act Section 3(a)(2) (15 U.S.C.
77c(a)(2)); Securities Act Section 12(a)(2) (15 U.S.C. 77l(a)(2));
Exchange Act Section 3(a)(12) (15 U.S.C. 78c(a)(12)); Exchange Act
Section 3(a)(29) (15 U.S.C. 78c(a)(29)).
    \40\ There were $235.4 billion of bonds outstanding in 1975
after an issuance of $58 billion in that year. See The Bond Buyer's
Municipal Finance Statistics, 1975 (June 1976).
    \41\ See Ann Judith Gellis, Municipal Securities Market: Same
Problems--No Solutions, 21 Del. J. Corp. L. 427, 428 (1996).
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    The regulation of the market for municipal securities at the
Federal level essentially began in 1975. Congress, as part of the
Securities Act Amendments of 1975 (``1975 Amendments'') created a
limited regulatory scheme for the municipal securities market at the
Federal level.\42\ That scheme included mandatory registration with the
Commission of brokers and dealers in municipal securities and gave the
Commission broad rulemaking and enforcement authority over such brokers
and dealers. At the same time, however, Congress prohibited the
Commission from requiring issuers of municipal securities to file
disclosures, such as a prospectus, with the Commission before selling
municipal securities to investors. Thus, the Commission's oversight of
the municipal securities market has been focused on the intermediaries
between municipal entities and investors, rather than on municipal
entities themselves. In addition, the 1975 Amendments authorized the
creation of the MSRB and granted it authority to promulgate rules
concerning broker and dealer transactions in municipal securities.
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    \42\ See, e.g., Exchange Act Sections 15(c)(1), 15(c)(2),
15B(c)(1), 15B(c)(2), 17(a), 17(b), and 21(a)(1) (15 U.S.C.
78o(c)(1), 78o(c)(2), 78o-4(c)(1), 78o-4(c)(2), 78q(a), 78q(b), and
78u(a)(1)).
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    As noted above, pursuant to the 1975 Amendments, all brokers and
dealers that underwrite or trade municipal securities are required to
register with the Commission.\43\ If a person engages in the activities
of a broker or dealer in municipal securities and does not satisfy an
exception from the registration provisions of the Exchange Act, such
person must register with the Commission and may have to join a self-
regulatory organization (``SRO'') such as the Financial Industry
Regulatory Authority, Inc. (``FINRA''). The Exchange Act defines a
``municipal securities dealer'' as any person (including a separately
identifiable department or division of a bank) engaged in the business
of buying and selling municipal securities for its own account other
than in a fiduciary capacity, through a broker or otherwise \44\ and
requires such person to register with the Commission.\45\ All brokers,
dealers, and municipal securities dealers that engage in municipal
securities transactions also must register with the MSRB and may not
act in contravention of its rules.\46\
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    \43\ See 15 U.S.C. 78o-4(a)-(b).
    \44\ See 15 U.S.C. 78c(a)(30).
    \45\ See 15 U.S.C. 78o-4(a)-(b).
    \46\ See MSRB rule A-12. These requirements for registration
with the Commission and MSRB were in effect prior to passage of the
Dodd-Frank Act and remain in effect.
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    Since 1975, the municipal securities market has grown and evolved
significantly to encompass a wide variety of bond structures \47\ and
credit enhancement. Municipal bond insurance was first introduced in
1971 and letter of credit-supported municipal bonds became very popular
after the introduction of variable rate municipal bonds in the early
1980s.\48\ In 1988, auction rate securities were introduced into the
municipal market.\49\ In addition, the municipal securities market has
experienced a proliferation of complex derivative products beginning
generally with interest rate swap transactions in the mid 1980s.\50\
The availability of such a variety of financing options has led to an
increasing reliance on external advisors by municipal entities that
issue municipal securities to assist them in deciding among the
multiplying array of structural choices for their debt and to help them
negotiate with the multiplying number of intermediaries.\51\
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    \47\ Although it is helpful to think of municipal securities as
either (1) general obligation bonds backed by the ``full faith and
credit'' or an unlimited taxing power of the issuing entity or (2)
revenue bonds, these general categories mask a broad range of
diversity and complexity in the underlying security for municipal
bonds. See Gary Gray and Patrick Cusatis, Municipal Derivative
Securities--Uses and Valuation 21 (1995) (discussion of revenue
bonds). See also Disclosure of Bond Counsel, supra note 18, at 54-55
(discussion of conduit bonds).
    \48\ See Gray and Cusatis, supra note 47, at 30-31. The
Commission notes that although the use of letters of credit and bond
insurance have declined since 2008, these forms of credit
enhancement remain an option for municipal entities to consider when
issuing municipal securities.
    \49\ See id. at 41.
    \50\ See id. at 49. Municipal market derivatives must often be
structured in accordance with the provisions of the tax code and
other laws that apply to the issuance of tax-exempt financings. See
David L. Taub, Understanding Municipal Derivatives, August 2005,
Government Finance Review 21. Therefore, the most common use for
derivatives in the municipal securities market is the execution of
interest rate swaps to hedge issuers' interest rate exposure for
new, anticipated, or outstanding debt. See id.
    \51\ See Vijayakumar and Daniels, supra note 7, at 43-44.
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b. Municipal Advisors
    As discussed above, many market professionals are involved in
issuing municipal securities and advising municipal entities with
respect to municipal financial products. Historically, however,
municipal advisors have been largely unregulated. For example,
Commission staff has taken the position that financial advisors that
limit their advisory activities to advising municipal issuers as to the
structuring of their financings rather than providing advice for
compensation regarding the investment of assets may not need to
register as investment advisers.\52\ Also, while dealers who act as
municipal financial advisors are subject to regulation,\53\ those
regulations apply primarily to their business as dealers rather than
their activities as municipal financial advisors.\54\ Only in limited
circumstances do those rules also apply to their municipal advisory
activities.\55\
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    \52\ See Division of Investment Management: Staff Legal Bulletin
No. 11, Applicability of the Advisers Act to Financial Advisors of
Municipal Securities Issuers (Sep. 19, 2000), available at http://www.sec.gov/interps/legal/slbim11.htm (explaining the staff's views
as to the circumstances under which financial advisors (a) may be
investment advisers, and (b) may give advice to issuers of municipal
securities regarding the investment of offering proceeds without
being deemed to be investment advisers).
    \53\ See supra notes 43-46, and accompanying text.
    \54\ See, e.g., 17 CFR 240.15Ba2-2.
    \55\ For example, MSRB rule G-37 currently prohibits a broker,
dealer or municipal securities dealer from engaging in ``municipal
securities business with an issuer within two years after any
contribution to an official of such issuer * * *'' MSRB rule G-37.
The rule further defines ``municipal securities business'' to
include, among other things, underwriting and the provision of
financial advisory services. See id.
---------------------------------------------------------------------------

    Additionally, approximately fifteen states, as well as a number of
municipalities, have rules relating to the conduct of some municipal
advisors (generally, financial advisors and swap advisors). For
example, these governmental entities have enacted pay-to-play
prohibitions that range from broad proscriptions relating to all state
and local contracts to narrowly defined rules that only apply to
specific situations.\56\ Some state and local entities also require
certain types of municipal advisors to disclose actual or apparent
conflicts of interest.\57\
---------------------------------------------------------------------------

    \56\ See MSRB study, supra note 8.
    \57\ See id.
---------------------------------------------------------------------------

    As discussed in more detail below, the Dodd-Frank Act amended the
Exchange Act to require municipal advisors to register with the
Commission.\58\ In addition, the Exchange Act, as amended by the Dodd-
Frank Act, grants the MSRB regulatory authority over municipal
advisors,\59\ and imposes a fiduciary duty on municipal advisors when
advising municipal entities.\60\
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    \58\ See Section 975(a)(1)(B) of the Dodd-Frank Act; 15 U.S.C.
78o-4(a)(1)(B).
    \59\ See 15 U.S.C. 78o-4(b).
    \60\ See 15 U.S.C. 78o-4(c). Specifically, Exchange Act Section
15B(c)(1) provides that: ``A municipal advisor and any person
associated with such municipal advisor shall be deemed to have a
fiduciary duty to any municipal entity for whom such municipal
advisor acts as a municipal advisor, and no municipal advisor may
engage in any act, practice, or course of business which is not
consistent with a municipal advisor's fiduciary duty or that is in
contravention of any rule of the Board.'' 15 U.S.C. 78o-4(c)(1).

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B. Interim Final Temporary Rule 15Ba2-6T and Form MA-T

    The registration requirement for municipal advisors became
effective on October 1, 2010.\61\ Consequently, municipal advisors must
now be registered in order to continue their municipal advisory
activities. To enable municipal advisors to temporarily satisfy the
registration requirement, and to make relevant information available to
the public and municipal entities, the Commission adopted interim final
temporary rule 15Ba2-6T \62\ under the Exchange Act on September 1,
2010.\63\ Pursuant to rule 15Ba2-6T, a municipal advisor must
temporarily satisfy the statutory registration requirement by
submitting certain information electronically through the Commission's
public Web site on Form MA-T.\64\
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    \61\ See Section 975(i) of the Dodd-Frank Act.
    \62\ 17 CFR 240.15Ba2-6T.
    \63\ See Securities Exchange Act Release No. 62824 (September 1,
2010), 75 FR 54465 (September 8, 2010) (``Temporary Registration
Rule Release'').
    \64\ 17 CFR 249.1300T. A municipal advisor that completes the
temporary registration form and receives confirmation from the
Commission that the form was filed is temporarily registered for
purposes of Section 15B. Approximately 800 firms and individuals
have registered on Form MA-T as municipal advisors.
---------------------------------------------------------------------------

    Form MA-T requires a municipal advisor to indicate the purpose for
which it is submitting the form (i.e., initial application, amendment
or withdrawal), provide certain basic identifying and contact
information concerning its business, indicate the nature of its
activities, and supply information about its disciplinary history and
the disciplinary history of its associated municipal advisor
professionals.\65\
---------------------------------------------------------------------------

