[Federal Register Volume 84, Number 154 (Friday, August 9, 2019)]
[Notices]
[Pages 39646-39681]
[FR Doc No: 2019-17047]

Vol. 84

Friday,

No. 154

August 9, 2019

Part III

Securities and Exchange Commission

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Self-Regulatory Organizations; Municipal Securities Rulemaking Board;
Notice of Filing of a Proposed Rule Change To Amend and Restate the
MSRB's August 2, 2012 Interpretive Notice Concerning the Application of
Rule G-17 to Underwriters of Municipal Securities; Notice

Federal Register / Vol. 84 , No. 154 / Friday, August 9, 2019 /
Notices

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86572; File No. SR-MSRB-2019-10]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change To Amend and Restate
the MSRB's August 2, 2012 Interpretive Notice Concerning the
Application of Rule G-17 to Underwriters of Municipal Securities

August 5, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on August 1, 2019 the Municipal Securities
Rulemaking Board (``MSRB'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the MSRB. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change (the
``proposed rule change'') to amend and restate the MSRB's August 2,
2012 interpretive notice concerning the application of MSRB Rule G-17
to underwriters of municipal securities (the ``2012 Interpretive
Notice'').\3\ The proposed rule change seeks to update the 2012
Interpretive Notice in light of its implementation in the market since
its first adoption and current market practices.
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    \3\ The 2012 Interpretive Notice was approved by the SEC on May
4, 2012 and became effective on August 2, 2012. See Release No. 34-
66927 (May 4, 2012); 77 FR 27509 (May 10, 2012) (File No. SR-MSRB-
2011-09); and MSRB Notice 2012-25 (May 7, 2012). The 2012
Interpretive Notice is available here.
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    Following the approval of the proposed rule change, the MSRB will
publish a regulatory notice within 90 days of the publication of
approval in the Federal Register (the 2012 Interpretive Notice, so
amended by the proposed rule change, is referred to herein as the
``Revised Interpretive Notice''), and such notice shall specify the
compliance date for the amendments described in the proposed rule
change, which in any case shall be not less than 90 days, nor more than
one year, following the date of the notice establishing such compliance
date. Until such compliance date, the current version of the 2012
Interpretive Notice would remain in effect with respect to underwriting
relationships commenced prior to the compliance date, at which time
underwriters would then be subject to the Revised Interpretive Notice
for all of their underwriting relationships beginning on or after that
date. The 2012 Interpretive Notice would be superseded by the Revised
Interpretive Notice as of such compliance date. Similarly, and as
further described herein, the MSRB's implementation guidance dated July
18, 2012 concerning the 2012 Interpretive Notice (the ``Implementation
Guidance'') \4\ and the regulatory guidance dated March 25, 2013
answering certain frequently asked questions regarding the 2012
Interpretive Notice (the ``FAQs'') \5\ would be withdrawn as of such
compliance date.
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    \4\ See MSRB Notice 2012-38 (July 18, 2012).
    \5\ See MSRB Notice 2013-08 (Mar. 25, 2013).
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    The text of the proposed rule change is available on the MSRB's
website at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2019-Filings.aspx, at the MSRB's principal office, and at the Commission's
Public Reference Room.

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

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

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

1. Purpose

I. Background

    Rule G-17 requires that, in the conduct of municipal securities
activities, brokers, dealers and municipal securities dealers
(collectively, ``dealers'') deal fairly with all persons, including
municipal entity issuers, and not engage in any deceptive, dishonest or
unfair practice. The 2012 Interpretive Notice describes certain fair
dealing obligations dealers owe to issuers in the course of their
underwriting relationships, and promotes fair dealing in the municipal
securities market by, among other things, prescribing the delivery of
written disclosures to issuers regarding the nature of their
underwriting relationships, compensation and other conflicts, and the
risks associated with certain recommended municipal security
transactions in negotiated offerings. Beyond these matters, the 2012
Interpretive Notice also describes an underwriter's obligation to: Have
a reasonable basis for the representations it makes, and other material
information it provides, to an issuer in order to ensure that such
representations are accurate and not misleading; purchase securities
from the issuer at a fair and reasonable price, taking into
consideration all relevant factors, including the best judgment of the
underwriter as to the fair market value of the issue at the time of
pricing; honor the issuer's rules for retail order periods by, among
other things, not accepting or placing orders that do not satisfy the
issuer's definition of ``retail;'' and avoid certain lavish gifts and
entertainment.\6\
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    \6\ As further described therein, the 2012 Interpretive Notice
provides that, except where otherwise noted, the obligations
described are only applicable to negotiated offerings and do not
apply to selling group members.
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II. Proposed Rule Change

    In response to informal feedback from market participants regarding
their experience with the 2012 Interpretive Notice and, particularly,
the effectiveness of the disclosures and related requirements, the MSRB
initiated a retrospective review of the 2012 Interpretive Notice and
published a request for comment on June 5, 2018 (the ``Concept
Proposal'').\7\ The Concept Proposal requested feedback on whether
amendments to the 2012 Interpretive Notice should be considered to help
ensure that it continues to achieve its intended purpose and reflects
the current state of the municipal securities market. The MSRB received
five comment letters in response to the Concept Proposal, all of which
supported the retrospective review and suggested modifications to the
2012 Interpretive Notice.\8\ The feedback

received formed the foundation for a subsequent request for comment
published on November 16, 2018 (the ``Request for Comment'').\9\ The
MSRB received five comment letters in response to the Request for
Comment.\10\ Following review of the comments, the MSRB conducted
additional outreach with various market participants. The feedback
received and follow-up conversations formed the basis for the proposed
rule change.
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    \7\ MSRB Notice 2018-10 (June 5, 2018) (i.e., the Concept
Proposal).
    \8\ See Letters from: Mike Nicholas, Chief Executive Officer,
Bond Dealers of America (BDA), dated August 6, 2018 (``BDA Letter
I''); Emily S. Brock, Director, Federal Liaison Center, Government
Finance Officers Association (GFOA), dated August 6, 2018 (``GFOA
Letter I''); Susan Gaffney, Executive Director, National Association
of Municipal Advisors (NAMA), dated August 6, 2018 (``NAMA Letter
I''); Leslie M. Norwood, Managing Director and Associate General
Counsel, Securities Industry and Financial Markets Association
(SIFMA), dated August 6, 2018 (``SIFMA Letter I''); and J. Ben
Watkins III, Director, State of Florida, Division of Bond Finance of
the State Board of Administration (``Florida Division of Bond
Finance''), dated August 8, 2018 (``Florida Division of Bond Finance
Letter'').
    \9\ See MSRB Notice 2018-29 (November 16, 2018) (i.e., the
Request for Comment).
    \10\ See Letters from: Mike Nicholas, Chief Executive Officer,
BDA, dated January 15, 2019 (``BDA Letter II''); Emily S. Brock,
Director, Federal Liaison Center, GFOA, dated January 15, 2019
(``GFOA Letter II''); Susan Gaffney, Executive Director, NAMA, dated
January 15, 2019 (``NAMA Letter II''); Leslie M. Norwood, Managing
Director and Associate General Counsel, SIFMA, dated January 15,
2019 (``SIFMA Letter II''); and City of San Diego (unsigned and
undated) (``City of San Diego Letter'').
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    In general, the comment letters observed that the disclosures under
the 2012 Interpretive Notice had become too voluminous in length and
boilerplate in nature. Commenters generally stated that the length and
nature of the disclosures both created a significant burden for dealers
and also made it difficult for issuers to assess which conflicts,
risks, and other matters were most significant. As more fully discussed
below in the MSRB's summary of comments, commenters also addressed the
following major topics--the redundancy of certain disclosures received
by an issuer, particularly if an issuer frequently goes to market and/
or a syndicate is formed in a particular offering; the benefits of
separately identifying certain categories of disclosures; the standard
applicable to determine whether an underwriter has made a
recommendation to an issuer of a particular municipal securities
financing; what potential material conflicts of interest must be
disclosed by an underwriter; whether an underwriter must disclose the
conflicts of other parties involved with the transaction; underwriter
communications regarding the issuer's engagement of a municipal
advisor; what an underwriter may rely upon to substantiate an issuer's
receipt of a disclosure; and various other clarifications and revisions
to the 2012 Interpretive Notice that would promote market efficiency
and reduce the regulatory burden on underwriters, while not diminishing
the protections afforded to municipal entity issuers.
    The amendments in the proposed rule change are intended to update
and streamline certain obligations specified in the 2012 Interpretive
Notice and, thereby, benefit issuers and underwriters alike by reducing
the burdens associated with those obligations, including the obligation
of underwriters to make, and the burden on issuers to acknowledge and
review, written disclosures that itemize risks and conflicts that are
unlikely to materialize during the course of a transaction, not unique
to a given transaction or a particular underwriter where a syndicate is
formed, and/or otherwise duplicative.

A. Consolidating the 2012 Interpretive Notice, the Implementation
Guidance, and the FAQs Into the Revised Interpretive Notice and Related
Revisions

    The proposed rule change would integrate the substantive concepts
from the Implementation Guidance \11\ and the FAQs \12\ into the
Revised Interpretive Notice and, thereby, would consolidate the
Implementation Guidance, FAQs, and the Revised Interpretive Notice into
a single publication. Except as described herein, the proposed rule
change would incorporate the substantive content of the Implementation
Guidance and FAQs without material revision. Along with the 2012
Interpretive Notice, assuming approval of the proposed rule change, the
Implementation Guidance and FAQs would be withdrawn as of the
compliance date of the Revised Interpretive Notice. The proposed
technical revisions are necessary to conform or supplement the
statements from the Implementation Guidance and FAQs into the Revised
Interpretive Notice.\13\ Unless otherwise expressly stated herein, the
MSRB's conforming edits are only intended to promote consistency of
language and otherwise are not intended to substantively alter the
understanding and implementation of these existing fair dealing
concepts.
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    \11\ Published on July 18, 2012, the Implementation Guidance was
intended to assist dealers in revising their written supervisory
procedures in accordance with their fair practice obligations under
the 2012 Interpretive Notice.
    \12\ Published on March 25, 2013, the FAQs answered certain
frequently asked questions regarding operational matters pertaining
to the 2012 Interpretive Notice.
    \13\ The MSRB notes that the Implementation Guidance and FAQs
were issued in distinct formats--i.e., in a list of bulleted
statements and frequently asked questions, respectively--from the
format of the 2012 Interpretive Notice and, consequently, in many
instances cannot be simply copied-and-pasted into the proposed
format of the Revised Interpretive Notice without conforming
revisions. Similarly, the proposed rule change incorporates newly
defined terms and other modified substantive concepts (e.g.,
assigning the fair dealing obligation to provide the standard
disclosures and transaction-specific disclosures to syndicate
managers, as further described herein), which require tailoring
edits to appropriately integrate the existing concepts of the
Implementation Guidance and FAQs into the Revised Interpretive
Notice. Thus, the MSRB is proposing to make conforming technical
revisions of a non-substantive, drafting nature when integrating the
existing language of the Implementation Guidance and FAQs into the
Revised Interpretive Notice (referred to hereinafter as,
``conforming edits''). The MSRB has identified in the discussion
below when it has proposed such conforming edits and also provided
the proposed language of the Revised Interpretive Notice in relevant
part for ease of comparison.
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i. Incorporate Statements Regarding the Applicability of the Revised
Interpretive Notice to the Continuous Offering of Municipal Fund
Securities
    As presently stated in the Implementation Guidance, no type of
underwriting is wholly excluded from the application of the 2012
Interpretive Notice. The Implementation Guidance makes clear that the
2012 Interpretive Notice applies not only to primary offerings of new
issues of municipal bonds and notes by an underwriter, but also to a
dealer serving as primary distributor (but not to dealers serving
solely as selling dealers) in a continuous offering of municipal fund
securities, such as interests in 529 savings plans.\14\ The proposed
rule change would incorporate this language into the Revised
Interpretive Notice as stated in the Implementation Guidance with one
addition. More specifically, the proposed rule change would add a
reference to Achieving a Better Life Experience (ABLE) programs \15\ as
another example of a continuous offering of municipal fund securities.
In relevant part, the Revised Interpretive Notice would read, ``[t]his
notice applies not only to a primary offering of a new issue of
municipal securities by an underwriter, but also to a dealer serving as
primary distributor (but not to dealers serving solely as selling
dealers) in a continuous offering of municipal fund securities, such as
interests in 529 savings plans and Achieving a Better Life Experience
(ABLE) programs.''
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    \14\ As a general matter, a 529 savings plan is a tax-advantaged
qualified tuition program established by a state, or an agency, or
instrumentality of a state, designed to encourage families to save
for a child's future education expenses.
    \15\ As a general matter, an ABLE program is a tax-advantaged
savings account established by a state, or an agency, or
instrumentality of a state, designed to allow eligible individuals
and their families to save on a tax-deferred basis for qualified
disability expenses.

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ii. Incorporate Statements Regarding the Applicability of the Revised
Interpretive Notice to a Primary Offering That Is Placed With Investors
by a Placement Agent
    As presently stated in the Implementation Guidance, no type of
underwriting is wholly excluded from the application of the 2012
Interpretive Notice, including certain private placement activities. In
relevant part, the Implementation Guidance states:

    In a private placement where a dealer acting as placement agent
takes on a true agency role with the issuer and does not take a
principal position (including not taking a `riskless principal'
position) in the securities being placed, the disclosure relating to
an `arm's length' relationship would be inapplicable and may be
omitted due to the agent-principal relationship between the dealer
and issuer that normally gives rise to state law obligations--
whether termed as a fiduciary or other obligation of trust. . . . As
described [in the Implementation Guidance], in a private placement
where a dealer acts as a true placement agent, the disclosure
relating to fiduciary duty would be inapplicable and may be omitted
due to the existence of similar state law obligations. . . . In many
private placements, as well as in certain other types of new issue
offerings, no official statement may be produced, so that to the
extent that such an offering occurs without the production of an
official statement, the dealer would not be required to disclose its
role with regard to the review of an official statement.

In a footnote to this language, the Implementation Guidance further
states:

    In certain other contexts, depending on the specific facts and
circumstances, a dealer acting as an underwriter or primary
distributor may take on, either through an agency arrangement or
other purposeful understanding, a fiduciary relationship with the
issuer. In such cases, it would also be appropriate for the
underwriter to omit disclosures inapplicable as a result of such
relationship. Dealers exercising an option to omit such disclosure
should understand that they are effectively acknowledging the
existence of a fiduciary responsibility on behalf of the issuer.

The proposed rule change would incorporate these concepts from the
Implementation Guidance into the Revised Interpretive Notice with
conforming edits and the omission of certain language. It also would
incorporate a supplemental concept regarding how a dealer's activities
as a placement agent may interact with the Commission's registration
and record-keeping requirements for municipal advisors.\16\
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    \16\ See Registration of Municipal Advisors, Release No. 34-
70462 (September 20, 2013), 78 FR 67467 (hereinafter, the ``MA Rule
Adopting Release'') (November 12, 2013) (available at http://www.sec.gov/rules/final/2013/34-70462.pdf); see also note 18 infra
and related text.
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    In terms of the conforming edits, the proposed rule change would
not word-for-word integrate the existing text that, ``. . . in a
private placement where a dealer acts as a true placement agent, the
disclosure relating to a fiduciary duty would be inapplicable and may
be omitted due to the existence of similar state law obligations.'' In
light of the other amendments proposed herein, the proposed rule change
would revise and supplement the existing text with the following
conforming edits that, ``it would also be appropriate for an
underwriter to omit those disclosures inapplicable as a result of such
relationship and the existence of any analogous legal obligations under
other law, such as certain fiduciary duties existing pursuant to
applicable state law'' (emphasis added). The MSRB believes that the
guidance provided by this revised and supplemented language is
substantively equivalent to the concept articulated by the omitted
statement.
    Additionally, the proposed rule change would omit the final
sentence from the footnote of the Implementation Guidance stating that,
``[d]ealers exercising an option to omit such disclosure should
understand that they are effectively acknowledging the existence of a
fiduciary responsibility on behalf of the issuer.'' The MSRB believes
that this statement is substantively redundant with the statements that
precede it and, ultimately, may create more confusion than it would
resolve, as its inclusion in the Revised Interpretive Notice might be
interpreted to bind underwriters into a binary scenario of either: (1)
Including the relevant disclosure(s) and, thereby, communicating the
lack of a fiduciary duty to an issuer client, or (2) omitting the
relevant disclosure(s) and, thereby, ``effectively acknowledging'' the
existence of a fiduciary duty to an issuer client. At bottom, an
underwriter has a fair dealing obligation under Rule G-17 to not engage
in any deceptive, dishonest, or unfair practice when interacting with a
municipal entity client in the course of an underwriting relationship,
which requires the underwriter to accurately, honestly, and fairly
describe its services and the scope of its relationship with the
municipal entity. This overarching fair dealing obligation requires an
underwriter to include, omit, and/or supplement the relevant fiduciary
disclosures as necessary to meet its fair dealing obligations in light
of the particular facts and circumstances of a given transaction.
Consequently, the exclusion of this statement from the proposed rule
change is not intended to diminish this overarching fair dealing
obligation, but, rather, eliminate a potentially confusing and
redundant statement.
    The Revised Interpretive Notice in relevant part would provide:

    In a private placement where a dealer acting as placement agent
takes on a true agency role with the issuer and does not take a
principal position (including not taking a `riskless principal'
position) in the securities being placed, the disclosure relating to
an `arm's length' relationship would be inapplicable and may be
omitted due to the agent-principal relationship between the dealer
and issuer that commonly gives rise to other duties as a matter of
common law or another statutory or regulatory regime--whether termed
as a fiduciary or other obligation of trust. . . . In certain other
contexts, depending on the specific facts and circumstances, a
dealer acting as an underwriter or primary distributor may take on,
either through an agency arrangement or other purposeful
understanding, such a fiduciary relationship with the issuer. In
such cases, it would also be appropriate for an underwriter to omit
those disclosures inapplicable as a result of such relationship and
the existence of any analogous legal obligations under other law,
such as certain fiduciary duties existing pursuant to applicable
state law.

    In addition, the proposed rule change would update the 2012
Interpretive Notice by incorporating supplemental language into the
Revised Interpretive Notice intended to harmonize it with the
Commission's adoption of its permanent rules regarding the registration
and record-keeping requirements applicable to municipal advisors, and
related exclusions and exceptions, which went into effect after the
effective date of the 2012 Interpretive Notice.\17\ The Revised
Interpretive Notice would also incorporate language regarding the
application of the exclusion from the definition of ``municipal
advisor'' applicable to dealers acting as underwriters pursuant to
Exchange Act Rule 15Ba1-1(d)(2)(i) \18\ and the

application of this underwriter exclusion to a dealer's placement agent
activities. In relevant part, the Revised Interpretive Notice would
state:
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    \17\ See Final MA Adopting Release (citation and link at note 16
supra).
    \18\ See Final MA Rule Adopting Release, 78 FR at 67515-67516
(stating: ``The Commission does not believe that the underwriter
exclusion should be limited to a particular type of underwriting or
a particular type of offering. Therefore, if a registered broker-
dealer, acting as a placement agent, performs municipal advisory
activities that otherwise would be considered within the scope of
the underwriting of a particular issuance of municipal securities as
discussed [therein], the broker-dealer would not have to register as
a municipal advisor.''); see also the Final MA Rule Adopting
Release, 78 FR at 67513-67514 (discussing activities within and
outside the scope of serving as an underwriter of a particular
issuance of municipal securities for purposes of the underwriter
exclusion).

    A dealer acting as a placement agent in the primary offering of
a new issuance of municipal securities should also consider how the
scope of its activities may interact with the registration and
record-keeping requirements for municipal advisors adopted by the
Securities and Exchange Commission (the `Commission') under Section
15B of the Exchange Act (15 U.S.C. 78o-4), including the application
of the exclusion from the definition of `municipal advisor'
applicable to a dealer acting as an underwriter pursuant to Exchange
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Act Rule 15Ba1-1(d)(2)(i).

The MSRB believes that the guidance provided by this harmonizing
language is in keeping with the existing references included in the
2012 Interpretive Notice and its guidance regarding the existence of
other relevant or similar legal obligations that could have a bearing
on an underwriter's fair dealing obligations under Rule G-17.
iii. Incorporate Statements Regarding Negotiated Offerings and Defining
Negotiated and Competitive Offerings for Purposes of the Revised
Interpretive Notice
    By its terms, and as presently stated in the Implementation
Guidance, the 2012 Interpretive Notice applies primarily to negotiated
offerings of municipal securities, with many of its provisions not
applicable to competitive offerings. The Implementation Guidance
clarifies what constitutes a negotiated offering for purposes of the
2012 Interpretive Notice, stating that:

    The MSRB has always viewed competitive offerings narrowly to
mean new issues sold by the issuer to the underwriter on the basis
of the lowest price bid by potential underwriters--that is, the fact
that an issuer publishes a request for proposals and potential
underwriters compete to be selected based on their professional
qualifications, experience, financing ideas, and other subjective
factors would not be viewed as representing a competitive offering
for purposes of the Notice. In light of this meaning of the term
`competitive underwriting,' it should be clear that, although most
of the examples relating to misrepresentations and fairness of
financial aspects of an offering consist of situations that would
only arise in a negotiated offering, Rule G-17 should not be viewed
as allowing an underwriter in a competitive underwriting to make
misrepresentations to the issuer or to act unfairly in regard to the
financial aspects of the new issue.

The proposed rule change would incorporate this language into the
Revised Interpretive Notice as stated in the Implementation Guidance.
In relevant part, the Revised Interpretive Notice would read:

    The MSRB has always viewed competitive offerings narrowly to
mean new issues sold by the issuer to the underwriter on the basis
of the lowest price bid by potential underwriters--that is, the fact
that an issuer publishes a request for proposals and potential
underwriters compete to be selected based on their professional
qualifications, experience, financing ideas, and other subjective
factors would not be viewed as representing a competitive offering
for purposes of this notice. In light of this meaning of the term
`competitive underwriting,' it should be clear that, although most
of the examples relating to misrepresentations and fairness of
financial aspects of an offering consist of situations that would
only arise in a negotiated offering, Rule G-17 should not be viewed
as allowing an underwriter in a competitive underwriting to make
misrepresentations to the issuer or to act unfairly in regard to the
financial aspects of the new issue.
iv. Incorporate Statements Regarding the Applicability of the Revised
Interpretive Notice to Persons Other Than Issuers of Municipal
Securities and Update the Definition of Municipal Entities
    The 2012 Interpretive Notice outlines the duties that a dealer owes
to an issuer of municipal securities when the dealer underwrites a new
issuance. As explained in the Implementation Guidance, the 2012
Interpretive Notice ``does not set out the underwriter's fair dealing
obligations to other parties involved with a municipal securities
financing, including a conduit borrower.'' As discussed further
below,\19\ the MSRB sought feedback in the Concept Release and Request
for Proposal regarding whether the 2012 Interpretive Notice should be
amended to incorporate specifics regarding how an underwriter must
fulfill its obligations to a conduit borrower. Ultimately, the MSRB
decided not to incorporate such an amendment in the proposed rule
change for the reasons discussed further herein, including that the
issues presented by the relationship between underwriters and conduit
borrowers are sufficiently distinct to merit their own full
consideration in separate guidance. Accordingly, the proposed rule
change would incorporate the language from the Implementation Guidance
into the Revised Interpretive Notice with conforming edits, stating
``[t]his notice does not set out the underwriter's fair-practice duties
to other parties to a municipal securities financing (e.g., conduit
borrowers).''
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    \19\ Relatedly, the comments received by the MSRB regarding the
incorporation of this language are discussed further below in the
MSRB's summary of comments. See related discussion under Summary of
Comments Received in Response to the Concept Proposal--Disclosures
to Conduit Borrowers and related notes 137 et. seq. infra; see also
Summary of Comments Received in Response to the Request for
Comment--Disclosures to Conduit Borrowers and related note 228.
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    The proposed rule change would also update the definition of
``municipal entity'' as used in the 2012 Interpretive Notice. In
relevant part, the Revised Interpretive Notice would read, ``. . . the
term `municipal entity' is used as defined by Section 15B(e)(8) of the
Securities Exchange Act of 1934 (the `Exchange Act'), 17 CFR 240.15Ba1-
1(g), and other rules and regulations thereunder.'' This revision would
harmonize the Revised Interpretive Notice with the Final MA Rules and
MSRB Rule G-42.\20\ The MSRB believes this revision to be non-
substantive.
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    \20\ See Rule G-42(f)(vi) (`` `Municipal entity' shall, for
purposes of [Rule G-42], have the same meaning as in Section
15B(e)(8) of the Act, 17 CFR 240.15Ba1-1(g) and other rules and
regulations thereunder.'').
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v. Incorporate Statements Regarding Underwriters' Discouragement of the
Engagement of a Municipal Advisor
    The Implementation Guidance further clarifies the scope of the
prohibition included in the 2012 Interpretive Notice, affirming that an
underwriter must not recommend that the issuer not retain a municipal
advisor. The prior guidance states that ``an underwriter may not
discourage an issuer from using a municipal advisor or otherwise imply
that the hiring of a municipal advisor would be redundant because the
underwriter can provide the same services that a municipal advisor
would.'' The proposed rule change would incorporate this language into
the Revised Interpretive Notice as stated in the Implementation
Guidance with conforming edits.\21\ In relevant part, the Revised
Interpretive Notice would provide:
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    \21\ Relatedly, the comments received by the MSRB regarding the
incorporation of this language are discussed further below in the
MSRB's summary of comments. See related discussion under Summary of
Comments Received in Response to the Concept Proposal--Underwriter
Discouragement of Use of Municipal Advisor; Addition of a New
Standard Disclosure Regarding the Engagement of Municipal Advisors
and related notes 134 et. seq. infra, and Summary of Comments
Received in Response to the Request for Comment--Inclusion of
Existing Language Regarding the Discouragement of an Issuer's
Engagement of a Municipal Advisor and Incorporation of a New
Standard Disclosure Regarding the Issuer's Choice to Engage a
Municipal Advisor and related notes 201 et. seq. infra.

    Underwriters also must not recommend issuers not retain a
municipal advisor. Accordingly, underwriters may not discourage
issuers from using a municipal advisor or otherwise imply that the
hiring of a municipal advisor would be redundant

because the sole underwriter or underwriting syndicate can provide
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the services that a municipal advisor would.

The MSRB believes this revision to be a non-substantive incorporation
of existing guidance. The comments the MSRB received in response to
this change are discussed herein in the MSRB's summary of comments.\22\
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    \22\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Underwriter Discouragement of
Use of Municipal Advisor and under Summary of Comments Received in
Response to the Request for Comment--Inclusion of Existing Language
Regarding the Discouragement of an Issuer's Engagement of a
Municipal Advisor and Incorporation of a New Standard Disclosure
Regarding the Issuer's Choice to Engage a Municipal Advisor and
related notes 201 et. seq. infra.
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vi. Incorporate Statements Regarding Third-Party Payments
    The Implementation Guidance clarifies the obligation of
underwriters to disclose certain third-party payments, as well as other
payments, values or credits received by an underwriter. More
specifically, the 2012 Implementation Guidance states, ``[t]he third-
party payments to which the disclosure requirement under the [2012
Interpretive Notice] would apply are those that give rise to actual or
potential conflicts of interest and typically would not apply to third-
party arrangements for products and services of the type that are
routinely entered into in the normal course of business, so long as any
specific routine arrangement does not give rise to an actual or
potential conflict of interest.'' The Implementation Guidance further
states that, ``[e]ven though . . . the [2012 Interpretive Notice]
specifically requires disclosure of the existence of any incentives for
the underwriter to recommend a complex municipal securities financing
or any other conflicts of interest associated with such recommendation,
the specific requirement with respect to complex financings does not
obviate the requirement to disclose the existence of payments, values,
or credits received by the underwriter or of other material conflicts
of interest in connection with any negotiated underwriting, whether it
be complex or routine.''
    The proposed rule change would incorporate this language into the
Revised Interpretive Notice as stated in the Implementation Guidance
with the following exception and conforming edits. The proposed rule
change omits the statements from the 2012 Implementation Guidance that
the disclosure, ``. . . typically would not apply to third-party
arrangements for products and services of the type that are routinely
entered into in the normal course of business, so long as any specific
routine arrangement does not give rise to an actual or potential
conflict of interest.'' The MSRB views this language to be redundant
with the prior language regarding the applicability of the disclosure
to only those third-party payments that give rise to actual material
conflicts of interest or potential material conflicts of interest.
Consequently, the MSRB views the omission of this text as non-
substantive. Thus, with this omission and the conforming edits, the
Revised Interpretive Notice would read in relevant part:

    The third-party payments to which the disclosure standard would
apply are those that give rise to actual material conflicts of
interest or potential material conflicts of interest only. . . . The
specific standard with respect to complex financings does not
obviate a dealer's fair dealing obligation to disclose the existence
of payments, values, or credits received by the underwriter or of
other material conflicts of interest in connection with any
negotiated underwriting, whether it be complex or routine.
vii. Incorporate Statements Regarding the Need for Each Underwriter in
a Syndicate To Deliver Dealer-Specific Conflicts of Interest When
Applicable
    The FAQs clarify what disclosures may be effected by a syndicate
manager on behalf of co-managing underwriters in the syndicate. As
stated in the FAQs:

    In general, disclosures of dealer-specific conflicts of interest
cannot be satisfied by disclosures made by the syndicate manager
because such disclosures are, by their nature, not uniform, and must
be prepared by each dealer. However, nothing in the [2012
Interpretive Notice] or [Implementation Guidance] would preclude a
syndicate manager from delivering each of the dealer-specific
conflicts to the issuer as part of a single package of disclosures.
. . . The [2012 Interpretive Notice] does not require an underwriter
to notify an issuer if it has determined that it does not have an
actual or potential conflict of interest subject to disclosure.
However, underwriters are reminded that the obligation to disclose
actual or potential conflicts of interest includes conflicts arising
after the time of engagement with the issuer, as [further noted in
the FAQs].

    Despite certain other amendments discussed herein that would
require the syndicate manager to deliver the standard disclosures and
transaction-specific disclosures where a syndicate is formed, these
statements regarding the dealer-specific disclosures in the FAQs would
remain true and accurate under the Revised Interpretive Notice.
Accordingly, the proposed rule change would incorporate this language
into the Revised Interpretive Notice as stated in the FAQs with
conforming edits, including the technical clarification that such
disclosures apply to ``actual material conflicts of interest'' and
``potential material conflicts of interest'' in order to make the
statements consistent with related amendments in the proposed rule
change.\23\ In relevant part, the Revised Interpretive Notice would
read:
---------------------------------------------------------------------------

    \23\ The MSRB notes that the proposed rule change would preserve
existing language from the 2012 Interpretive Notice that the
syndicate manager may deliver the dealer-specific disclosures of the
other syndicate members in a single package, but the MSRB views this
simply as a permissive function of delivery rather than an
obligation to craft adequate disclosures on the part of other
parties.

    In general, dealer-specific disclosures for one dealer cannot be
satisfied by disclosures made by another dealer (e.g., the syndicate
manager) because such disclosures are, by their nature, not uniform,
and must be prepared by each dealer. However, a syndicate manager
may deliver each of the dealer-specific disclosures to the issuer as
part of a single package of disclosures, as long as it is clear to
which dealer each disclosure is attributed. An underwriter in the
syndicate is not required to notify an issuer if it has determined
that it does not have any dealer-specific disclosures to make.
However, the obligation to provide dealer-specific disclosures
includes material conflicts of interest arising after the time of
engagement with the issuer, as noted [therein].
viii. Incorporate Statements Regarding the Timing for the Delivery of
Certain Disclosures
    The Implementation Guidance and FAQs clarify the timing for the
delivery of the disclosures under the 2012 Interpretive Notice. More
specifically, the Implementation Guidance states that, ``[n]ot all
transactions proceed along the same timeline or pathway and on rare
occasions precise compliance with some of the timeframes set out in the
[2012 Interpretive Notice] may not be feasible.'' It further states:

    The timeframes set out in the [2012 Interpretive Notice] should
be viewed in light of the overarching goals of Rule G-17 and the
purposes that required disclosures are intended to serve as
described in the [2012 Interpretive Notice]. . . . That is, the
issuer (i) has clarity throughout all substantive stages of a
financing regarding the roles of its professionals, (ii) is aware of
conflicts of interest promptly after they arise and well before it
effectively becomes fully committed (either formally or due to
having already expended substantial time and effort) to completing
the transaction with the underwriter, and (iii) has the information
required to be disclosed with sufficient time to take such
information into consideration before making certain key decisions
on the financing.

On this particular point, the Implementation Guidance concludes by
stating that, ``. . . the timeframes set out in the [2012 Interpretive
Notice] are not intended to establish hair-trigger tripwires resulting
in technical rule violations so long as underwriters act in substantial
compliance with such timeframes and have met the key objectives for
providing such disclosures under the [2012 Interpretive Notice].''
    The FAQs provide that certain disclosures be made at different
points in a transaction. More specifically, the FAQs specify that:
     The underwriter's disclosure regarding the arm's length
nature of the relationship must be disclosed ``at the earliest stage of
the relationship, generally at or before a response to a request for
proposals or promotional materials are delivered to an issuer;''
     the other role disclosures and disclosures regarding the
underwriter's compensation must be disclosed ``[a]t or before the time
the underwriter has been engaged to perform the underwriting
services;''
     those dealer-specific conflicts of interest known at the
time of the engagement must be disclosed ``[a]t or before the time the
dealer has been engaged to serve as underwriter'' in the case of a sole
underwriter or syndicate manager where a syndicate has been formed;
     a co-managing underwriter joining a syndicate must
disclose any dealer-specific conflicts of interest known at that time
concurrent with the formation of the syndicate or upon the co-managing
underwriter joining an already-formed syndicate;
     those dealer-specific conflicts of interest discovered or
arising after being engaged as an underwriter must be disclosed ``as
soon as practicable after [being] discovered and with sufficient time
for the issuer to evaluate the conflict and its implications;''
     any conflicts arising in connection with a recommendation
of a complex municipal securities financing must be disclosed
``[b]efore the execution of a commitment by the issuer (which may
include a bond purchase agreement) relating to such recommendation, and
with sufficient time to allow the issuer to evaluate the conflict and
its implication;''
     the disclosures regarding the material aspects of a
routine financing must be disclosed ``[b]efore the execution of a
commitment by the issuer (which may include a bond purchase agreement)
relating to the financing, and with sufficient time to allow the issuer
to evaluate the features of the financing;'' and
     the disclosures regarding the material financial risks and
characteristics of a complex financing must be disclosed ``[b]efore the
execution of a commitment by the issuer (which may include a bond
purchase agreement) relating to the financing, and with sufficient time
to allow the issuer to evaluate the features of the financing.''
    The proposed rule change would incorporate these timeline concepts
from the Implementation Guidance and FAQs into the Revised Interpretive
Notice with certain conforming edits (e.g., by utilizing the Revised
Interpretive Notice's defined terms of ``standard disclosure'',
``dealer-specific disclosures,'' and ``transaction-specific
disclosures'').
    The proposed rule change would also incorporate clarifying language
regarding the intent of these timelines. More specifically, the intent
that the timelines are defined to ensure that underwriters act promptly
to deliver disclosures in light of all the relevant facts and
circumstances, but are not ``intended to establish strict, hair-trigger
tripwires resulting in mere technical rule violations.'' \24\ In
relevant part, the Revised Interpretive Notice would read:
---------------------------------------------------------------------------

    \24\ Relatedly, the comments received by the MSRB regarding the
incorporation of this language are discussed further below in the
MSRB's summary of comments. See related discussion under Summary of
Comments Received in Response to the Concept Proposal--Consolidating
the 2012 Interpretive Notice, the Implementation Guidance, and the
FAQs into a Single Interpretive Notice--Modification of
Implementation Guidance's Language Regarding the ``No Hair-Trigger''
and related note 95 and Summary of Comments Received in Response to
the Request for Comment--Consolidating the 2012 Interpretive Notice,
the Implementation Guidance, and the FAQs into a Single Interpretive
Notice--Reincorporation of the ``No Hair-Trigger'' Language from the
Implementation Guidance and related notes 157 et. seq. infra.