    \65\ See Temporary Registration Rule Release, supra note 63, for
a full description of the requirements of Form MA-T.
---------------------------------------------------------------------------

    The interim final temporary rule provides that, unless rescinded, a
municipal advisor's temporary registration by means of Form MA-T will
expire on the earlier of (1) the date that the municipal advisor's
registration is approved or disapproved by the Commission pursuant to a
final rule establishing a permanent registration regime; (2) the date
on which the municipal advisor's temporary registration is rescinded by
the Commission; or (3) December 31, 2011.\66\ The temporary
registration procedure was developed as a transitional step toward the
implementation of a permanent registration regime for municipal
advisors. Accordingly, as discussed in more detail below, the
Commission is proposing rules and forms that, if adopted, would
establish a permanent registration regime for municipal advisors that
would require registration by all persons meeting the definition of
municipal advisor, including those persons currently registered on Form
MA-T. In discussing the proposed permanent registration regime, the
Commission addresses issues, concerns, and suggestions relevant to this
proposal raised by commenters in response to the interim final
temporary rule.\67\
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    \66\ See 17 CFR 240.15Ba2-6T(e).
    \67\ The Commission received seven comment letters in response
to the interim final temporary rule. The comment letters are
available on the Commission's Internet Web site at http://www.sec.gov/comments/s7-19-10/s71910.shtml. The Commission also
received one comment letter in response to SEC regulatory
initiatives under the Dodd-Frank Act that discussed municipal
advisors in connection with pay-to-play rules and, therefore, is
outside the scope of this release relating to the registration of
municipal advisors. This comment letter is available on the
Commission's Internet Web site at http://www.sec.gov/comments/df-title-ix/municipal-securities-municipal-advisors/municipal-securities-municipal-advisors.shtml.
---------------------------------------------------------------------------

II. Discussion

    Section 15B(a)(1) of the Exchange Act, as amended by the Dodd-Frank
Act, makes it unlawful for a municipal advisor \68\ to provide advice
to or on behalf of a municipal entity or obligated person with respect
to municipal financial products or the issuance of municipal
securities, or to undertake a solicitation of a municipal entity or
obligated person, unless the municipal advisor is registered with the
Commission.\69\ Section 15B(a)(2) of the Exchange Act, as amended by
the Dodd-Frank Act, provides that a municipal advisor may be registered
by filing with the Commission an application for registration in such
form and containing such information and documents concerning the
municipal advisor and any person associated with the municipal advisor
as the Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors.\70\
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    \68\ See infra Section II.A.1. (discussing the term ``municipal
advisor'').
    \69\ See 15 U.S.C. 78o-4(a)(1)(B). For a discussion of the terms
``municipal entity,'' ``obligated person,'' ``municipal financial
product,'' and ``solicitation of a municipal entity or obligated
person,'' see infra Section II.A.1.b.
    \70\ See 15 U.S.C. 78o-4(a)(2).
---------------------------------------------------------------------------

    Consistent with the requirements of the Dodd-Frank Act, as
discussed in detail below, the Commission is proposing new rules and
forms that, if adopted, would establish a permanent Commission
registration regime for municipal advisors. The Commission believes
that the information disclosed pursuant to the proposed rules and forms
would provide significant value to the Commission in its oversight of
municipal advisors and their activities in the municipal securities
markets. The information provided pursuant to these rules and forms
would also aid municipal entities and obligated persons in choosing
municipal advisors, engaging in transactions with municipal advisors,
or participating in municipal securities transactions in which a
municipal advisor is also engaged.

A. Proposed Rules for the Permanent Registration of Municipal Advisors

1. Proposed Rule 15Ba1-1: Definition of ``Municipal Advisor'' and
Related Terms
a. Statutory Definition of ``Municipal Advisor''
    Section 15B(e)(4)(A) of the Exchange Act,\71\ as amended by the
Dodd-Frank Act, defines the term ``municipal advisor'' to mean a person
(who is not a municipal entity \72\ or an employee of a municipal
entity) (i) that provides advice to or on behalf of a municipal entity
or obligated person \73\ with respect to municipal financial products
\74\ or the issuance of municipal securities, including advice with
respect to the structure, timing, terms, and other similar matters
concerning such financial products or issues, or (ii) that undertakes a
solicitation of a municipal entity.\75\
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    \71\ 15 U.S.C. 78o-4(e)(4)(A).
    \72\ See infra note 82, and accompanying text (discussing the
term ``municipal entity'').
    \73\ See infra note 86, and accompanying text (discussing the
term ``obligated person'').
    \74\ See infra note 93, and accompanying text (discussing the
term ``municipal financial products'').
    \75\ See infra note 103, and accompanying text (discussing the
term ``solicitation of a municipal entity or obligated person'').
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    The statutory definition of a ``municipal advisor'' is broad and
includes persons that traditionally have not been considered to be
municipal financial advisors. Specifically, the definition of a
``municipal advisor'' includes ``financial advisors, guaranteed
investment contract brokers, third-party marketers, placement agents,
solicitors, finders, and swap advisors'' that engage in municipal
advisory activities.\76\ These persons are included if they provide
advice to or on behalf of a municipal entity or obligated person with
respect to municipal financial products or the issuance of municipal

securities (including advice with respect to the structure, timing,
terms and other similar matters concerning such financial products or
issues) or undertake a solicitation of a municipal entity or obligated
person (i.e., ``municipal advisory activities'').\77\
---------------------------------------------------------------------------

    \76\ See 15 U.S.C. 78o-4(e)(4).
    \77\ The proposed definition of ``municipal advisory
activities'' has the same meaning as the definition of ``municipal
advisory services'' in connection with rule 15Ba2-6T. Thus, in
proposed rule 15Ba1-1 the Commission is proposing to define
``municipal advisory activities'' to mean ``advice to or on behalf
of a municipal entity (as defined in Section 15B(e)(8) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-4(e)(8)) or obligated
person (as defined in Section 15B(e)(10) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o-4(e)(10)) with respect to municipal
financial products or the issuance of municipal securities,
including advice with respect to the structure, timing, terms, and
other similar matters concerning such financial products or issues;
or a solicitation of a municipal entity or obligated person.''
Proposed rule 15Ba1-1(e).
---------------------------------------------------------------------------

    The definition of ``municipal advisor'' explicitly excludes ``a
broker, dealer, or municipal securities dealer serving as an
underwriter,'' \78\ as well as attorneys offering legal advice or
providing services that are of a traditional legal nature and engineers
providing engineering advice.\79\ Further, the definition of
``municipal advisor'' excludes ``any investment adviser registered
under the Investment Advisers Act of 1940, or persons associated with
such investment advisers who are providing investment advice'' and
``any commodity trading advisor registered under the Commodity Exchange
Act or persons associated with a commodity trading advisor who are
providing advice related to swaps.'' \80\
---------------------------------------------------------------------------

    \78\ See infra note 105 (defining the term ``underwriter'').
    \79\ See 15 U.S.C. 78o-4(e)(4)(C).
    \80\ See id.
---------------------------------------------------------------------------

    Consequently, the statutory definition of ``municipal advisor''
includes distinct groups of professionals that offer different services
and compete in distinct markets. The three principal types of municipal
advisors are: (1) Financial advisors, including, but not limited to,
broker-dealers already registered with the Commission, that provide
advice to municipal entities with respect to their issuance of
municipal securities and their use of municipal financial products; (2)
investment advisers that advise municipal pension funds and other
municipal entities on the investment of funds held by or on behalf of
municipal entities (subject to certain exclusions from the definition
of a ``municipal advisor''); and (3) third-party marketers and
solicitors.
b. Interpretation of the Term ``Municipal Advisor''; Definition of
Related Terms
    As noted above, Section 15B(e)(4) defines the term ``municipal
advisor'' to mean, in part, a person (who is not a municipal entity or
an employee of a municipal entity) that (i) provides advice to or on
behalf of a municipal entity or obligated person with respect to
municipal financial products or the issuance of municipal securities,
or (ii) undertakes a solicitation of a municipal entity or obligated
person.\81\ The Commission discusses below the terms ``municipal
entity,'' ``obligated person,'' ``municipal financial products,'' and
``solicitation of a municipal entity or obligated person'' as well as
other terms relating to the definition of ``municipal advisor.''
---------------------------------------------------------------------------

    \81\ See 15 U.S.C. 78o-4(e)(4).
---------------------------------------------------------------------------

    The registration requirement for municipal advisors under Section
15B of the Exchange Act applies to every person, including every
natural person, who provides the types of advice described in the
definition of ``municipal advisor''--whether that person is an
organized entity, sole proprietor, employee of a municipal advisory
firm, or otherwise. For clarity, the Commission refers to each
organized entity that is a municipal advisor, including sole
proprietors, as a ``municipal advisory firm,'' and each municipal
advisor that is a natural person, including sole proprietors, as a
``natural person municipal advisor.''
Municipal Entity
    Exchange Act Section 15B(e)(8) provides that the term ``municipal
entity'' means ``any State, political subdivision of a State, or
municipal corporate instrumentality of a State, including--(A) any
agency, authority, or instrumentality of the State, political
subdivision, or municipal corporate instrumentality; (B) any plan,
program, or pool of assets sponsored or established by the State,
political subdivision, or municipal corporate instrumentality or any
agency, authority, or instrumentality thereof; and (C) any other issuer
of municipal securities.'' \82\ To provide additional clarification
with respect to clause (B) of the definition of ``municipal entity,''
the Commission notes that the definition includes, but is not limited
to, public pension funds, local government investment pools and other
state and local governmental entities or funds, as well as participant-
directed investment programs or plans such as 529, 403(b), and 457
plans.
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 78o-4(e)(8).
---------------------------------------------------------------------------