    The MSRB acknowledges that not all transactions proceed along
the same timeline or pathway. The timeframes expressed herein should
be viewed in light of the overarching goals of Rule G -17 and the
purposes that the disclosures are intended to serve as further
described in this notice. The various timeframes set out in this
notice are not intended to establish strict, hair-trigger tripwires
resulting in mere technical rule violations, so long as an
underwriter acts in substantial compliance with such timeframes and
meets the key objectives for providing disclosure under the notice.
Nevertheless, an underwriter's fair dealing obligation to an issuer
of municipal securities in particular facts and circumstances may
demand prompt adherence to the timelines set out in this notice.
Stated differently, if an underwriter does not timely deliver a
disclosure and, as a result, the issuer: (i) Does not have clarity
throughout all substantive stages of a financing regarding the roles
of its professionals, (ii) is not aware of conflicts of interest
promptly after they arise and well before the issuer effectively
becomes fully committed--either formally (e.g., through execution of
a contract) or informally (e.g., due to having already expended
substantial time and effort)--to completing the transaction with the
underwriter, and/or (iii) does not have the information required to
be disclosed with sufficient time to take such information into
consideration and, thereby, to make an informed decision about the
key decisions on the financing, then the underwriter generally will
have violated its fair-dealing obligations under Rule G -17, absent
other mitigating facts and circumstances.
ix. Incorporate Statements Regarding Whether Underwriters May Rely on
Certain Representations of Issuer Officials
    The FAQs clarify the circumstances under which an underwriter may
rely on the representations of issuer officials, stating:

    Absent red flags, an underwriter may reasonably rely on a
written representation from an issuer official in, among other
things, the issuer's request for proposals that he or she has the
ability to bind the issuer by contract with the underwriter.
Moreover, the underwriter may reasonably rely on a written statement
from such person that he or she is not a party to a disclosed
conflict.

The proposed rule change would incorporate this language from the FAQs
into the Revised Interpretive Notice with clarifying language regarding
the relevance of facts discovered during the course of an underwriter's
due diligence, including diligence related to the transaction generally
or pursuant to an underwriter's own determination of whether it has any
actual material conflicts of interest or potential material conflicts
of interest. Specifically, the Revised Interpretive Notice supplements
the existing statement from the FAQs with the following text:

    The reasonableness of an underwriter's reliance on such a
written statement will depend on all the relevant facts and
circumstances, including the facts revealed in connection with the
underwriter's due diligence in regards to the transaction generally
or in determining whether the underwriter itself has any actual
material conflicts of interest or potential material conflicts of
interest that must be disclosed.

This statement is intended to clarify that if an underwriter becomes
aware of a fact through the normal course of its diligence that would
lead it to doubt a representation of an issuer official, such
information may rise to the level of a red flag that would not allow
the underwriter to reasonably rely on the written representation.

x. Incorporate Statements Regarding an Underwriter Having a Reasonable
Basis for Its Representations and Other Material Information Provided
to Issuers
    The 2012 Interpretive Notice states that underwriters must ``have a
reasonable basis for representations and other material information
provided to issuers'' and clarifies that the obligation ``extends to
the reasonableness of assumptions underlying the material information
being provided.'' The Implementation Guidance further contextualizes
this reasonable basis standard, stating:

    The less certain an underwriter is of the validity of underlying
assumptions, the more cautious it should be in using such
assumptions and the more important it will be that the underwriter
disclose to the issuer the degree and nature of any uncertainties
arising from the potential for such assumptions not being valid. . .
. If an underwriter is uncomfortable having an issuer rely on any
statements made or information provided to such issuer, it should
refrain from making the statement or providing the information, or
should provide any appropriate disclosures or other information that
would allow the issuer to adequately assess the reliability of the
statement or information. . . . As a general matter, a response to a
request for proposal should not be treated as merely a sales pitch
without regulatory consequence, but instead should be treated with
full seriousness that issuers have the expectation that
representations made in such responses are true and accurate. . . .
Underwriters should be careful to distinguish statements made to
issuers that represent opinion rather than factual information and
to ensure that the issuer is aware of this distinction.

    The proposed rule change would incorporate this language from the
Implementation Guidance into the Revised Interpretive Notice with
conforming edits and the following exception.\25\ The proposed rule
change omits the statements from the 2012 Implementation Guidance that:
---------------------------------------------------------------------------

    \25\ Relatedly, the comments received by the MSRB regarding the
incorporation of this language are discussed further below in the
MSRB's summary of comments. See related discussion under Summary of
Comments Received in Response to the Concept Proposal--Consolidating
the 2012 Interpretive Notice, the Implementation Guidance, and the
FAQs into a Single Interpretive Notice--General Comments Encouraging
the Consolidation of the Implementation Guidance, and the FAQs and
related notes 91 et. seq. infra, and Summary of Comments Received in
Response to the Request for Comment--Consolidating the 2012
Interpretive Notice, the Implementation Guidance, and the FAQs into
a Single Interpretive Notice--Inclusion of Language Regarding a
Reasonable Basis for Underwriter Representations related note 155
infra.

    The less certain an underwriter is of the validity of underlying
assumptions, the more cautious it should be in using such
assumptions and the more important it will be that the underwriter
disclose to the issuer the degree and nature of any uncertainties
---------------------------------------------------------------------------
arising from the potential for such assumptions not being valid.

The MSRB views this statement to be potentially confusing and likely
redundant with the preceding statement regarding the need for an
underwriter to have a reasonable basis for its assumptions underlying
any material information being provided to an issuer. Accordingly, the
MSRB views the omission of this text as non-substantive. In relevant
part, the Revised Interpretive Notice would read as follows:

    The need for underwriters to have a reasonable basis for
representations and other material information provided to issuers
extends to the reasonableness of assumptions underlying the material
information being provided. If an underwriter would not rely on any
statements made or information provided for its own purposes, it
should refrain from making the statement or providing the
information to the issuer, or should provide any appropriate
disclosures or other information that would allow the issuer to
adequately assess the reliability of the statement or information
before relying upon it. Further, underwriters should be careful to
distinguish statements made to issuers that represent opinion rather
than factual information and to ensure that the issuer is aware of
this distinction.
xi. Incorporate Statements Regarding Whether a Particular Recommended
Financing Structure or Product Is Complex
    The 2012 Implementation Guidance describes a complex municipal
securities financing as ``a new issue financing that is structured in a
unique, atypical, or otherwise complex manner that issuer personnel
responsible for the issuance of municipal securities would not be well
positioned to fully understand or to assess the implications of a
financing in its totality.'' The Implementation Guidance clarifies
that, ``[u]nderwriters must make reasonable judgments regarding whether
a particular recommended financing structure or product is complex,
understanding that the simple fact that a structure or product has
become relatively common in the market does not automatically result in
it being viewed as not complex.'' The 2012 Interpretive Notice then
provides a non-exclusive, illustrative list of examples of new issue
structures that constitute a complex municipal securities financing,
inclusive of variable rate demand obligations (VRDOs); financings
involving derivatives (such as swaps); and financings in which the
interest rate is benchmarked to an index that is commonly used in the
municipal marketplace (e.g., LIBOR or SIFMA), which may be complex to
an issuer that does not understand the components of that index or its
possible interaction with other indexes.
    The proposed rule change would incorporate this language from the
Implementation Guidance into the Revised Interpretive Notice with
conforming edits and an update to the illustrative, non-exclusive list
of interest rate benchmarks to include the Secured Overnight Financing
Rate (SOFR).\26\ The MSRB believes this edit is a necessary update to
ensure that the Revised Interpretive Notice would reflect current
market practices. In relevant part, the Revised Interpretive Notice
would read as follows, ``[e]xamples of complex municipal securities
financings include, but are not limited to, variable rate demand
obligations (VRDOs), financings involving derivatives (such as swaps),
and financings in which interest rates are benchmarked to an index
(such as LIBOR, SIFMA, or SOFR).'' The Revised Interpretive Notice
would also incorporate the following footnote to this language:
---------------------------------------------------------------------------

    \26\ SOFR is published by the Federal Reserve Bank of New York
and is based on a broad measure of the cost of borrowing cash
overnight collateralized by U.S. Treasury securities in the
repurchase agreement market. SOFR was chosen by the Alternative
Reference Rates Committee (``ARRC'') as the rate that represents
best practice for use in certain new USD derivatives and other
financial contracts, representing the ARRC's preferred alternative
to USD LIBOR. See http://www.msrb.org/EducationCenter/Municipal-Market/About/Market/Market-Indicators.aspx.

    Respectively, the London Inter-bank Offered Rate (i.e.,
`LIBOR'), the SIFMA Municipal Swap Index (i.e., `SIFMA'), and
Secured Overnight Financing Rate (`SOFR'). The MSRB notes that its
references to LIBOR, SIFMA, and SOFR are illustrative only and non-
exclusive. Any financings involving a benchmark interest rate index
may be complex, particularly if an issuer is unlikely to fully
understand the components of that index, its material risks, or its
possible interaction with other indexes.
xii. Incorporate Statements Regarding the Specificity of Disclosures
    The 2012 Interpretive Notice provides that an underwriter of a
negotiated issue that recommends a complex municipal securities
transaction or product to an issuer has an obligation to disclose all
financial material risks known to the underwriter and reasonably
foreseeable at the time of the disclosure, financial characteristics,
incentives, and conflicts of interest regarding the transaction or
product. The Implementation Guidance clarified the scope of this
obligation, stating:

    The disclosures concerning a complex municipal securities
financing must address the specific elements of the financing,
rather than being general in nature. . . . An

underwriter cannot satisfy this requirement by providing an issuer a
single document setting out general descriptions of the various
complex municipal securities financing structures or products it may
recommend from time to time to its various issuer clients that would
effectively require issuer personnel to discover which disclosures
apply to a particular recommendation and to the particular
circumstances of that issuer. . . An underwriter can create, in
advance, individualized descriptions, with appropriate levels of
detail, of the material financial characteristics and risks for each
of the various complex municipal securities financing structures or
products (including any typical variations) it may recommend from
time to time to its various issuer clients, with such standardized
descriptions serving as the base for more particularized disclosure
for the specific complex financing the underwriter is recommending
to a particular issuer. The underwriter could incorporate, to the
extent applicable, any refinements to the base description needed to
fully describe the material financial features and risks unique to
that financing.