    One commenter asked whether ``small issuers such as individual
charter schools (that are deemed public schools by the state with
individual charters)'' would be included in the definition of
``municipal entity.'' \83\ Charter schools are considered to be public
schools and generally derive their charter from a political subdivision
of a state (for example, local school boards, state universities,
community colleges or state boards of education) \84\ and, therefore,
would fall under the definition of municipal entity.\85\
---------------------------------------------------------------------------

    \83\ See letter from Brad R. Jacobsen, dated September 7, 2010
(``Jacobsen Letter'').
    \84\ See, e.g., US Charter Schools, Answers to Frequently Asked
Questions, available at http://www.uscharterschools.org/pub/uscs_docs/o/faq.html (last visited November 2, 2010).
    \85\ 15 U.S.C. 78o-4(e)(8). Charter schools, or persons that
operate charter schools such as charter school management
organizations that are organized as non-profit corporations, may
issue municipal securities through a municipal entity for capital
needs such as facilities that are not provided for by state funding
or other reasons. See, e.g., US Charter Schools, Charter School
Facilities: A Resource Guide on Development and Financing, available
at http://www.uscharterschools.org/gb/dev_fin/financing.htm (last
visited November 23, 2010). In that instance, the charter school or
charter school management organization would be an obligated person
with respect to the issuance of municipal securities and any related
municipal financial products.
---------------------------------------------------------------------------

Obligated Person
    Exchange Act Section 15B(e)(10) provides that the term ``obligated
person'' means ``any person, including an issuer of municipal
securities, who is either generally or through an enterprise, fund, or
account of such person, committed by contract or other arrangement to
support the payment of all or part of the obligations on the municipal
securities to be sold in an offering of municipal securities.'' \86\
One commenter stated that this definition in Exchange Act Section
15B(e)(10) is ``potentially very broad'' and asked for clarification
regarding the definition.\87\ In particular, the commenter encouraged
the Commission to interpret the definition of ``obligated person'' for
purposes of the definition of ``municipal advisor'' consistently with
the definition of ``obligated person'' for purposes of rule 15c2-
12.\88\
---------------------------------------------------------------------------

    \86\ 15 U.S.C. 78o-4(e)(10). Obligated persons can include
entities acting as conduit borrowers such as private universities,
non-profit hospitals, and private corporations.
    \87\ See letter from John J. Wagner, Kutak Rock LLP, to
Elizabeth M. Murphy, Secretary, Securities and Exchange Commission,
dated September 28, 2010 (``Kutak Rock Letter'').
    \88\ See id. Rule 15c2-12 relates to municipal securities
disclosures. See 17 CFR 240.15c2-12.
---------------------------------------------------------------------------

    The Commission believes that the definition of ``obligated person''
for purposes of the definition of ``municipal advisor'' should be
consistent with the

definition of ``obligated person'' for purposes of rule 15c2-12. Rule
15c2-12 defines the term ``obligated person'' to mean ``any person,
including an issuer of municipal securities, who is either generally or
through an enterprise, fund, or account of such person committed by
contract or other arrangement to support payment of all, or part of the
obligations on the municipal securities to be sold in the Offering
(other than providers of municipal bond insurance, letters of credit,
or other liquidity facilities).'' \89\ Thus, pursuant to the exemptive
authority granted in Section 15B(a)(4) of the Exchange Act, the
Commission proposes to exempt from the definition of ``obligated
person'' providers of municipal bond insurance, letters of credit, or
other liquidity facilities. Specifically, proposed rule 15Ba1-1(i)
provides that the term ``obligated person'' shall not include providers
of municipal bond insurance, letters of credit, or other liquidity
facilities.\90\ The Commission believes that this interpretation does
not conflict with the goals of the Dodd-Frank Act to provide further
protections for certain entities that participate in borrowings in the
municipal securities market and would help ensure uniformity among
rules relating to such market. Providers of municipal bond insurance,
letters of credit, or other liquidity facilities are generally non-
governmental providers of credit enhancements.\91\ As providers of
credit enhancement, these entities are not borrowing funds through a
municipal entity and, therefore, the Commission believes they do not
require the type of protection that should be applicable with respect
to those who borrow funds through municipal entities in municipal
securities transactions. In addition, the Commission notes that this
interpretation would further uniformity among rules relating to the
definition of obligated persons in the municipal securities market.\92\
---------------------------------------------------------------------------

    \89\ See 17 CFR 240.15c2-12(f)(10). ``Offering'' as used in this
definition is defined in rule 15c2-12(a). See 17 CFR 240.15c2-12(a).
    \90\ See proposed rule 15Ba1-1(i). See also Securities Exchange
Act Release No. 34961 (November 10, 1994), 59 FR 59590 (November 17,
1994).
    \91\ The Commission notes that a municipal entity that provides
credit enhancement could be an obligated person for purposes of the
proposed rule.
    \92\ See Kutak Rock Letter.
---------------------------------------------------------------------------

Municipal Financial Products; Investment Strategies
    Section 15B(e)(5) provides that the term ``municipal financial
product'' means ``municipal derivatives, guaranteed investment
contracts, and investment strategies.'' \93\ Exchange Act Section
15B(e)(3) provides that ``the term `investment strategies' includes
plans or programs for the investment of the proceeds of municipal
securities that are not municipal derivatives, guaranteed investment
contracts, and the recommendation of and brokerage of municipal escrow
investments.'' \94\ One commenter requested that the Commission clarify
the term ``investment strategies'' for purposes of the definition of
``municipal financial products.'' \95\ The Commission notes that the
definition of ``investment strategies'' provides that it ``includes''
plans or programs for the investment of the proceeds of municipal
securities and, therefore, the Commission interprets the definition to
mean that it includes, without limitation, the investment of the
proceeds of municipal securities. Further, the Commission interprets
this definition to include plans, programs, or pools of assets that
invest funds held by or on behalf of a municipal entity, and,
therefore, any person that provides advice with respect to such funds
must register as a municipal advisor unless it is covered by one of the
exclusions discussed below. Consistent with this interpretation,
proposed rule 15Ba1-1(b) provides that the term ``investment
strategies'' includes ``plans, programs or pools of assets that invest
funds held by or on behalf of a municipal entity.'' \96\ In proposing
this interpretation of the term ``investment strategies,'' the
Commission considered the statutory definitions of ``municipal
advisor'' and ``municipal entity.'' Specifically, the Commission noted
that the definition of a ``municipal entity'' includes ``any plan,
program, or pool of assets sponsored or established by the State,
political subdivision, or municipal corporate instrumentality or any
agency, authority, or instrumentality thereof.'' \97\ Based on these
definitions, the Commission believes it was Congress's intent to
include in the definition of ``municipal advisor'' persons that provide
advice with respect to plans, programs or pools of assets that invest
funds held by, or on behalf of, a municipal entity, such as a 529
college savings plan, LGIP or public pension plan. Such plans,
programs, and pools of assets are generally funded from sources other
than proceeds of municipal securities, such as families who wish to
save for a child's college expenses, general monies of state and local
governments being temporarily invested prior to their budgeted
expenditure, and pension contributions from employees and state and
local government employers. As a result, the Commission does not
believe that it was Congress's intent to limit the requirement to
register as a municipal advisor only to those persons that provide
advice with respect to plans or programs for the investment of proceeds
from municipal securities. Also, because every bank account of a
municipal entity is comprised of funds ``held by or on behalf of a
municipal entity,'' money managers providing advice to municipal
entities with respect to their bank accounts could be municipal
advisors. The Commission notes, however, that to the extent a person is
providing advice to a pooled investment vehicle in which a municipal
entity has invested funds along with other investors that are not
municipal entities, the pooled investment vehicle would not be
considered funds ``held by or on behalf of a municipal entity'' and,
therefore, the person providing advice to the pooled investment vehicle
would not have to register as a municipal advisor.\98\
---------------------------------------------------------------------------

    \93\ 15 U.S.C. 78o-4(e)(5).
    \94\ 15 U.S.C. 78o-4(e)(3).
    \95\ See letter from Carolyn Walsh, Vice President and Senior
Counsel, Center for Securities, Trust and Investments, American
Bankers Association (``ABA''), and Deputy General Counsel, ABA
Securities Association, to Elizabeth M. Murphy, Secretary,
Commission, dated October 13, 2010 (``ABA Letter''). See also letter
from Leslie M. Norwood, Managing Director and Associate General
Counsel, Securities Industry and Financial Markets Association
(``SIFMA''), to Martha Haines, Assistant Director and Chief, Office
of Municipal Securities, Commission, dated November 15, 2010
(``SIFMA Letter'') (suggesting interpretations of the term
``investment strategies'').
    \96\ Proposed rule 15Ba1-1(b).
    \97\ 15 U.S.C. 78o-4(e)(8)(B).
    \98\ To the extent that the pooled investment vehicle is a LGIP,
the pooled investment vehicle would be considered to be funds ``held
by or on behalf of'' a municipal entity and, therefore, a person
providing advice with respect to a LGIP would have to register as a
municipal advisor. See also supra note 36 (discussing LGIPs).
---------------------------------------------------------------------------

    One commenter that asked for clarification regarding the definition
of the term ``investment strategies'' stated that it assumes that
``once the proceeds of a municipal securities offering are commingled
with other operating funds or the general funds of the municipal entity
that they lose their characteristic as `proceeds' under the statute,
and the provision of advice by a bank to the municipal entity with
respect to the investment of such operating or general funds would not
make the bank a `municipal advisor' under the statute.'' \99\ Further,
this commenter stated that it assumes that ``the proceeds of a
municipal securities offering that are used to fund a municipal pension

plan, once deposited in the plan and commingled with other funds, would
likewise lose their characteristic as proceeds under the statute; and
the provision of advice by a bank to the municipal entity with respect
to the investment of plan assets would not make the bank a `municipal
advisor' under the statute.'' \100\
---------------------------------------------------------------------------

    \99\ See ABA Letter. See also SIFMA Letter (suggesting that
moneys in a commingled account would not be considered proceeds
unless the municipal entity specifically communicates that such
investment is being made with proceeds of an issue of municipal
securities).
    \100\ See ABA Letter.
---------------------------------------------------------------------------