    The Implementation Guidance further states that ``[p]age after page
of complex legal jargon in small print would not satisfy this
requirement'' and that ``[u]nderwriters should be able to leverage such
materials for purposes of assisting issuers to more efficiently prepare
disclosures to the public included in official statements in a manner
that promotes more consistent marketplace disclosure of a particular
financing type from issue to issue, and also should be able to leverage
the materials for internal training and risk management purposes.'' The
Implementation Guidance also clarifies that ``[n]ot all negotiated
offerings involve a recommendation by the underwriter, such as where an
underwriter merely executes a transaction already structured by the
issuer or its financial advisor.'' The proposed rule change would
incorporate this language from the Implementation Guidance into the
Revised Interpretive Notice with conforming edits and the following
exception.
    In terms of the exception, the proposed rule change omits the
statement regarding how such materials might assist issuers.
Accordingly, in relevant part, the Revised Interpretive Notice would
simply read, ``[u]nderwriters should be able to leverage such materials
for internal training and risk management purposes.'' The MSRB views
this statement as unnecessary and so its deletion is non-substantive
for purposes of the Revised Interpretive Notice.
xiii. Incorporate Statements Regarding Profit Sharing Arrangements
    The 2012 Interpretive Notice states that, ``[a]rrangements between
the underwriter and an investor purchasing new issue securities from
the underwriter according to which profits realized from the resale by
such investor of the securities are directly or indirectly split or
otherwise shared with the underwriter also would, depending on the
facts and circumstances (including in particular if such resale occurs
reasonably close in time to the original sale by the underwriter to the
investor), constitute a violation of the underwriter's fair dealing
obligation under Rule G-17.'' The Implementation Guidance further
clarifies that:

    Underwriters should be mindful that, depending on the facts and
circumstances, such an arrangement may be inferred from a purposeful
but not otherwise justified pattern of transactions or other course
of action without the existence of a formal written agreement. . . .
An underwriter should carefully consider whether any such
arrangement, regardless of whether it constitutes a violation of
MSRB Rule G-25(c) precluding a dealer from directly or indirectly
sharing in the profits or losses of a transaction in municipal
securities with or for a customer, may evidence a potential failure
of the underwriter's duty with regard to new issue pricing [as
further described in the Implementation Guidance].

The proposed rule change would incorporate this concept into the
Revised Interpretive Notice as stated in the Implementation Guidance,
which reads, in relevant part, ``[u]nderwriters should be mindful that,
depending on the facts and circumstances, such an arrangement may be
inferred from a purposeful but not otherwise justified pattern of
transactions or other course of action, even without the existence of a
formal written agreement.''

B. Amending the Nature, Timing, and Manner of Disclosures

    The proposed rule change would define certain categories of
underwriter disclosures and assign the responsibility for the delivery
of certain disclosures to the syndicate manager in circumstances where
a syndicate is formed, as further described below.
i. Define Certain Categories of Underwriter Disclosures
    The proposed rule change would define the following terms in order
to delineate a dealer's various fair dealing obligations under the
Revised Interpretive Notice: ``standard disclosures'' as collectively
referring to the disclosures concerning the role of an underwriter \27\
and an underwriter's compensation; \28\ ``dealer-specific disclosures''
as collectively referring to the disclosures concerning an
underwriter's actual material conflicts of interest and potential
material conflicts of interest; and ``transaction-specific
disclosures'' as collectively referring to the disclosures concerning
the material aspects of financing structures that the underwriter
recommends.
---------------------------------------------------------------------------

    \27\ Under the 2012 Interpretive Notice, these disclosures
currently state: (i) Municipal Securities Rulemaking Board Rule G-17
requires an underwriter to deal fairly at all times with both
municipal issuers and investors; (ii) the underwriter's primary role
is to purchase securities with a view to distribution in an arm's-
length commercial transaction with the issuer and it has financial
and other interests that differ from those of the issuer; (iii)
unlike municipal advisors, underwriters do not have a fiduciary duty
to the issuer under the federal securities laws and are, therefore,
not required by federal law to act in the best interests of the
issuer without regard to their own financial or other interests;
(iv) the underwriter has a duty to purchase securities from the
issuer at a fair and reasonable price, but must balance that duty
with its duty to sell municipal securities to investors at prices
that are fair and reasonable; and (v) the underwriter will review
the official statement for the issuer's securities in accordance
with, and as part of, its responsibilities to investors under the
federal securities laws, as applied to the facts and circumstances
of the transaction. The proposed rule change incorporates one
additional disclosure into the Revised Interpretive Notice, that the
issuer may choose to engage the services of a municipal advisor with
a fiduciary obligation to represent the issuer's interests in the
transaction. See related discussion under Summary of Comments
Received in Response to the Concept Proposal--Underwriter
Discouragement of Use of Municipal Advisor; Addition of a New
Standard Disclosure Regarding the Engagement of Municipal Advisors
and related notes 134 et. seq. infra., and Summary of Comments
Received in Response to the Request for Comment--Inclusion of
Existing Language Regarding the Discouragement of an Issuer's
Engagement of a Municipal Advisor and Incorporation of a New
Standard Disclosure Regarding the Issuer's Choice to Engage a
Municipal Advisor and related notes 201 et. seq. infra.
    \28\ Under the 2012 Interpretive Notice, an underwriter must
disclose to an issuer whether its underwriting compensation will be
contingent on the closing of a transaction. It must also disclose
that compensation that is contingent on the closing of a transaction
or the size of a transaction presents a conflict of interest,
because it may cause the underwriter to recommend a transaction that
it is unnecessary or to recommend that the size of the transaction
be larger than is necessary.
---------------------------------------------------------------------------

ii. Assign the Syndicate Manager the Exclusive Responsibility for the
Standard Disclosures and Transaction-Specific Disclosures
    The 2012 Interpretive Notice states that a syndicate manager is
permitted, but not required, to make the standard disclosures and the
transaction-specific disclosures on behalf of the other underwriters in
the syndicate. The amendments in the proposed rule change would
obligate only the

syndicate manager \29\ of a syndicate--or sole underwriter, as the case
may be--to make the standard disclosures and transaction-specific
disclosures and eliminates any obligation of other co-managing
underwriters in the syndicate to make the standard disclosures and
transaction-specific disclosures. By eliminating the obligation of such
other syndicate members to deliver the standard disclosures and
transaction-specific disclosures upon the formation of the syndicate,
the syndicate manager would no longer be delivering the disclosures
``on behalf of'' any other syndicate members, and such other syndicate
members would be under no obligation to ensure the delivery of such
disclosures on their behalf.\30\ As further described in the MSRB's
summary of comments,\31\ the MSRB believes that this proposed change
will result in issuers receiving fewer duplicative boilerplate
disclosures, because a syndicate member will not be obligated to
deliver its own disclosures.
---------------------------------------------------------------------------

    \29\ For purposes of the proposed rule change, the term
``syndicate manager'' refers to the lead manager, senior manager, or
bookrunning manager of the syndicate. In circumstances where an
underwriting syndicate is formed, the proposed rule change would
clarify that the syndicate manager is obligated to make the standard
disclosures and transaction-specific disclosures. In the event that
there are joint-bookrunning senior managers, the proposed rule
change would state that only one of the joint-bookrunning senior
managers would be obligated under the Revised Interpretive Notice to
make the standard disclosures and transaction-specific disclosures.
Unless otherwise agreed to, such as pursuant to an agreement among
underwriters, the joint-bookrunning senior manager responsible for
maintaining the order book of the syndicate would be solely
responsible for providing the standard disclosures and transaction-
specific disclosures under the Revised Interpretive Notice.
Notwithstanding the obligation of a syndicate manager to deliver the
standard disclosures and transaction-specific disclosures under the
Revised Interpretive Notice, nothing in the Revised Interpretive
Notice would prohibit an underwriter from making a disclosure in
order to, for example, comply with another regulatory or statutory
obligation.
    \30\ In light of, and consistent with, these obligations placed
on the syndicate manager, only the syndicate manager must maintain
and preserve records of the applicable disclosures it delivers in
accordance with MSRB rules.
    \31\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Amending the Nature, Timing,
and Manner of Disclosures--Syndicate Manager Responsibility for the
Standard Disclosures and Transaction-Specific Disclosures and notes
102 et. seq. infra, and Summary of Comments Received in Response to
the Request for Comment--Amending the Nature, Timing, and Manner of
Disclosures--Syndicate Manager Responsibility for the Standard
Disclosures and Transaction--Specific Disclosures and notes 169 et.
seq. infra.
---------------------------------------------------------------------------

    In addition, the proposed rule change provides that any disclosures
delivered by a syndicate manager prior to or concurrent with the
formation of a syndicate would not need to be identified as delivered
in the capacity of the syndicate manager or otherwise redelivered ``on
behalf'' of the syndicate. It would suffice for purposes of the
proposed rule change that an underwriter--later syndicate manager--has
delivered the standard disclosures and/or transaction-specific
disclosures to the issuer regardless of whether a syndicate may form or
has already been formed in the course of the transaction.\32\
---------------------------------------------------------------------------

    \32\ For the avoidance of any doubt, the proposed change would
apply to all applicable timeframes for the development of a
syndicate, including situations when an underwriter--later syndicate
manager--has previously delivered the disclosures prior to the
formation of the syndicate and also when a syndicate manager
delivers the disclosures concurrent with or after the formation of
the syndicate.
---------------------------------------------------------------------------

    Each member of the syndicate would remain responsible for ensuring
the delivery of any dealer-specific disclosures if, but only if, such
syndicate member had actual material conflicts of interest or potential
material conflicts of interest that must be disclosed. The MSRB
continues to believe that the obligation for each underwriter to
deliver dealer-specific disclosures is warranted because such
disclosures are, by their nature, not uniform, and must be tailored to
each underwriter's unique circumstances.\33\ As currently stated in the
2012 Interpretive Notice, if an underwriter does not have any actual
material conflicts of interest or potential material conflicts of
interest, the proposed rule change would not require the underwriter to
deliver an affirmative written statement to the issuer regarding the
absence of such dealer-specific conflicts, but the underwriter is
permitted to do so.
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    \33\ As currently stated in the 2012 Interpretive Notice and
Implementation Guidance, nothing in the Revised Interpretive Notice
would preclude--or require--a syndicate manager from delivering each
of the dealer-specific conflicts to the issuer as part of a single
package of disclosures, if the syndicate manager and other co-
managing underwriters of the syndicate so agreed.
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iii. Require the Separate Identification of the Standard Disclosures
    The 2012 Interpretive Notice currently permits the delivery of
omnibus disclosure documents, in which the standard disclosures need
not be separately identified from the transaction-specific disclosures
and dealer-specific disclosures. The proposed rule change would require
the separate identification and formatting of the standard disclosures
(i.e., disclosures concerning the role of the underwriter and the
underwriter's compensation) from the transaction-specific disclosure
and the dealer-specific disclosures. For example, when providing the
various disclosures in the same document, an underwriter would be
required to clearly identify the standard disclosures and separate them
from the other disclosures (e.g., by placing the standard disclosures
in an appendix or attachment).
iv. Clarify the Meaning of ``Recommendation'' for Purposes of
Disclosures Related to Complex Municipal Securities Financings
    The 2012 Interpretive Notice provides that an underwriter in a
negotiated offering that recommends a complex municipal securities
financing to an issuer must disclose the material financial
characteristics of the complex municipal securities financing, as well
as the material financial risks of the financing that are known to the
underwriter and reasonably foreseeable at the time of the disclosure (a
``complex municipal securities financing disclosure''). Accordingly, as
stated in the Implementation Guidance, the requirement to provide a
complex municipal securities financing disclosure is triggered if--the
new issue is sold in a negotiated offering; the new issue is a complex
municipal securities financing; and such financing was recommended by
the underwriter. These aspects of the 2012 Interpretive Notice would
remain applicable under the Revised Interpretive Notice.
    However, the 2012 Interpretive Notice does not define the term
``recommendation'' for purposes of this requirement. As further
described in the MSRB's summary of comments,\34\ the MSRB believes it
is important to provide this clarification to facilitate dealer
compliance with the proposed rule change. The proposed rule change
would clarify that a communication by an underwriter is a
``recommendation'' that triggers the obligation to deliver a complex
municipal securities financing disclosure if--given its content,
context, and manner of presentation--the communication reasonably would
be viewed as a call to action to engage in a complex municipal
securities financing or reasonably would influence an issuer to engage
in a particular complex municipal securities financing.\35\ For the
reasons described in