    As noted above, the Commission is proposing to interpret the term
``investment strategies'' to include plans, programs or pools of assets
that invest funds held by or on behalf of a municipal entity, as well
as plans or programs for the investment of the proceeds of municipal
securities that are not municipal derivatives or guaranteed investment
contracts, or the recommendation of or brokerage of municipal escrow
investments. Municipal entities utilizing the services of advisors with
respect to plans, programs or pools of assets that invest funds are
subject to the same risks regardless of whether those funds are the
proceeds of municipal securities. The Commission does not have any
evidence that the competency of the advisors or quality of advice
needed by municipal entities with respect to the proceeds of municipal
securities and municipal escrow investments is any different than with
respect to the investment of other public funds--which may exceed the
amount of proceeds of municipal securities or municipal escrow
investments. Furthermore, this approach avoids any need to trace the
investment of proceeds of municipal securities commingled with other
public funds and eliminates the potential for abuse from the artificial
commingling of the proceeds of municipal securities with other public
funds solely to avoid registration as a municipal advisor and
compliance with any rules or regulations relating to such advisors.
Municipal Derivatives
    The term ``municipal derivatives'' is not defined in Section 15B of
the Exchange Act. Accordingly, the Commission is proposing, in rule
15Ba1-1(f), that the term ``municipal derivatives'' means ``any swap
(as defined in Section 1a(47) of the Commodity Exchange Act (7 U.S.C.
1a(47)) and Section 3(a)(69) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(69)), including any rules and regulations thereunder) or
security-based swap (as defined in Section 3(a)(68) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(68)), including any rules and
regulations thereunder) to which a municipal entity is a counterparty,
or to which an obligated person, acting in its capacity as an obligated
person, is a counterparty.'' \101\ Thus, the Commission is including in
the definition of ``municipal derivatives'' the definitions of ``swap''
and ``security-based swap,'' as those terms are defined by statute (and
any rules or regulations thereunder). The Commission believes it is
appropriate to use such definitions for purposes of defining the term
``municipal derivatives'' where the counterparty is a municipal entity
or obligated person.
---------------------------------------------------------------------------

    \101\ See proposed rule 15Ba1-1(f).
---------------------------------------------------------------------------

Solicitation of a Municipal Entity or Obligated Person
    The definition of ``municipal advisor'' in Exchange Act Section
15B(e)(4) includes a person that undertakes a solicitation of a
municipal entity or obligated person.\102\ Exchange Act Section
15B(e)(9) provides that the term ``solicitation of a municipal entity
or obligated person'' means ``a direct or indirect communication with a
municipal entity or obligated person made by a person, for direct or
indirect compensation, on behalf of a broker, dealer, municipal
securities dealer, municipal advisor, or investment adviser (as defined
in section 202 of the Investment Advisers Act of 1940 [15 U.S.C. 80b-
2]) that does not control, is not controlled by, or is not under common
control with the person undertaking such solicitation for the purpose
of obtaining or retaining an engagement by a municipal entity or
obligated person of a broker, dealer, municipal securities dealer, or
municipal advisor for or in connection with municipal financial
products, the issuance of municipal securities, or of an investment
adviser to provide investment advisory services to or on behalf of a
municipal entity.'' \103\ As a result of this definition, the
Commission notes that, unless an exclusion applies, any third-party
solicitor that seeks business on behalf of a broker, dealer, municipal
securities dealer, municipal advisor or investment adviser from a
municipal entity must register as a ``municipal advisor.'' For example,
a third-party solicitor that seeks business on behalf of an investment
adviser from a municipal pension fund or a local government investment
pool must register as a ``municipal advisor.'' In addition, the
determination regarding whether a solicitation of a municipal entity
requires a person to register as a municipal advisor is not based on
the number, or size, of investments that are solicited. Thus, the
Commission would consider a solicitation of a single investment of any
amount in a municipal entity to require the person soliciting the
municipal entity to register as a municipal advisor.
---------------------------------------------------------------------------

    \102\ See 15 U.S.C. 78o-4(e)(4)(A)(ii). The Commission notes
that the definition of ``municipal advisor'' under Section
15B(e)(4)(A) means, in part, a person that ``undertakes a
solicitation of a municipal entity.'' Id. In defining the phrase
``solicitation of a municipal entity,'' Section 15B includes within
that phrase, the words ``or obligated person.'' See 15 U.S.C. 78o-
4(e)(9). Section 15B(a)(1)(B) also includes solicitations of
obligated persons. Thus, the Commission interprets the definition of
``municipal advisor'' to include the solicitation of a municipal
entity or obligated person.
    \103\ 15 U.S.C. 78o-4(e)(9).
---------------------------------------------------------------------------

    As noted above, the definition of ``solicitation of municipal
entity or obligated person'' applies to solicitations on behalf of a
broker, dealer, municipal securities dealer, municipal advisor, or
investment adviser that does not control, is not controlled by, or is
not under common control with the person undertaking such solicitation.
Accordingly, persons soliciting on behalf of affiliated entities would
not fall within the definition of municipal advisor and would not be
required to register pursuant to Section 15B of the Exchange Act. The
statute would not, however, preclude such persons from registering as
municipal advisors and being subject to the rules and regulations
applicable to registered municipal advisors. For example, a person that
makes a direct or indirect communication with a municipal entity or
obligated person on behalf of a broker, dealer, municipal securities
dealer, municipal advisor, or investment adviser that controls, is
controlled by, or is under common control with the person undertaking
such communication, where the communication is for the purpose of
obtaining or retaining an engagement by a municipal entity or obligated
person of a broker, dealer, municipal securities dealer, or municipal
advisor for or in connection with municipal financial products, the
issuance of municipal securities, or of an investment adviser to
provide investment advisory services to or on behalf of a municipal
entity, may voluntarily file Form MA or MA-I, as applicable, and apply
to register as a municipal advisor. By registering as a municipal
advisor, such person must comply with all Federal securities laws and
rules or regulations promulgated thereunder relating to registered
municipal advisors, including the

obligation to comply with MSRB rules that apply to municipal
advisors.\104\
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    \104\ Recently proposed amendments to the Investment Advisers
Act seek to permit investment advisers to pay any ``regulated
municipal advisor'' to solicit government entities on its behalf.
See Investment Advisers Act Release No. IA-3110 at 69 (November 19,
2010). Such solicitors may include affiliated entities of the
investment adviser. As part of its deliberations with respect to the
Dodd-Frank Act, Congress expressed its intent that municipal
advisors be permitted to solicit government clients and be subject
to regulation as municipal advisors. See id. at n. 217. Allowing
entities to register as municipal advisors and subject themselves to
the regulatory regime for municipal advisors as a condition to being
paid as solicitors on behalf of affiliated investment advisers does
not contravene this Congressional intent.
---------------------------------------------------------------------------

c. Exclusions From the Definition of ``Municipal Advisor''
Broker, Dealer, or Municipal Securities Dealer Serving as an
Underwriter
    The definition of ``municipal advisor'' in proposed rule 15Ba1-1(d)
would clarify that the exclusion from the definition for a broker,
dealer, or municipal securities dealer serving as an underwriter \105\
does not apply when such persons are acting in a capacity other than as
an underwriter on behalf of a municipal entity or obligated
person.\106\ The Commission interprets the exclusion to apply solely to
a broker, dealer, or municipal securities dealer serving as an
underwriter on behalf of a municipal entity or obligated person in
connection with the issuance of municipal securities.\107\ Thus, a
broker, dealer or municipal securities dealer would not be excluded
from the definition of a ``municipal advisor'' if the broker, dealer or
municipal securities dealer engages in municipal advisory activities
when acting in a capacity other than as an underwriter on behalf of a
municipal entity or obligated person. For example, a broker-dealer
advising a municipal entity with respect to the investment of bond
proceeds or the advisability of a municipal derivative, would be a
municipal advisor with respect to those activities. In addition, a
broker-dealer acting as a placement agent for a private equity fund
that solicits a municipal entity or obligated person to invest in the
private equity fund would be a municipal advisor with respect to that
activity. The Commission notes that including such activities within
the scope of municipal advisory activities is consistent with the
Exchange Act.\108\
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    \105\ The term ``underwriter'' is defined in Section 2(a)(11) of
the Securities Act of 1933. See 15 U.S.C. 77b(a)(11).
    \106\ See 15 U.S.C. 78o-4(e)(4)(C) (providing that the
definition of ``municipal advisor'' does not include a broker,
dealer, or municipal securities dealer serving as an underwriter (as
defined in section 2(a)(11) of the Securities Act of 1933)).
    \107\ See Temporary Registration Rule Release, supra note 63, at
54467, n.19. See also S. Rep. No. 176, 111th Cong., 2d. Sess. 148
(2010) (``Senate Report'') (noting the need to subject activities
such as solicitation of a municipal entity to engage an investment
adviser to MSRB regulation). The Commission believes that Congress
excluded a broker, dealer or municipal securities dealer acting as
an underwriter on behalf of a municipal entity or obligated person
in connection with the issuance of municipal securities because such
activity is already subject to MSRB rules.
    \108\ See Exchange Act Section 15B(e)(4)(A) and (B) (including
placement agents and solicitors that undertake a solicitation of a
municipal entity in the definition of municipal advisor); Senate
Report; Letter from Senator Christopher J. Dodd, U.S. Senate
Committee on Banking, Housing and Urban Affairs, to Elizabeth M.
Murphy, Secretary, Commission, dated February 2, 2010.
---------------------------------------------------------------------------