the MSRB's summary of comments below,\36\ the MSRB considered, and
ultimately determined not to, adopt the standard that has been
developed for purposes of municipal advisor recommendations under Rule
G-42, on the duties of non-solicitor municipal advisors.\37\
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    \34\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Clarification of the Meaning of
``Recommendation'' and related notes 131 et. seq. infra., and
Summary of Comments Received in Response to the Request for
Comment--Guidance Regarding Meaning of ``Recommendation'' and
related notes 219 et. seq. infra.
    \35\ In proposing this change the MSRB draws upon, by analogy,
the analysis applicable to dealers making recommendations to
customers under MSRB Rule G-19, on the suitability of
recommendations and transactions. While Rule G-19 does not apply to
the recommendations made by underwriters to issuers in connection
with new issues of municipal securities for the reasons discussed
below, the Revised Interpretive Notice draws, by analogy, on the
analysis of when a dealer has made recommendation under Rule G-19.
As discussed in existing MSRB guidance, this analysis under Rule G-
19 is informed by the related suitability standard promulgated by
the Financial Industry Regulatory Authority (FINRA). More
specifically, when proposed amendments to Rule G-19 were approved in
March 2014, the MSRB noted that ``[g]iven the extensive interpretive
guidance surrounding FINRA Rule 2111 [on suitability] and the
impracticality and inefficiency of republishing each iteration of
that guidance, substantively similar provisions of Rule G-19 will be
interpreted in a manner consistent with FINRA's interpretations of
Rule 2111.'' See Release No. 34-71665; 77 FR 14321 (March 7, 2014)
(File No. SR-MSRB-2013-07) (Mar. 7, 2014) and MSRB Regulatory Notice
2014-07 (March 2014). FINRA's suitability guidance has long provided
that the determination of whether a ``recommendation'' has been made
is an objective rather subjective inquiry. See FINRA Notice to
Members 01-23 (March 2001). In guidance relating to FINRA Rules 2090
and 2011, FINRA reiterated this prior guidance, stating that an
important factor in this inquiry ``is whether--given its content,
context and manner of presentation--a particular communication from
a firm or associated person to a customer reasonably would be viewed
as a suggestion that the customer take action or refrain from taking
action regarding a security or investment strategy.'' See FINRA
Regulatory Notice 11-02 (Know Your Customer and Suitability)
(January 2011). Rule G-19 in this situation does not directly apply
to a recommendation made by an underwriter to an issuer in
transactions involving the sale by the issuer of a new issue of its
securities, because, by its terms, Rule G-19 governs recommendations
to ``customers,'' and MSRB Rule D-9 provides that an issuer is not a
``customer'' within the meaning of that rule in the case of a sale
by it of a new issue of its securities. See MSRB Rule D-9 (available
here) and related interpretive guidance (available here).
    \36\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Clarification of the Meaning of
``Recommendation'' and related notes 131 et. seq. infra., and
Summary of Comments Received in Response to the Request for
Comment--Guidance Regarding Meaning of ``Recommendation'' and
related notes 219 et. seq. infra.
    \37\ See FAQs Regarding MSRB Rule G-42 and Making
Recommendations (June 2018) (hereinafter, the ``G-42 FAQs'').
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v. Establish a ``Reasonably Likely'' Standard for Disclosure of
Potential Material Conflicts of Interest
    The 2012 Interpretive Notice currently requires the underwriter to
disclose to the issuer any actual material conflicts of interest and
any potential material conflicts of interest. As described in the
Implementation Guidance, the requirement to provide such disclosure is
triggered if: The new issue is sold in a negotiated underwriting; the
matter to be disclosed represents a conflict of interest, either in
reality or potentially; and any such actual or potential conflict of
interest is material. These aspects of the 2012 Interpretive Notice
would remain applicable under the Revised Interpretive Notice. However,
the proposed rule change provides that an underwriter's potential
material conflict of interest must be disclosed as part of the dealer-
specific disclosures if, but only if, the potential material conflict
of interest is ``reasonably likely'' to mature into an actual material
conflict of interest during the course of that specific transaction.
This revision would narrow the dealer-specific disclosures currently
required under the 2012 Interpretive Notice from all potential material
conflicts to those potential material conflicts that meet this more
focused standard.
    As further described below in the MSRB's summary of comments, the
MSRB believes this amendment will benefit issuers and underwriters
alike by reducing the volume of disclosure that must to be provided to
those conflicts that are most concrete and probable.\38\ Underwriters
will benefit from this change by no longer having to draft and deliver
longer disclosures that identify and describe remote or hypothetical
conflicts that are unlikely to materialize during the course of a given
transaction. The MSRB believes that issuers will also benefit from this
change because they will no longer have to review and analyze such
longer-form disclosures, which will allow them to focus their time and
other resources to the consideration of those material conflicts that
are present, or reasonably likely to be present, during the course of
the transaction, and, thereby, not expend time and resources discerning
likely dealer conflicts from unlikely conflicts, or otherwise
evaluating potential material conflicts that are not reasonably likely
to materialize during the course of the transaction.
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    \38\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Amending the Nature, Timing,
and Manner of Disclosures--Disclosure of Potential Material
Conflicts of Interest and related notes 98 et. seq. infra, and see
also Summary of Comments Received in Response to the Request for
Comment--Amending the Nature, Timing, and Manner of Disclosures--
Disclosure of Potential Material Conflicts of Interest and related
notes 161 et. seq. infra.
---------------------------------------------------------------------------

    Additionally, the proposed rule change will not diminish an
underwriter's fair dealing obligation to update, or otherwise
supplement, its dealer-specific disclosures in circumstances when a
previously undisclosed potential conflict of interest later ripens into
an actual material conflict of interest. Thus, the MSRB believes that
the proposed rule change does not compromise municipal entity
protection, because municipal entity issuers would continue to receive
timely information about all material conflicts of interest that ripen
during the course of a transaction. More specifically, at or before the
time an underwriter is engaged, issuers would continue to receive a
dealer-specific disclosure describing any actual material conflicts of
interest that are present at that time and any potential material
conflicts of interest that, based on the reasonable judgement of the
dealer at that time, are likely to mature into an actual material
conflict of interest--assuming there are any such actual material
conflicts of interest or potential material conflicts of interest.\39\
Thereafter, an underwriter's fair dealing obligation would continue to
require it to deliver an updated or supplemental dealer-specific
disclosure for any actual material conflict of interest or potential
material conflict of interest that has not been previously disclosed to
the issuer and arising after the triggering of the initial dealer-
specific disclosure.\40\
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    \39\ In the absence of any such actual material conflict of
interest or potential material conflict of interest, an underwriter
would not have a fair dealing obligation under the Revised
Interpretive Notice to disclose the absence of such a conflict, but
may choose to provide an affirmative written statement regarding the
absence of such conflicts at its discretion (e.g., for the benefit
of establishing a written record of such absence).
    \40\ For example, the 2012 Interpretive Notice states: ``. . . a
conflict may not be present until an underwriter has recommended a
particular financing. In that case, the disclosure must be provided
in sufficient time before the execution of a contract with the
underwriter to allow the official to evaluate the recommendation, as
described below under `Required Disclosures to Issuers.' '' This
concept would remain applicable under the Revised Interpretive
Notice.
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vi. Clarify That Underwriters Are Not Obligated To Provide Written
Disclosure of Conflicts of Other Parties
    As outlined above, the 2012 Interpretive Notice requires
underwriters to provide issuers with certain standard disclosures,
dealer-specific disclosures, and transaction-specific disclosures, when
and if applicable. By their respective definitions, the standard
disclosures cover generic conflicts of interest that could apply to any
underwriter in any underwriting; the dealer-specific disclosures are
the actual material conflicts of interest and potential material
conflicts of interest generally unique to a specific underwriter; and

the transaction-specific disclosures relate to the specific financing
structure recommended by an underwriter. None of the requirements in
the 2012 Interpretive Notice prescribe that the underwriter must
provide the issuer with written disclosures on the part of any other
transaction participants, including issuer personnel, but does not
expressly state this fact. In response to the concern of a commenter
more fully described in the MSRB's summary of comments below,\41\ the
MSRB believes that this express clarification is warranted to avoid
potential misinterpretation of the disclosure requirements of the
proposed rule change. Accordingly, the proposed rule change would
expressly state that underwriters are not required to make any written
disclosures on the part of issuer personnel or any other parties to the
transaction as part of the standard disclosures, dealer-specific
disclosures, or the transaction-specific disclosures.
---------------------------------------------------------------------------

    \41\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Amending the Nature, Timing,
and Manner of Disclosures--Clarification that Underwriters Are Not
Obligated to Provide Written Disclosure of Conflicts of Other
Parties and related note 114, and Summary of Comments Received in
Response to the Request for Comment--Amending the Nature, Timing,
and Manner of Disclosures--Clarification that Underwriters Are Not
Obligated to Provide Written Disclosure of Conflicts of Other
Parties and related notes 194 et. seq. infra.
---------------------------------------------------------------------------

vii. Clarify That Disclosures Must Be ``Clear and Concise''
    The 2012 Interpretive Notice currently requires disclosures to be
``designed to make clear to such official the subject matter of such
disclosures and their implications for the issuer.'' The proposed rule
change would clarify that an underwriter's disclosures must be
delivered in a ``clear and concise'' manner, which the MSRB believes is
consistent with, and substantially equivalent to, the standard
currently articulated in the 2012 Interpretive Notice. Nevertheless, in
response to the concern of commenters more fully described in the
MSRB's summary of comments below, the MSRB believes that this
clarification is warranted to provide further guidance to all
stakeholders regarding the accessibility and readability of an
underwriter's disclosures.
viii. Update the Definition of Municipal Entity
    The 2012 Interpretive Notice currently provides a definition of
``municipal entity'' that references Section 15B(e)(8) under the
Exchange Act.\42\ Notably, the 2012 Interpretive Notice does not
reference the definition of municipal entity under Exchange Act Rule
15Ba1-1, because the 2012 Interpretive Notice was issued prior to the
effectiveness of the Commission's permanent registration regime for
``municipal advisors'' pursuant to the amendments to Section 15B of the
Exchange Act effectuated by Section 975 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act \43\ (collectively, the ``Final MA
Rules''), including Exchange Act Rule 15Ba1-1.\44\ Exchange Act Rule
15Ba1-1 defines a ``municipal entity'' to mean: ``any State, political
subdivision of a State, or municipal corporate instrumentality of a
State or of a political subdivision of a State, including--(1) Any
agency, authority, or instrumentality of the State, political
subdivision, or municipal corporate instrumentality; (2) 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 (3) Any other issuer
of municipal securities.'' \45\ Relatedly, Rule G-42 includes this same
reference to the definition of municipal entity as used in the Final MA
Rules.
---------------------------------------------------------------------------

    \42\ The 2012 Interpretive Notice states: ``The term `municipal
entity' is defined by Section 15B(e)(8) of the Securities Exchange
Act of 1934 (the `Exchange Act') to mean: `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.' ''
    \43\ Public Law 111-203 Sec.  975, 124 Stat. 1376 (2010).
    \44\ See Registration of Municipal Advisors, Release No. 34-
70462 (September 20, 2013), 78 FR 67467 (hereinafter, the ``MA Rule
Adopting Release'') (November 12, 2013) (available at http://www.sec.gov/rules/final/2013/34-70462.pdf).
    \45\ See Exchange Act Rule 15Ba1-1(g).
---------------------------------------------------------------------------

    In light of the Commission's definition contained in the Final MA
Rules and the MSRB's definition of ``municipal entity'' as used under
Rule G-42, the proposed rule change would incorporate a specific
reference to this rule definition, in addition to the general statutory
definition, to avoid any confusion about the scope of the Revised
Interpretive Notice and to promote harmonization with the Final MA
Rules and Rule G-42. In relevant part, the Revised Interpretive Notice
would read, ``. . . the term `municipal entity' is used as defined by
Section 15B(e)(8) of the Securities Exchange Act of 1934 (the `Exchange
Act'), 17 CFR 240.15Ba1-1(g), and other rules and regulations
thereunder.''