    One commenter asked for clarification regarding whether a broker-
dealer or another entity that provides advice or assistance to a
municipal entity on an informal non-contractual (and non-compensated)
basis would have to register as a municipal advisor.\109\ This
commenter believes that such persons should not have to register as
municipal advisors.\110\ Another commenter, however, stated that
``[a]ny advisor who provides `free' service will be compensated at some
point for this service. The services being rendered are the trigger for
registration and the corresponding fiduciary duty, not the title of the
relationship, the terms of the contract, or the compensation received.
Such advisor should not be permitted to avoid registration and
fiduciary responsibilities.'' \111\ Similarly, another commenter stated
that individuals that offer ```free' or `voluntary' Municipal
Securities Advisory Services should not be exempt from registration.''
\112\
---------------------------------------------------------------------------

    \109\ See Kutak Rock Letter. See also letter from Amy Natterson
Kroll and W. Hardy Callcott, Bingham McCutchen LLP, to Elizabeth M.
Murphy, Secretary, Commission, dated October 13, 2010 (``Bingham
Letter'') (stating that it urges ``the Commission to clarify that
providing uncompensated introductions to potential underwriters or
other potential financing participants does not constitute a
`solicitation' that would trigger registration as a municipal
advisor'').
    \110\ See Kutak Rock Letter.
    \111\ See letter from Steve Apfelbacher, President, National
Association of Independent Public Finance Advisors, to Commission,
dated October 8, 2010 (``NAIPFA Letter''). See also Bingham Letter
(acknowledging that ``clean energy services companies ultimately do
receive compensation for their projects--but they do not get paid
separately (either by municipal entities, or by the firms providing
financing) for making introductions'').
    \112\ See letter from Joy A. Howard, Principal, WM Financial
Strategies, to Commission, dated October 5, 2010 (``Howard
Letter'').
---------------------------------------------------------------------------

    In defining the term ``municipal advisor'' in Exchange Act Section
15B(e)(4), Congress did not distinguish between those municipal
advisors who are compensated for providing advice and those who are not
compensated for providing advice. Thus, consistent with Congress's
definition of the term ``municipal advisor,'' the Commission does not
believe the issue of whether a municipal advisor is compensated for
providing municipal advice should factor into the determination of
whether the municipal advisor must register with the Commission.\113\
---------------------------------------------------------------------------

    \113\ The Commission notes that in defining the term
``solicitation of a municipal entity or obligated person'' Congress
included language that such solicitation means, in part, ``a direct
or indirect communication with a municipal entity or obligated
person made by a person, for direct or indirect compensation.''
``Indirect compensation'' has been interpreted by other regulatory
agencies to include non-monetary compensation. For example, the
Commodity Futures Trading Commission (``CFTC'') has interpreted the
term ``indirect compensation,'' in the context of the registration
requirements and procedures for introducing brokers, to include,
among other things, soft compensation such as research. See CFTC
Release on Introducing Brokers and Associated Persons of Introducing
Brokers, Commodity Trading Advisors and Commodity Pool Operators;
Registration and Other Regulatory Requirements, 48 FR 35248, 35251
(August 3, 1983) (the CFTC's definition of ``introducing broker''
excludes those persons who are not compensated, directly or
indirectly, for their activities as introducing brokers).
---------------------------------------------------------------------------

Registered Investment Advisers
    Proposed rule 15Ba1-1(d)(2)(ii) would clarify the exclusion from
the definition of ``municipal advisor'' in Exchange Act Section
15B(e)(4)(C) for Commission-registered investment advisers.\114\
Specifically, consistent with the Commission's interpretation in
connection with rule 15Ba2-6T, proposed rule 15Ba1-1(d)(2)(ii) would
provide that the term ``municipal advisor'' shall not include: ``An
investment adviser registered under the Investment Advisers Act of 1940
(15 U.S.C. 80b-1 et seq.) or a person associated with such registered
investment adviser, unless the registered investment adviser or person
associated with the investment adviser engages in municipal advisory
activities other than providing investment advice that would subject
such adviser or person associated with such adviser to the Investment
Advisers Act of 1940.'' \115\
---------------------------------------------------------------------------

    \114\ See proposed rule 15Ba1-1(d)(2)(ii).
    \115\ See id. See also Temporary Registration Rule Release,
supra note 63, at 54467.
---------------------------------------------------------------------------

    Thus, the Commission interprets the exclusion from the definition
of ``municipal advisor'' in Exchange Act Section 15B(4)(C) for
registered investment advisers and their associated persons who are
providing investment advice, to mean that a registered investment
adviser or an associated person of a registered investment adviser
would not have to register as a ``municipal advisor'' with respect to
the provision of any investment advice subject to the Investment
Advisers

Act.\116\ A registered investment adviser or an associated person of a
registered investment adviser must register with the Commission as a
municipal advisor if the adviser or associated person engages in any
municipal advisory activities that would not be investment advice
subject to the Investment Advisers Act.\117\ For example, a Commission-
registered investment adviser that provides advice with respect to how
a municipal entity should structure or issue municipal securities would
be required to register as a municipal advisor.\118\ A Commission-
registered investment adviser that solicits a municipal entity on
behalf of a municipal advisor would also be required to register as a
municipal advisor. The Commission believes that this interpretation is
in furtherance of the goals of the Dodd-Frank Act to regulate persons
that engage in municipal advisory activities.
---------------------------------------------------------------------------

    \116\ See id. The staff interprets broadly the term ``advice''
with respect to the Investment Advisers Act. See supra note 52
(noting the Division of Investment Management: Staff Legal Bulletin
No. 11). For purposes of the Commission's interpretation under
proposed rule 15Ba1-1(d)(2)(ii), the Commission interprets
``advice'' to include any activity that constitutes ``advice''
subject to the Investment Advisers Act.
    \117\ Similarly, a municipal advisor registered under Section
15B of the Exchange Act may be required to register as an investment
adviser if its business includes providing investment advice that is
subject to the Investment Advisers Act. Commission staff has
provided guidance with respect to circumstances under which a
municipal advisor may be required to register as an investment
adviser. See Staff Legal Bulletin No. 11, supra note 52.
    \118\ The Commission notes that a person that provides advice as
to whether and how a municipal entity should issue municipal
securities would not have to register with the Commission as an
investment adviser. See id. (stating ``[w]e would not consider a
financial advisor to be an investment adviser if it limits its
activities to providing advice as to whether and how a municipality
should issue debt securities'').
---------------------------------------------------------------------------

Commodity Trading Advisors
    Consistent with the Commission's interpretation in connection with
rule 15Ba2-6T, the Commission interprets the exclusion in the Dodd-
Frank Act for registered commodity trading advisors and their related
persons providing advice related to swaps to apply only to such persons
when they are providing advice related to swaps, as that term is
defined in Section 1a(47) of the Commodity Exchange Act and Section
3(a)(69) of the Exchange Act,\119\ and any rules or regulations
promulgated thereunder.\120\ Accordingly, proposed rule 15Ba1-
1(d)(2)(iii) would provide that the exclusion from the definition of
``municipal advisor'' in Exchange Act Section 15B(e)(4)(C) for
registered commodity trading advisors, or any person associated with a
registered commodity trading advisor, is only available to a commodity
trading advisor or person associated with a commodity trading advisor,
to the extent such commodity trading advisor or associated person of
the commodity trading advisor is providing advice related to swaps. The
exclusion would not apply to the commodity trading advisor or
associated person of the commodity trading advisor to the extent he or
she engages in municipal advisory activities other than the provision
of advice related to swaps.\121\ A commodity trading advisor, or an
associated person of a commodity trading advisor, must register with
the Commission as a municipal advisor if the commodity trading advisor,
or an associated person of a commodity trading advisor, engages in any
municipal advisory activities that do not include advice related to
swaps.\122\ For example, if an advisor is providing advice to a
municipal entity with respect to engaging in a swap transaction and
provides advice to the municipal entity with respect to the structure
of a municipal securities offering, the advisor would have to register
with the Commission as a municipal advisor and would be subject to
regulation by the MSRB as a municipal advisor. In addition, a commodity
trading advisor must register with the Commission if the advisor
provides advice with respect to swaps on behalf of a municipal entity
or obligated person, but is not registered as a commodity trading
advisor.
---------------------------------------------------------------------------

    \119\ 7 U.S.C. 1a(47) and 15 U.S.C. 78c(a)(69). The exclusion
would not apply when such persons are providing advice with respect
to security-based swaps.
    \120\ See Temporary Registration Rule Release, supra note 63, at
54467.
    \121\ See proposed rule 15a1-1(d)(2)(iii).
    \122\ See id.
---------------------------------------------------------------------------

Attorneys, Engineers and Other Professionals
    The definition of municipal advisor in Exchange Act Section
15B(e)(4) excludes professionals such as attorneys offering legal
advice and engineers providing engineering advice.\123\ One commenter
noted that the definition of ``municipal advisor'' does not contemplate
a specific exclusion for accountants offering ``traditional accounting
advice.'' \124\ In discussing what is ``traditional accounting
advice,'' the commenter noted the engagement of accountants by
municipal entities in connection with the issuance of municipal
securities for the purpose of consenting to the use of accountant
prepared or audited financial statements and/or providing bring down or
comfort letters \125\ relating to such financial statements.\126\
---------------------------------------------------------------------------

    \123\ See 15 U.S.C. 78o-4(e)(4)(C).
    \124\ See Kutak Rock Letter.
    \125\ In auditing literature, bring down and comfort letters are
referred to as ``letters for underwriters.'' See AU Sec. 634,
Letters for Underwriters. Thus, the Commission is proposing to use
the term ``letters for underwriters'' for this purpose.
    \126\ See Kutak Rock Letter.
---------------------------------------------------------------------------

    Because accountants may provide advice to municipal entities that
includes advice about the structure, timing, terms, and other similar
matters concerning the issuance of municipal securities, the Commission
does not believe it is appropriate to exclude these professionals from
the definition of municipal advisor entirely. Accountants may also be
engaged by municipal entities to provide other services, such as
conducting feasibility studies or preparing financial projections.\127\
In addition, as noted by this commenter, in defining ``municipal
advisor'' in Exchange Act Section 15B(e)(4), Congress only excluded
attorneys offering legal advice or services of a traditional legal
nature, or engineers providing engineering advice.\128\ At this time,
the Commission believes that it is not necessary or appropriate to
exclude all accountants from the definition of ``municipal advisor.''
---------------------------------------------------------------------------

    \127\ See id. See also Howard Letter (stating that certified
public accountants that provide advice on bond issues ``clearly meet
the definition of `Municipal Advisor' under the Act and should be
subject to registration'').
    \128\ See Kutak Rock Letter. See also 15 U.S.C. 78o-4(e)(4)(C).
---------------------------------------------------------------------------

    The Commission believes, however, that the preparation or audit of
financial statements, or the issuance of letters for underwriters \129\
by accountants would not constitute the provision of advice within the
meaning of Exchange Act Section 15B(e)(4)(A)(i).\130\ Accordingly, in
proposed rule 15Ba1-1(d)(2)(vi), the Commission proposes to exclude
from the definition of a ``municipal advisor'' accountants preparing
financial statements, auditing financial statements, or issuing letters
for underwriters for, or on behalf of, a municipal entity or obligated
person.\131\
---------------------------------------------------------------------------

    \129\ See supra note 125.
    \130\ See 15 U.S.C. 78o-4(e)(4)(A)(i).
    \131\ See proposed rule 15Ba1-1(d)(2)(vi).
---------------------------------------------------------------------------

    In addition, with respect to the exclusion from the definition of
``municipal advisor'' for attorneys offering legal advice or services
of a traditional legal nature, the Commission interprets this exclusion
to apply only when the legal services are to a client of the attorney
that is a municipal entity or obligated person. Accordingly, proposed
rule 15Ba1-1(d)(2)(iv) provides that the

term ``municipal advisor'' shall not include any attorney unless the
attorney engages in municipal advisory activities other than offering
legal advice or providing services that are of a traditional legal
nature to a client of the attorney that is a municipal entity or
obligated person.\132\ Generally, the Commission interprets advice
provided by a lawyer to its client with respect to the structure,
timing, terms and other similar matters concerning municipal financial
products or the issuance of municipal securities to be services of a
traditional legal nature if such advice is provided within a lawyer-
client relationship specifically related to such products in
conjunction with related legal advice. Thus, for example, advice
comparing the structures, terms, or associated costs of issuance of
different types of securities or financial instruments (such as fixed
rate bonds or variable rate demand obligations) given by an attorney
hired to advise a municipal entity client embarking on a bond offering,
would be considered to be services of a traditional legal nature, as
would advice concerning the tax consequences of alternative financing
structures or advice recommending a particular financing structure due
to legal considerations such as the limitations included in existing
contracts and indentures to which the issuer is a party. However,
advice which is primarily financial in nature, such as advice
concerning the financial feasibility of a project or financing, advice
estimating or comparing the relative cost to maturity of an issuance
depending on various interest rate assumptions or advice recommending a
particular structure as being financially advantageous under prevailing
market conditions, would be primarily financial advice and not services
of a traditional legal nature.
---------------------------------------------------------------------------

    \132\ See proposed rule 15Ba1-1(d)(2)(iv).
---------------------------------------------------------------------------

    With respect to the exclusion from the definition of ``municipal
advisor'' for engineers providing engineering advice, one commenter
requested that the Commission include in this exclusion ``activity
which is incidental to engineering services.'' \133\ In addition, this
commenter urged the Commission to ``distinguish purely informational
and educational activities which do not rise to the level of advice
from individualized advice about the appropriate investment for a
particular state or local government entity.'' \134\ Moreover, this
commenter stated that ``a clean energy services company should not also
be required to register as a municipal advisor simply because it
provides cash-flow modeling and other similar information that is
inextricably linked to the engineering analysis, even if that modeling
is individualized to the municipal entity.'' \135\ In addition, the
commenter urged the Commission to define ``advice'' to ``exclude
feasibility studies that are a necessary part of any engineering
projects, including clean energy services projects.'' \136\
---------------------------------------------------------------------------

    \133\ See Bingham Letter.
    \134\ Id.
    \135\ Id.
    \136\ Id.
---------------------------------------------------------------------------

    As discussed above and below, the exclusions from the definition of
``municipal advisor'' included by Congress in Section 15B(e)(4) of the
Exchange Act were limited.\137\ With respect to engineers, the
exclusion applies to engineers providing ``engineering advice.'' For
example, costing out engineering alternatives would not subject an
engineer to registration as a municipal advisor because such activity
would be considered engineering advice. The exclusion does not include
circumstances in which the engineer is engaging in municipal advisory
activities, including cash-flow modeling or the provision of
information and education relating to municipal financial products or
the issuance of municipal securities, even if those activities are
incidental to the provision of engineering advice. In addition, the
exclusion does not include circumstances in which the engineer is
preparing feasibility studies concerning municipal financial products
or the issuance of municipal securities that include analysis beyond
the engineering aspects of the project and, therefore, an engineer
preparing such studies would be subject to registration as a municipal
advisor.\138\
---------------------------------------------------------------------------

    \137\ See 15 U.S.C. 78o-4(e)(4)(C).
    \138\ A ``feasibility study'' is a report detailing the economic
practicality of and the need for a proposed capital program. It
frequently analyzes demand for the product or service being sold and
forecasts financial statements or other operating statistics. The
feasibility study may include a user or other rate analysis to
provide an estimate of revenues that will be generated for the
purpose of substantiating that debt service can be met from pledged
revenues. In addition, the feasibility study may provide details of
the physical, operating, economic or engineering aspects of the
proposed project, including estimates of construction costs,
completion dates and drawdown schedules. See MSRB Glossary of
Municipal Securities Terms, available at http://www.msrb.org/msrb1/glossary/glossary_db.asp?sel=f.
---------------------------------------------------------------------------

Employees of a Municipal Entity
    Exchange Act Section 15B(e)(4)(A) provides that the term
``municipal advisor'' excludes employees of a municipal entity.\139\
One commenter suggested that the Commission clarify that this exclusion
from the definition of ``municipal advisor'' would include any person
serving as an appointed or elected member of the governing body of a
municipal entity, such as a board member, county commissioner or city
councilman.\140\ This commenter stated that because these persons are
not technically ``employees'' of the municipal entity (but rather are
``unpaid volunteers''), these persons would not fall within the
exclusion from the definition of ``municipal advisor'' for ``employees
of a municipal entity'' and, therefore, may have to register as
municipal advisors.\141\
---------------------------------------------------------------------------

    \139\ 15 U.S.C. 78o-4(e)(4)(A).
    \140\ See Kutak Rock Letter.
    \141\ See id. See also 15 U.S.C. 78o-4(e)(4)(A).
---------------------------------------------------------------------------

    The Commission believes that the exclusion from the definition of a
``municipal advisor'' for ``employees of a municipal entity'' should
include any person serving as an elected member of the governing body
of the municipal entity to the extent that person is acting within the
scope of his or her role as an elected member of the governing body of
the municipal entity. ``Employees of a municipal entity'' should also
include appointed members of a governing body to the extent such
appointed members are ex officio members of the governing body by
virtue of holding an elective office.\142\ The Commission does not
believe that appointed members of a governing body of a municipal
entity that are not elected ex officio members should be excluded from
the definition of a ``municipal advisor.'' The Commission believes that
this interpretation is appropriate because employees and elected
members are accountable to the municipal entity for their actions. In
addition, the Commission is concerned that appointed members, unlike
elected officials and elected ex officio members, are not directly
accountable for their performance to the citizens of the municipal
entity.
---------------------------------------------------------------------------

    \142\ This would include persons appointed to fill the remainder
of the term for an elective office.
---------------------------------------------------------------------------

Banks
    Another commenter stated that the Commission should exempt from the
definition of a ``municipal advisor'' banks providing ``traditional
banking services'' and banks and trust companies that provide
``investment advisory services.'' \143\ As support, this

commenter stated that banks are currently well-regulated and banks that
offer trustee services are subject to rigorous and frequent
examination, as well as extensive regulation by the various Federal or
State banking regulators.\144\ The Commission notes that Congress
included in the statutory definition of ``municipal advisor'' a limited
number of exclusions from the definition, and such exclusions did not
include banks in any capacity. As discussed below, under ``Request for
Comment,'' among other things, the Commission is seeking comment on
whether the definition of a ``municipal advisor'' should exclude banks
providing advice to a municipal entity or obligated person concerning
transactions that involve a ``deposit,'' as defined in Section 3(l) of
the Federal Deposit Insurance Act,\145\ at an ``insured depository
institution,'' as defined in Section 3(c)(2) of the Federal Deposit
Insurance Act.\146\ Such an exclusion, if adopted, would result in
excluding banks from the definition of a ``municipal advisor'' to the
extent that the bank is providing advice to a municipal entity or
obligated person with respect to such traditional banking products as
insured checking and savings accounts and certificates of deposit,
while not excluding from the definition of a ``municipal advisor'' a
bank that is providing advice to a municipal entity or obligated person
concerning other municipal advisory activities. The Commission notes
that, similarly, banks are not excluded from the requirement to
register as municipal securities dealers.
---------------------------------------------------------------------------