C. Require an Additional Standard Disclosure Regarding the Engagement
of Municipal Advisors

    The 2012 Interpretive Notice currently requires an underwriter to
make five discrete statements regarding the underwriter's role as part
of the standard disclosures, including a disclosure that, ``unlike a
municipal advisor, the underwriter does not have a fiduciary duty to
the issuer under the federal securities laws and is, therefore, not
required by federal law to act in the best interest of the issuer
without regard to its own or other interests.'' \46\ The proposed rule
change would incorporate a new standard disclosure that ``the issuer
may choose to engage the services of a municipal advisor with a
fiduciary obligation to represent the issuer's interests in the
transaction.'' As a standard disclosure, this additional disclosure
would be subject to the same principles for its timing as the other
similar standard disclosures (i.e., at or before the time the
underwriter has been engaged to perform the underwriting services) and
separate delivery as the other standard disclosures (i.e., separately
identified when provided with the transaction-specific disclosures and/
or dealer-specific disclosures). In response to the concern of
commenters more fully described in the MSRB's summary of comments
below,\47\ the MSRB believes that this additional disclosure will
further clarify the distinctions between an underwriter--who is subject
to a duty of fair dealing when providing advice regarding the issuance
of municipal securities to municipal entities--and a municipal
advisor--who is subject to a federal statutory fiduciary duty when
providing advice regarding the issuance of municipal securities to
municipal entities--and, thereby, promotes the protection of municipal
entity issuers in accordance with the MSRB's statutory mandate at a
relatively minimal burden to underwriters.
---------------------------------------------------------------------------

    \46\ See note 27 supra for the other four disclosures currently
required under the 2012 Interpretive Notice.
    \47\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Underwriter Discouragement of
Use of Municipal Advisor; Addition of a New Standard Disclosure
Regarding the Engagement of Municipal Advisors and related notes 134
et. seq. infra, and Summary of Comments Received in Response to the
Request for Comment--Inclusion of Existing Language Regarding the
Discouragement of an Issuer's Engagement of a Municipal Advisor and
Incorporation of a New Standard Disclosure Regarding the Issuer's
Choice to Engage a Municipal Advisor and related notes 201 et. seq.
infra.

---------------------------------------------------------------------------

D. Permit Email Read Receipt To Serve as Issuer Acknowledgement

    The 2012 Interpretive Notice currently requires underwriters to
attempt to receive written acknowledgement of receipt by the official
of the issuer other than by evidence of automatic email receipt. The
proposed rule change would permit an email read receipt to serve as the
issuer's acknowledgement under the Revised Interpretive Notice.\48\ The
proposed rule change would define the term ``email read receipt'' to
mean ``an automatic response generated by a recipient issuer official
confirming that an email has been opened.'' The proposed rule change
would also clarify that, ``[w]hile an email read receipt may generally
be an acceptable form of an issuer's written acknowledgement under this
notice, an underwriter, may not rely on such an email read receipt as
an issuer's written acknowledgement where such reliance is unreasonable
under all of the facts and circumstances, such as where the underwriter
is on notice that the issuer official to whom the email is addressed
has not in fact received or opened the email.''
---------------------------------------------------------------------------

    \48\ While an email read receipt would serve as acknowledgement
of disclosures delivered for purposes of an underwriter's fair
dealing obligations under the Revised Interpretive Notice, the MSRB
does not intend to create any implication or inference that an email
read receipt may serve as an acknowledgment for any other regulatory
purposes.
---------------------------------------------------------------------------

    In response to the concern of commenters more fully described in
the MSRB's summary of comments below,\49\ the MSRB believes that this
amendment will ease the burden of the acknowledgement requirement on
underwriters and issuers alike, as both issuer and underwriter
commentators indicated that an underwriter's fair dealing obligation to
obtain a written acknowledgement, as currently defined under the 2012
Interpretive Notice, creates burdens without offsetting benefits.\50\
The MSRB believes that underwriters would benefit from this change by
being able to more efficiently obtain issuer acknowledgement of the
disclosures electronically through the automated process of an email
system, while issuers that desire to provide such acknowledgement to an
underwriter can similarly take advantage of the efficiency of the email
system to electronically reply to an underwriter's electronic request.
At the same time, under the Revised Interpretive Notice, issuers would
still have the choice not to provide acknowledgement to an underwriter
in this manner by opting not to send an email read receipt in response
to the underwriter's email communication.
---------------------------------------------------------------------------

    \49\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Email Read Receipt as Issuer
Acknowledgement and related notes 125 et. seq. infra., and Summary
of Comments Received in Response to the Request for Comment--Email
Read Receipt as Issuer Acknowledgement and related notes 213 et.
seq. infra.
    \50\ See, e.g., SIFMA Letter I, at p. 17 (``SIFMA and its
members strongly believe that the issuer's acknowledgement of
receipt of disclosures do not provide any benefit, create
significant burdens and should be eliminated'').
---------------------------------------------------------------------------

    Moreover, the MSRB believes that this proposed change will not
compromise issuer protection, because, like any other form of
acknowledgement under the Revised Interpretive Notice, the proposed
rule change would require the email read receipt to come from an issuer
official that is not party to a conflict, based on the underwriter's
knowledge, and either has been specifically identified by the issuer to
receive such disclosure communications or, in the absence of such
specific identification, is an issuer official who the underwriter
reasonably believes has the authority to bind the issuer by contract
with the underwriter. Similarly, the proposed rule change would provide
that an underwriter may not rely on an email read receipt as the
issuer's written acknowledgement when such reliance is unreasonable
under all of the facts and circumstances. Accordingly, the proposed
change will not compromise issuer protection because an underwriter
still must meet the overarching fair dealing obligation of Rule G-17
when relying on an email read receipt, and, thus, an underwriter cannot
reasonably rely on email read receipts as written acknowledgement when
the particular facts and circumstances indicate that doing so would be
deceptive, dishonest, or unfair, as in the case where an underwriter is
on notice that the issuer official to whom the email is addressed has
not in fact received or opened the email.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2) of the Act,\51\ which provides that:
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    \51\ 15.U.S.C. 78o-4(b)(2).

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

Section 15B(b)(2)(C) of the Act \52\ provides that the MSRB's rules
shall:
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78o-4(b)(2)(C).

. . . be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities and
municipal financial products, to remove impediments to and perfect
the mechanism of a free and open market in municipal securities and
municipal financial products, and, in general, to protect investors,
---------------------------------------------------------------------------
municipal entities, obligated persons, and the public interest.

The proposed rule change is consistent with Section 15B(b)(2)(C) of the
Exchange Act \53\ because it will protect issuers of municipal
securities from fraudulent and manipulative acts and practices, remove
impediments to and perfect the mechanism of a free and open market, and
promote just and equitable principles of trade, and promote the
protection of municipal entities, for the reasons set forth below.
---------------------------------------------------------------------------

    \53\ 15.U.S.C. 78o-4(b)(2).
---------------------------------------------------------------------------

A. Defining the Various Categories of Underwriter Disclosures and
Consolidating the 2012 Interpretive Notice, the Implementation
Guidance, and the FAQs Into the Revised Interpretive Notice

    The proposed rule change would promote just and equitable
principles of trade and remove impediments to and perfect the mechanism
of a free and open market through its amendment of the 2012
Interpretive Notice to define the various categories of underwriter
disclosures and through the incorporation of the content of the
Implementation Guidance and FAQs. These amendments promote equitable
principles of trade and the removal of impediments to and perfection of
the mechanism of a free and open market by allowing underwriters to
reference and review a single consolidated document with uniform terms
under Rule G-17, which facilitates the efficient determination of any
applicable fair dealing obligations and, thereby, allows for more
efficient and less burdensome compliance. At the same time, this
amendment does not compromise issuer protection, because these
amendments to the 2012 Interpretive Notice are primarily of a technical
nature that do not alter the substance of the information delivered to
issuers of municipal securities.

B. Amending the Nature, Timing, and Manner of Disclosures

i. Assign the Syndicate Manager the Exclusive Responsibility for the
Standard Disclosures and Transaction-Specific Disclosures
    The proposed rule change would promote just and equitable
principles of trade and remove impediments to and perfect the mechanism
of a free and open market by amending the 2012 Interpretive Notice to
obligate only the syndicate manager--or the sole underwriter, as the
case may be--to deliver the standard disclosures and transaction-
specific disclosures, and eliminating the concept that the disclosures
must be provided ``on behalf of'' any other members of the syndicate.
This would remove impediments to and perfect the mechanism of a free
and open market by eliminating certain redundant and generic
disclosures currently delivered by underwriters to issuers that provide
little, if any, novel informational benefits to issuers, but do create
non-trivial compliance and record-keeping burdens on underwriters. The
amendment will also promote the goal of protecting municipal entity
issuers because issuers will be able to more efficiently evaluate the
information contained in the disclosures they do receive, rather than
having to differentiate generic and duplicative disclosures from
disclosures that are more particularized to the facts and circumstances
of the transaction.
ii. Require the Separate Identification of the Standard Disclosures
    The proposed rule change would prevent fraudulent and manipulative
acts and practices and promote the protection of municipal entity
issuers by amending the 2012 Interpretive Notice to require the
separate identification and formatting of the standard disclosures by
underwriters. This would prevent fraudulent and manipulative acts and
practices and promote the protection of municipal entity issuers
because issuers will be able to more efficiently differentiate an
underwriter's dealer-specific disclosures and transaction-specific
disclosures from an underwriter's standard disclosures, and, thereby,
more efficiently evaluate those disclosures that are unique to a given
underwriting firm and transaction type from those that are more generic
and common to all underwriting relationships.
iii. Clarify the Meaning of ``Recommendation'' for Purposes of
Disclosures Related to Complex Municipal Securities Financings
    The proposed rule change would promote just and equitable
principles of trade and remove impediments to and perfect the mechanism
of a free and open market by amending the 2012 Interpretive Notice to
define the analysis applicable to when an underwriter has made a
recommendation triggering the obligation to deliver complex municipal
securities financing disclosures. The 2012 Interpretive Notice does not
currently define what constitutes a ``recommendation'' for these
purposes. The absence of a definition creates a burden for underwriters
to appropriately interpret and operationalize the 2012 Interpretive
Notice. Clarifying the applicable definition would eliminate any legal
ambiguity under the Revised Interpretive Notice regarding the
applicable standard for determining when a recommendation of a complex
municipal securities financing has been made. For similar reasons, the
proposed change will promote just and equitable principles of trade by
clarifying the circumstances when underwriters must provide these
particularized transaction-specific disclosures to issuers, which will
reduce the compliance burden for all dealers who act as underwriters.
iv. Establish a ``Reasonably Likely'' Standard for Disclosure of
Potential Material Conflicts of Interest
    The proposed rule change would remove impediments to and perfect
the mechanism of a free and open market by amending the 2012
Interpretive Notice to more narrowly define which potential material
conflicts of interest must be disclosed by underwriters. The
disclosures regarding remote and unlikely conflicts provide little, if
any, actionable informational benefits to issuers, but do create non-
trivial compliance and record-keeping burdens on underwriters. The
proposed rule change would prevent fraudulent and manipulative acts and
practices and also promote the protection of municipal entity issuers
by facilitating issuers' ability to more efficiently evaluate and
consider those potential material conflicts of interest that are most
concrete and probable, rather than having to differentiate likely
material conflicts of interest from a longer inventory of conflicts
that includes remote material conflicts of interest that are
hypothetical and unlikely to materialize during the course of the
transaction.
    As further described below in the MSRB's summary of comments, the
MSRB believes this amendment will benefit market participants by
reducing the volume of disclosure that must be provided to those
conflicts that are most concrete and probable.\54\ Moreover, the MSRB
believes that the proposed rule change does not compromise municipal
entity protection, and may in fact bolster issuer protection, by
providing more focused and actionable information to issuers. The MSRB
believes that issuers will benefit from this change because they will
no longer have to review and analyze longer-form disclosures discussing
potential material conflicts of interest that are not reasonably likely
to materialize during the course of the transaction. Streamlining the
disclosures in this way will allow issuers to focus their time and
other resources to the consideration of those material conflicts that
are currently present and/or reasonably likely to be present during the
course of the transaction.
---------------------------------------------------------------------------