    \143\ See ABA Letter. In providing examples of the types of
activities in which banks and trust companies engage, this commenter
stated that: ``[o]n the commercial side of the bank, these services
and products include direct loans, checking accounts, and CDs. Banks
of all sizes also frequently are asked to respond to RFP requests
from municipal entities regarding investment products offered by the
banking entity, such as interest-bearing bank deposits, money market
mutual funds, or other exempt securities. Banks also are significant
investors in the securities issued by municipalities and provide
credit or, through their affiliates, underwriting services to
municipalities when the city or township wants to buy a fire truck
or build a new school or other similar facility. Furthermore, for
over one hundred and fifty years, banks and trust companies have
provided fiduciary services to municipal entities in the United
States. In this capacity banks often manage investment accounts for
local towns and act as trustees with respect to bond proceeds,
escrow accounts, governmental pension plans and other similar
capacities.'' Id.
    \144\ See id.
    \145\ 12 U.S.C. 1813(l).
    \146\ 12 U.S.C. 1813(c)(2).
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comments generally on its proposals
discussed above and also requests comment on the following specific
issues:
     In light of our understanding of Congressional objectives
and intent, are the Commission's interpretations under the definition
of ``municipal advisor'' and related terms, and the exclusions from the
definition of ``municipal advisor'' appropriate? Should any of these
interpretations be modified or clarified in any way?
     The Commission notes that the definition of ``municipal
entity'' includes, but is not limited to, public pension funds, local
government investment pools and other state and local governmental
entities or funds as well as participant-directed investment programs
or plans such as 529, 403(b), and 457 plans. Is the Commission's
interpretation of ``municipal entity'' for purposes of the proposed
definition of ``municipal advisor'' appropriate? Is additional
clarification necessary? If so, how should the Commission further
clarify this interpretation?
     In what circumstances with respect to municipal financial
products or the issuance of municipal securities should charter schools
be considered municipal entities? In what circumstances with respect to
municipal financial products or the issuance of municipal securities
should charter schools be considered obligated persons? To what extent
do state laws vary in their treatment of charter schools in ways that
would affect their classification as municipal entities or obligated
persons?
     The Commission proposes to exempt from the definition of
``obligated person'' providers of municipal bond insurance, letters of
credit, or other liquidity facilities so that the definition of
``obligated person'' for purposes of the proposed rules is consistent
with the definition of ``obligated person'' in rule 15c2-12 under the
Exchange Act. Should the proposed definition be modified or clarified
in any way? Should the term ``obligated person'' for purposes of
municipal advisor registration be consistent with the definition of
``obligated person'' for purposes of rule 15c2-12? If so, why? If not,
why not? Should the Commission include additional exemptions from the
definition of ``obligated person''? If so, please explain and provide
specific examples.
     The Commission proposes to interpret the term ``investment
strategies'' to include plans or programs for the investment of the
proceeds of municipal securities (other than municipal derivatives and
guaranteed investment contracts), plans, programs or pools of assets
that invest funds held by or on behalf of a municipal entity, or the
recommendation of or brokerage of municipal escrow investments. Should
the Commission modify or clarify this interpretation in any way? If so,
why? If not, why not? Please provide any suggested alternative
language. Should the Commission exclude plans, programs or pools of
assets that invest funds held by or on behalf of a municipal entity
that are not proceeds of the issuance of municipal securities from the
definition of investment strategies? If so, why? If not, why not? If
the Commission were to limit investment strategies to ``plans or
programs for the investment of the proceeds of municipal securities
(other than municipal derivatives and guaranteed investment contracts)
or the recommendation of or brokerage of municipal escrow
investments,'' how should the Commission determine when funds should no
longer be considered ``proceeds of municipal securities?'' What
obligations should parties other than the municipal entity have in
determining whether funds held by or on behalf of a municipal entity
are proceeds of municipal securities?
     As noted above, to the extent a person is providing advice
to a pooled investment vehicle in which one or more municipal entities
are investors along with other investors that are not municipal
entities, the pooled investment vehicle would not be considered funds
``held by or on behalf of a municipal entity'' and, therefore, a person
providing advice to the pooled investment vehicle would not be required
to register as a municipal advisor. Should the Commission modify or
clarify this interpretation in any way? If so, why? If not, why not?
Please provide any suggested alternative language. Should the
Commission provide that such interpretation should apply only if the
investors that are not municipal entities are the primary investors in
the pooled investment vehicle? If so, how, and above what level, should
the Commission determine that investors that are not municipal entities
are the primary investors in the pooled investment vehicle? Should such
a determination be based on a dollar amount or a percentage of the
pooled investment vehicle's assets? Should the Commission provide that
this pooled investment vehicle interpretation would no longer apply if
the municipal entity (or municipal entities) investing in the pooled
investment vehicle becomes the primary investor in the pooled
investment vehicle subsequent to the initial investment? If so, above
what level of investment should a municipal entity (or municipal
entities) be considered to be the primary investor in the pooled
investment vehicle? Should such a determination be based on a dollar
amount or a percentage of the pooled investment vehicle's assets?
     As discussed above, the Commission is proposing to
interpret the term ``investment strategies'' to include plans, programs
or pools of

assets that invest funds held by or on behalf of a municipal entity.
Thus, commingled proceeds, regardless of when they lose their
characteristic as proceeds, would still constitute ``funds held by or
on behalf of a municipal entity'' and, therefore, any advice with
respect to such funds would be municipal advice, unless subject to an
exclusion. Is this interpretation too broad? Please explain and include
a discussion of concerns, if any, such an interpretation could raise.
     In interpreting the term ``solicitation of a municipal
entity or obligated person,'' the Commission notes that, unless an
exclusion applies, any third-party solicitor that seeks business on
behalf of an investment adviser from a municipal entity or obligated
person, such as a municipal pension fund or a local government
investment pool, must register as a municipal advisor. In addition, the
Commission notes that the determination regarding whether a
solicitation of a municipal entity or obligated person requires a
person to register as a municipal advisor is not based on the number,
or the size, of investments that are solicited. Thus, the Commission
would consider a solicitation of a single investment by a municipal
entity or obligated person in any amount to require the person
soliciting the municipal entity or obligated person to register as a
municipal advisor. Do these interpretations require further
clarification? If so, how? Should these interpretations be modified in
any way? Please explain and provide suggested alternative language, as
appropriate. Is there a de minimis number or size of investments that
should be allowed to be solicited before a person is required to
register as a municipal advisor? If so, what should this de minimis
amount be? Please explain the rationale for providing for a de minimis
exception.
     Should the Commission, as proposed, permit the voluntary
registration by persons that solicit a municipal entity or obligated
person on behalf of a broker, dealer, municipal securities dealer,
municipal advisor, or investment adviser that controls, is controlled
by, or is under common control with the person undertaking such
solicitation? If not, why not? Should the Commission permit voluntary
registration by any other group of persons? If so, which persons and
why?
     In interpreting the term ``solicitation of a municipal
entity or obligated person,'' the Commission also notes that such
solicitation must be ``for the purpose of obtaining or retaining an
engagement * * * in connection with municipal financial products [or]
the issuance of municipal securities.'' Are there types of obligated
persons to which this definition should not apply in connection with
the issuance of municipal securities? If so, please identify the types
of obligated persons to which the definition should not apply and
explain why. Are there types of municipal financial products (such as
municipal derivatives which include swaps or security-based swaps where
an obligated person is the counterparty) to which this definition
should not apply? If so, please identify the types of municipal
financial products to which the definition should not apply and explain
why.
     Proposed rule 15Ba1-1(f) would define the term ``municipal
derivatives'' to mean ``any swap (as defined in Section 1a(47) of the
Commodity Exchange Act (7 U.S.C. 1a(47)) and Section 3(a)(69) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(69)), including any
rules and regulations thereunder) or security-based swap (as defined in
Section 3a(68) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(68)), including any rules and regulations thereunder) to which a
municipal entity is a counterparty, or to which an obligated person,
acting in its capacity as an obligated person, is a counterparty.''
Should this definition be clarified or modified in any way? If so, how?
Should the definition of municipal derivatives specifically include
other financial products? For example, should the definition
specifically include options, forwards or futures? If so, which
products and why? Should this definition include a financial product
that is composed of multiple components where one or more of such
components is derivative in nature, such as a structured note or
convertible bond? \147\ Should this definition include financial
products, in addition to swaps and security-based swaps, that are based
on municipal securities that are exempted securities under the Exchange
Act or are exempt from registration under the Securities Act? Should it
include an over-the-counter option contract with a municipal entity? If
so, which additional financial products should be included in the
definition and why?
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    \147\ See SIFMA Letter.
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     Is our interpretation of the exclusion from the definition
of a ``municipal advisor'' for a broker, dealer, or municipal
securities dealer serving as an underwriter appropriate? Specifically,
the Commission interprets this exclusion to mean that a broker-dealer
acting as an underwriter or placement agent that solicits a municipal
entity to invest in a security, or a broker-dealer acting as an
underwriter that also advises a municipal entity with respect to the
investment of proceeds of municipal securities or the advisability of a
municipal derivative would be a municipal advisor. Should these
interpretations be modified in any way, or further clarified? If so,
how?
     Consistent with Congress's definition of the term
``municipal advisor,'' the Commission does not believe that whether a
municipal advisor is compensated for providing municipal advice should
factor into the determination regarding whether the municipal advisor
must register with the Commission. Are there any persons who engage in
uncompensated municipal advisory activities, or municipal advisory
activities for indirect compensation, that the Commission should
exclude from the definition of ``municipal advisor''? Please explain.
     The Commission would interpret the exclusion from the
definition of ``municipal advisor'' in Exchange Act Section 15B(4)(C)
for Commission-registered investment advisers and their associated
persons who are providing investment advice, to mean that a Commission-
registered investment adviser or an associated person of a Commission-
registered investment adviser would not have to register as a
``municipal advisor'' with respect to the provision of any advice that
would subject the adviser (or associated person) to the Investment
Advisers Act. Should this interpretation be modified or clarified in
any way? If so, how?
     As a result of the changes in the threshold for
registration as an investment adviser,\148\ fewer entities will be
required to register as investment advisers under the Federal
securities laws and will instead be subject to state registration
requirements. Investment advisers that are not registered with the
Commission would not be exempt from registration as municipal advisors
to the extent that they are engaging in municipal advisory activities.
Should state-registered investment advisers be exempt from the
definition of ``municipal advisor'' to the extent they are providing
advice that otherwise would be subject to the Investment Advisers Act,
but for the operation of a prohibition to, or exemption from,
Commission registration?
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    \148\ See 15 U.S.C. 80b-3a(a).

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     Should the Commission's interpretation of the exclusion
from the definition of a ``municipal advisor'' for registered commodity
trading advisors and their associated persons providing advice related
to swaps be modified in any way, or further clarified? If so, how?
     The Commission proposes to exclude from the definition of
a ``municipal advisor'' persons preparing financial statements,
auditing financial statements, or issuing letters for underwriters for,
or on behalf of, a municipal entity or obligated person. Should persons
providing these accounting services be excluded from the definition of
``municipal advisor''? Are there additional types of services that an
accountant provides that should not require the registration of an
accountant as a municipal advisor? If so, what additional types of
accounting services should qualify an accountant for an exclusion from
the definition of ``municipal advisor''? Are there activities that are
incidental to the provision of accounting services or inextricably
linked to accounting services that can only reasonably be performed by
an accountant that might otherwise constitute advice with respect to
the issuance of municipal securities or municipal financial products?
     Should the Commission expand the exclusion from the
definition of ``municipal advisor'' beyond engineers providing
engineering advice? If so, why and how should such exclusion be
expanded? If not, why not? How should the Commission interpret the term
``engineering advice''? Are there activities that are ``incidental to
the provision of engineering advice'' or ``inextricably linked to
engineering advice'' that can only reasonably be performed by an
engineer that might otherwise constitute advice with respect to the
issuance of municipal securities or municipal financial products? As
discussed above, the Commission does not interpret the exclusion of
engineers providing engineering advice to include circumstances in
which the engineer is preparing feasibility studies concerning
municipal financial products or the issuance of municipal securities
that include analysis beyond the engineering aspects of the project
and, therefore, an engineer preparing such studies would be subject to
registration as a municipal advisor. Is this an appropriate
interpretation? Please explain.
     The Commission proposes to exclude from the definition of
municipal advisor attorneys offering legal advice or services of a
traditional legal nature. As discussed above, the Commission interprets
this exclusion to apply only when the legal services are to a client of
the attorney that is a municipal entity or obligated person. Is this an
appropriate interpretation? Please explain. Should the Commission
provide an exclusion for all activities of an attorney as long as that
attorney has an attorney-client relationship with the municipal entity
or obligated person? Why or why not? Should the scope of the exclusion
for attorneys be different for attorneys for obligated persons? Why or
why not? Neither the Dodd-Frank Act nor the proposed rule defines the
term ``services of a traditional legal nature.'' Is the meaning of the
term sufficiently clear? If not, should the Commission provide
additional interpretive guidance? How should the Commission interpret
the term?
     Are there other types of professional activities that
should be excluded from the definition of a ``municipal advisor''?
Please explain.
     The Commission is proposing to exclude from the definition
of ``municipal entity'' elected members of a governing body of a
municipal entity, but to include appointed members of a municipal
entity's governing body unless such appointed members are ex officio
members of the governing body by virtue of holding an elective office.
Are these distinctions appropriate? Please explain. Are there other
persons associated with a municipal entity who might not be
``employees'' of a municipal entity that the Commission should exclude
from the definition of a ``municipal advisor''?
     Should employees of obligated persons be excluded from the
definition of ``municipal advisor'' to the extent they are providing
advice to the obligated person, acting in its capacity as an obligated
person, in connection with municipal financial products or the issuance
of municipal securities? One commenter \149\ expressed concern that
volunteers at entities such as charter schools could be required to
register as municipal advisors. Are there types of persons other than
employees of obligated persons that should be excluded from the
definition of ``municipal advisor?'' If yes, please provide examples of
the specific types of persons and the specific circumstances under
which they should be excluded.
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    \149\ See Jacobsen Letter.
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     Should the Commission exclude from the definition of a
``municipal advisor'' banks providing advice to a municipal entity or
obligated person concerning transactions that involve a ``deposit,'' as
defined in Section 3(l) of the Federal Deposit Insurance Act \150\ at
an ``insured depository institution,'' as defined in Section 3(c)(2) of
the Federal Deposit Insurance Act,\151\ such as insured checking and
savings accounts and certificates of deposit? Should the Commission
exclude from the definition of a ``municipal advisor'' banks that
respond to requests for proposals (``RFPs'') from municipal entities
regarding other investment products offered by the banking entity, such
as money market mutual funds or other exempt securities? Should the
Commission exclude from the definition of ``municipal advisor'' a bank
that provides to a municipal entity a listing of the options available
from the bank for the short-term investment of excess cash (for
example, interest-bearing bank accounts and overnight or other periodic
investment sweeps) and negotiates the terms of an investment with the
municipal entity? \152\ Should the Commission exclude from the
definition of ``municipal advisor'' a bank that provides to a municipal
entity the terms upon which the bank would purchase for the bank's own
account (to be held to maturity) securities issued by the municipal
entity, such as bond anticipation notes, tax anticipation notes, or
revenue anticipation notes? \153\ Should the Commission exclude from
the definition of ``municipal advisor'' a bank that directs or executes
purchases and sales of securities or other instruments with respect to
funds in a trust account or other fiduciary account in accordance with
predetermined investment criteria or guidelines, including on a
discretionary basis? \154\ Should the Commission exclude from the
definition of a ``municipal advisor'' banks and trust companies that
provide other fiduciary services to municipal entities, such as acting
as trustees with respect to governmental pension plans and other
similar capacities? Should banks and trust companies be exempt from the
definition of ``municipal advisor'' to the extent they are providing
advice that otherwise would subject them to registration under the
Investment Advisers Act, but for the operation of a prohibition to or
exemption from registration? Please explain any response to these
questions and to the extent that an exemption is recommended, please
provide suggested exemptive language.
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    \150\ See supra note 145.
    \151\ See supra note 146.
    \152\ See SIFMA Letter.
    \153\ See id.
    \154\ See id.
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     Should the Commission exclude from the definition of
``municipal advisor'' a broker-dealer that provides a municipal entity
with price quotations

with respect to particular securities (or securities having particular
characteristics) which the broker-dealer would be prepared to sell as
principal or acquire for the municipal entity? \155\ Should the
Commission exclude from the definition of ``municipal advisor'' a
broker-dealer that provides to a municipal entity a list of securities
meeting specified criteria that are readily available in the
marketplace, but without making a recommendation as to the merits of
any investment particularized to the municipal entity's specific
circumstances or investment objectives? \156\
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    \155\ See id.
    \156\ See id.
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     Should the Commission exclude from the definition of
``municipal advisor'' an entity that provides to clients investment
advice, such as research information and generic trade ideas or
commentary that does not purport to meet the needs or objectives of
specific clients, and is provided to a municipal entity as part of its
ongoing ordinary communications? \157\
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    \157\ See id.
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     Should the Commission permit registration of only
separately identifiable departments or divisions of a bank (``SIDs'')?
Please explain. Would the following suggested rule text, based on MSRB
rule G-1 relating to SIDs engaged in municipal securities dealer
activitites, provide appropriate conditions for determining whether and
when a SID engaged in municipal advisory activities may register as a
municipal advisor: ``(a) A separately identifiable department or
division of a bank, as such term is used in Section 3(a)(30) of the
Securities Exchange Act of 1934, is that unit of the bank which
conducts all of the municipal advisory activities of the bank, provided
that: (1) Such unit is under the direct supervision of an officer or
officers designated by the board of directors of the bank as
responsible for the day-to-day conduct of the bank's municipal advisory
activities, including the supervision of all bank employees engaged in
the performance of such activities; and (2) There are separately
maintained in or separately extractable from such unit's own facilities
or the facilities of the bank, all of the records relating to the
bank's municipal advisory activities, and further provided that such
records are so maintained or otherwise accessible as to permit
independent examination thereof and enforcement of applicable
provisions of the Exchange Act, the rules and regulations thereunder
and the rules of the MSRB relating to municipal advisors; (b) The fact
that directors and senior officers of the bank may from time to time
set broad policy guidelines affecting the bank as a whole and which are
not directly related to the day-to-day conduct of the bank's municipal
advisory activities, shall not disqualify the unit hereinbefore
described as a separately identifiable department or division of the
bank or require that such directors or officers be considered as part
of such unit; and (c) The fact that the bank's municipal advisory
activities are conducted in more than one geographic organizational or
operational unit of the bank shall not preclude a finding that the bank
has a separately identifiable department or division for purposes of
this rule, provided, however, that all such units are identifiable and
that the requirements of paragraphs (1) and (2) of section (a) of this
rule are met with respect to each such unit. All such geographic,
organizational or operational units of the bank shall be considered in
the aggregate as the separately identifiable department or division of
the bank for purposes of this rule.''? Should this language be
clarified or modified in any way? Please provide suggested alternative
language, as appropriate. Are there reasons that the language of MSRB
rule G-1, as modified, should not be used for SIDs engaging in
municipal advisory activities? Please explain.
     Are there other exclusions from the definition of
``municipal advisor'' that the Commission should consider? Please
explain.
2. Proposed Rule 15Ba1-2
a. Application for Municipal Advisor Registration
    As discussed above, the registration requirement for municipal
advisors under Section 15B of the Exchange Act applies to every person,
including every natural person, who provides the types of advice
described in the definition of a ``municipal advisor''--whether that
person is an organized entity, sole proprietor, employee of a municipal
advisory firm, or otherwise.\158\ The information that is appropriate
to seek from a firm before it can be allowed to register may be
different from the information that is appropriate to seek from an
individual. Thus, as described in detail below, the Commission is
proposing the submission of Form MA by municipal advisory firms and the
submission of Form MA-I by natural person municipal advisors. A sole
proprietor is included in the definition of ``municipal advisory firm''
and ``natural person municipal advisor.'' As a result, a sole
proprietor would have to complete both Form MA and Form MA-I.
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    \158\ See supra Section II.A.1. (discussing the definition of
the term ``municipal advisor'').
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    The Commission is proposing rule 15Ba1-2, which would establish the
procedures by which a municipal advisor may apply to the Commission for
registration. The proposed rule provides that an application for the
registration of a municipal advisor must be filed electronically with
the Commission on proposed new Form MA or Form MA-I, in accordance with
the instructions to Forms MA or MA-I, as applicable.\159\
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