    \54\ See related discussion under Summary of Comments Received
in Response to the Concept Proposal--Amending the Nature, Timing,
and Manner of Disclosures and related notes 96 et. seq. infra, and
Summary of Comments Received in Response to the Request for
Comment--Amending the Nature, Timing, and Manner of Disclosures and
related notes 159 et. seq. infra.
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    Additionally, the proposed rule change will not diminish an
underwriter's fair dealing obligation to update, or otherwise
supplement, its dealer-specific disclosures in circumstances when a
previously undisclosed potential conflict of interest later ripens into
an actual material conflict of interest.\55\ An underwriter must
provide disclosure to the issuer regarding the actual presence of a
material conflict that arises during the course of the transaction in
accordance with the following timelines:
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    \55\ The FAQs presently state that dealer-specific conflicts of
interest ``discovered or arising after engagement'' must be
disclosed ``[a]s soon as practicable after discovered and with
sufficient time for the issuer to evaluate the conflict and its
implication.''
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     If an actual material conflict of interest is present at
the time the underwriter is engaged, then the underwriter must disclose
the conflict at or before the time the underwriter is so engaged.
     If a conflict of interest does not rise to the level of an
actual material conflict of interest at the time of the underwriter's
initial engagement, but is reasonably likely to mature into an actual
material conflict of interest during the course of the transaction

between the issuer and the underwriter, then the underwriter must
disclose the conflict as a potential material conflict of interest at
or before the time the underwriter is so engaged.
     If the material conflict of interest is not present at the
time of the underwriter's initial engagement, and the underwriter
reasonably determines at that time that a conflict of interest is not
likely to mature into an actual material conflict of interest during
the course of the transaction, then the underwriter would not have a
fair dealing obligation under this notice to disclose the conflict upon
its engagement. But, for example, if that same undisclosed conflict
later ripened into an actual material conflict of interest during the
course of the transaction, then the underwriter would continue to have
a fair dealing obligation under the Revised Interpretive Notice to
disclose the conflict as soon as practicable after it arises or upon
its discovery by the dealer.
    In this regard, the Revised Interpretive Notice would not diminish
the amount of information provided to an issuer about the presence of
any actual material conflicts of interest as compared to the 2012
Interpretive Notice. It may only change the timing by which certain of
those conflicts of interest are first disclosed to an issuer.\56\
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    \56\ As an illustration of this point, in the factual scenario
discussed in the last bullet above, an underwriter may have
identified the conflict as a potential material conflict of interest
under the terms of the 2012 Interpretive Notice's broader disclosure
standard, which requires an underwriter to disclose any potential
material conflict of interest, not just those that are reasonably
likely. Consequently, under the terms of the 2012 Interpretive
Notice, the underwriter may have incorporated the conflict into its
initial dealer-specific disclosure as a potential conflict and so
delivered notice of the conflict to the issuer at or before the time
of the underwriting engagement.
    Under the proposed rule change, the same conflict would still be
disclosed to the issuer, but the timing of its initial disclosure to
the issuer could be delayed until no later than the conflict
ripening into an actual material conflict of interest. In such a
scenario, an issuer would receive notice of such a conflict at a
potentially later date into the transaction under the Revised
Interpretive Notice than under the 2012 Interpretive Notice, and,
correspondingly, the amount of time an issuer would have to analyze
and react to such a conflict would be abridged as a result. However,
by knowing such conflicts are concrete and non-hypothetical, an
issuer may not need as much time to act to analyze and resolve any
such conflict. Moreover, the MSRB believes that differing timing
outcomes exemplified by this scenario described in the last bullet
above, in actuality, would occur relatively infrequently.
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    To the degree that the Revised Interpretive Notice does result in a
change in timing, the MSRB believes that the proposed rule change
provides more actionable information to issuers regarding such
conflicts, even if at a potentially later date, and, thereby, any
detriment to issuers in regard to timing under the Revised Interpretive
Notice generally would be positively offset in terms of issuers'
increased informational certainty. While issuers may have less time to
act in such scenarios, issuers would have the benefit of knowing that
the conflicts being disclosed are more concrete and non-hypothetical.
    Thus, the MSRB believes that the proposed rule change does not
compromise municipal entity protection, and may in fact bolster issuer
protection, by providing more actionable information to issuers,
because issuers would continue to receive timely information about all
material conflicts of interest that are present during the course of
the transaction, and, more importantly, the revised standard eliminates
some of the uncertainty regarding how an issuer should evaluate an
underwriter's conflicts disclosure. Specifically, if the underwriter
provides a material conflict disclosure to an issuer, then, under the
Revised Interpretive Notice, the issuer is certain that the material
conflict is actually present and/or reasonably likely to be present
during the course of the transaction, rather than a mere hypothetical
potential conflict. Thereby, issuers will benefit by not expending time
and resources in distinguishing likely dealer conflicts from unlikely
conflicts, or otherwise evaluating potential material conflicts of
interest that are not reasonably likely to materialize during the
course of the transaction.
v. Clarify That Underwriters Are Not Obligated To Provide Written
Disclosures Regarding the Conflicts of Other Parties to the Transaction
    The proposed rule change would remove impediments to and perfect
the mechanism of a free and open market by amending the 2012
Interpretive Notice to clarify that underwriters are not obligated to
provide written disclosures regarding the conflicts of issuer personnel
or other parties to the transaction as part of the standard
disclosures, dealer-specific disclosures, or the transaction-specific
disclosures. The 2012 Interpretive Notice does not expressly state this
fact, although the MSRB understands that the 2012 Interpretive Notice
by its terms was not intended to create such a burden of written
disclosure. Accordingly, the amendments providing this technical
clarification in the Revised Interpretive Notice would reduce ambiguity
regarding the nature of disclosures to be made under the 2012
Interpretive Notice and, thereby, reduce the burden on dealers that may
be operating with such ambiguity.
vi. Clarify That Disclosures Must Be Clear and Concise
    The proposed rule change would remove impediments to and perfect
the mechanism of a free and open market by amending the 2012
Interpretive Notice to clarify that disclosures must be made in a clear
and concise manner. These amendments promote equitable principles of
trade and the removal of impediments to and perfection of the mechanism
of a free and open market by granting underwriters clarity regarding
the standard by which the disclosures will be evaluated. The 2012
Interpretive Notice does not currently express this standard by its
terms, although the MSRB understands that this standard is consistent
with the 2012 Interpretive Notice. Accordingly, providing this
technical clarification in the Revised Interpretive Notice would reduce
ambiguity regarding the application of the 2012 Interpretive Notice
and, thereby, reduce the burden on dealers that may be operating with
such ambiguity.

C. Require an Additional Standard Disclosure Regarding the Engagement
of Municipal Advisors

    The proposed rule change would prevent fraudulent and manipulative
acts and practices and promote the protection of municipal entity
issuers by amending the 2012 Interpretive Notice to require
underwriters to incorporate a new standard disclosure that ``the issuer
may choose to engage the services of a municipal advisor with a
fiduciary obligation to represent the issuer's interests in the
transaction.'' This proposed change would augment current disclosures
by further emphasizing to an issuer the arm's-length, commercial nature
of the underwriting relationship and expressly informing the issuer
that it may obtain the advice of a municipal advisor, who serves as a
fiduciary to the issuer, rather than relying solely upon the advice of
an underwriter, who may have commercial interests that differ from the
issuer's best interests.

D. Permit Email Read Receipt To Serve as Issuer Acknowledgement

    Finally, the proposed rule change would remove impediments to and
perfect the mechanism of a free and open market, and facilitate
transactions in municipal securities, by amending the 2012 Interpretive
Notice under Rule G-17 to permit an email read receipt to serve as the
issuer's acknowledgement

of receipt of the applicable disclosures. For purposes of the Revised
Interpretive Notice, the term ``email read receipt'' would mean an
automatic response generated by a recipient issuer official confirming
that an email has been opened. This amendment would remove impediments
to and perfect the mechanism of a free and open market by improving the
efficiency of the disclosure process by allowing underwriters to seek,
and issuers to provide, acknowledgement electronically through the
built-in, automatic process of an email system. In those instances
where a municipal entity is familiar with an underwriter's disclosures,
because, for example, it frequently utilizes the underwriter in the
sale of its municipal securities, the issuer can choose to affirm an
email read receipt to provide electronic acknowledgement of receipt of
the underwriter's disclosures, rather than taking the additional time
to recognize such receipt by, for example, returning a signature
execution of a hard copy acknowledgement.\57\ This potential for
increased efficiency and added flexibility removes impediments to and
perfects the mechanism of a free and open market, and facilitates
transactions in municipal securities, by flexibly permitting
underwriters and issuers to utilize additional electronic methods to
seek and provide, respectively, acknowledgements in a less-burdensome
manner.\58\
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    \57\ The MSRB understands that personnel of certain frequent
issuers may desire more flexible methods to provide acknowledgment
of receipt. See, e.g., NAMA Letter I, at p. 2 (``Issuers currently
acknowledge receiving disclosures from underwriters. This practice
should continue, and should allow for issuers to execute
acknowledgment as they see fit.'').
    \58\ Id.
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    Moreover, an email read receipt enables an issuer to respond to an
underwriter's request for an acknowledgement that more efficiently
ensures the issuer is only providing an acknowledgement of receipt,
rather than agreeing to legal terms beyond receipt confirmation. The
MSRB understands that issuers can be hesitant to provide a signature
acknowledgement to a hard-copy receipt of disclosures out of an
abundance of caution that providing such a signature may be an
execution of legal terms beyond the acknowledgement of receipt, and,
relatedly, issuers oftentimes seek legal counsel before providing a
signature acknowledgement in such circumstances to ensure that the
execution of an underwriter disclosure does not legally bind them to
any terms. Allowing for an email read receipt to constitute
acknowledgement may help alleviate issuer concerns in such
circumstances and, thereby, save issuers from spending the time and
resources to more fully evaluate whether a hard copy execution of an
underwriter disclosure may legally commit an issuer to more than just a
mere acknowledgement of having received a disclosure. Accordingly, the
proposed rule change would eliminate the need for underwriters to
repeatedly request a hard-copy, signature execution of an
acknowledgement from an issuer in such circumstances where the issuer
has determined not to provide such a hard-copy execution, but will
provide an email read receipt, and also would eliminate the need for
issuers to respond to such repeated underwriter requests for hard-copy
acknowledgements.\59\ This potential reduction in issuer and
underwriter burdens removes impediments to and perfects the mechanism
of a free and open market, and facilitates transactions in municipal
securities, by enabling the more efficient execution of municipal
securities transactions.
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    \59\ The FAQs provide that, ``[i]f an authorized issuer official
agrees to proceed with the underwriting after receipt of the
disclosures but will not provide a written acknowledgment, an
underwriter must document specifically why it was unable to obtain
such written acknowledgment.'' The MSRB understands that some
underwriters will repeatedly ask for an issuer's acknowledgement,
despite having been told no such acknowledgement will be provided,
in order to comply with this guidance.
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    At the same time, the MSRB believes that this proposed amendment
would not compromise municipal entity issuer protection, because
underwriters would be required under the Revised Interpretive Notice to
attempt to receive written acknowledgement by an official identified as
the issuer's primary contact for the receipt of such disclosures. Thus,
under the Revised Interpretive Notice, if an underwriter wanted to rely
on an email read receipt as written acknowledgement, then the
underwriter would have a fair dealing obligation to receive the email
read receipt from a specific official identified as the issuer's
primary contact for the receipt of such disclosures. In the absence of
such an issuer's designation of a primary contact, the underwriter
would have a fair dealing obligation to receive an email read receipt
from an issuer official that the underwriter reasonably believes has
authority to bind the issuer by contract with the underwriter.
Moreover, the Revised Interpretive Notice would not permit an
underwriter to rely on an email read receipt as an issuer's
acknowledgement where such reliance is unreasonable under all of the
facts and circumstances, such as where the underwriter is on notice
that the issuer official to whom the email is addressed has not in fact
received or opened the email.
    The electronic delivery of the disclosures to such an official in
either scenario (i.e., in a scenario in which an issuer has identified
a specific primary contact, or in the alternative scenario in which no
such identification has been made by an issuer, and, so, the
underwriter must make a reasonable determination about an issuer
official with the requisite authority) ensures that the issuer's
decision of whether to provide acknowledgement by means of an email
read receipt is made by an official with the authority and ability to