[Federal Register Volume 88, Number 64 (Tuesday, April 4, 2023)]
[Notices]
[Pages 20004-20014]
[FR Doc No: 2023-06899]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97218; File No. SR-MSRB-2023-02]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Create New MSRB Rule G-46, on Duties of Solicitor
Municipal Advisors, and To Amend MSRB Rule G-8, on Books and Records

March 29, 2023.

I. Introduction

    On January 31, 2023, the Municipal Securities Rulemaking Board
(``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule
19b-4 thereunder,\2\ a proposed rule change to create a new rule, MSRB
Rule G-46 (``Rule G-46''), on duties of solicitor municipal advisors
(``Proposed Rule G-46'') and amend MSRB Rule G-8 (``Rule G-8''), on
books and records (``Proposed Amended Rule G-8'') (together, the
``proposed rule change'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal
Register on February 14, 2023.\3\ The public comment period closed on
March 7, 2023.\4\ The Commission received one comment letter on the
proposed rule change.\5\ On March 23, 2023, the MSRB responded to the
comment letter \6\ and filed Amendment No. 1 to the proposed rule
change (``Amendment No. 1'').\7\ The Commission is publishing this
notice to solicit comments on Amendment No. 1 to the proposed rule
change from interested parties and is approving the proposed rule
change, as modified by Amendment No. 1, on an accelerated basis.
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    \3\ Release No. 34-96842 (February 8, 2023), 88 FR 9560
(February 14, 2023) (File No. MSRB-2023-02) (the ``Notice'').
    \4\ The comment letter received on the proposed rule change is
available on the Commission's website at https://www.sec.gov.
    \5\ See Letter to Secretary, from Leslie Norwood, Managing
Director and Associate General Counsel, Securities Industry and
Financial Markets Association (``SIFMA''), dated March 7, 2023
(``SIFMA Letter'').
    \6\ See Letter to Secretary, Commission, from Saliha Olgun,
Interim Chief Regulatory Officer, MSRB, dated March 23, 2023
(``Response Letter'').
    \7\ Id. As described in Amendment No. 1, the MSRB stated it
proposed to amend the original proposed rule change to make a change
directly responsive to the comments and two other technical changes.
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II. Description of Proposed Rule Change

    As described further below, the proposed rule change consists of
new Proposed Rule G-46, as modified by Amendment No. 1, and amendments
to Rule G-8.

A. Solicitor Municipal Advisor Activity

    There are two broad categories of municipal advisors--those that
provide certain advice to or on behalf of a municipal entity or
obligated person and those that undertake certain solicitations of a
municipal entity or obligated person on behalf of certain third-party
financial professionals.\8\ The first category of municipal advisors is
often referred to as non-solicitor municipal advisors, while the latter
is sometimes referred to as solicitors.\9\

Proposed Rule G-46 would govern the conduct of these solicitors, more
specifically defined as ``solicitor municipal advisors'' under Proposed
Rule G-46(a)(vi).\10\
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    \8\ Exchange Act Section 15B(e)(4) generally defines ``municipal
advisor'' to mean a person (who is not a municipal entity or an
employee of a municipal entity) that (i) provides advice to or on
behalf of a municipal entity or obligated person with respect to
municipal financial products or the issuance of municipal
securities, including advice with respect to the structure, timing,
terms, and other similar matters concerning such financial products
or issues; or (ii) undertakes a solicitation of a municipal entity.
Additionally, the SEC has interpreted the definition of ``municipal
advisor'' to include a person who engages in the solicitation of an
obligated person acting in the capacity of an obligated person. 15
U.S.C. 78o-4(e)(4). See also Release No. 34-70462 (September 20,
2013), 78 FR 67468 (November 12, 2013) (File No. S7-45-10) at 67469,
n. 138, 408; 17 CFR 240.15Ba1-1(d)(1)(i).
    \9\ Exchange Act Section 15B(e)(9) generally defines
``solicitation of a municipal entity or obligated person'' to mean a
direct or indirect communication with a municipal entity or
obligated person made by a person, for direct or indirect
compensation, on behalf of a broker, dealer, municipal securities
dealer, municipal advisor, or investment adviser that does not
control, is not controlled by, or is not under common control with
the person undertaking such solicitation for the purpose of
obtaining or retaining an engagement by a municipal entity or
obligated person of a broker, dealer, municipal securities dealer,
or municipal advisor for or in connection with municipal financial
products, the issuance of municipal securities, or of an investment
adviser to provide investment advisory services to or on behalf of a
municipal entity. 15 U.S.C. 78o-4(e)(9).
    \10\ Notice, 88 FR at 9561.
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    Although the Exchange Act \11\ permits a municipal advisor to
conduct such solicitations on behalf of a third-party broker, dealer or
municipal securities dealer (collectively and individually
``dealers''),\12\ MSRB Rule G-38 (``Rule G-38''), on solicitation of
municipal securities business, prohibits a dealer from providing or
agreeing to provide payment to third parties for solicitations of
municipal securities business made on behalf of the dealer.\13\
Additionally, the MSRB stated that a substantial number of
solicitations that would be subject to Proposed Rule G-46 involve a
solicitation on behalf of a third-party investment adviser to provide
investment advisory services to a municipal entity.\14\ The MSRB noted
that such solicitations often occur in connection with the solicitation
of a public pension plan.\15\ For example, the MSRB offered that, if a
person communicates with a public pension plan for the purpose of
getting a particular investment advisory firm hired by the plan to
provide investment advisory services to such plan, that person may be a
solicitor municipal advisor if such person is paid by the investment
advisory firm for the communication and if such person and the
investment advisory firm are not affiliated.\16\
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    \11\ See 15 U.S.C. 78o-4(e)(4) and (e)(9).
    \12\ See 15 U.S.C. 78c(a)(4)(a) (defining the term ``broker'' to
mean any person engaged in the business of effecting transactions in
securities for the account of others); see also 15 U.S.C. 78c(a)(5)
(defining the term ``dealer'' to mean any person engaged in the
business of buying and selling securities (not including security-
based swaps, other than security-based swaps with or for persons
that are not eligible contract participants) for such person's own
account through a broker or otherwise) and 15 U.S.C. 78c(a)(30)
(defining the term ``municipal securities dealer'' to mean any
person (including a separately identifiable department or division
of a bank) engaged in the business of buying and selling municipal
securities for his own account, through a broker or otherwise,
subject to certain exclusions).
    \13\ The prohibition in Rule G-38 predates the regulation of
municipal advisors. See Release No. 34-52278 (August 17, 2005), 70
FR 49342 (August 23, 2005) (File No. MSRB-2005-04).
    \14\ Notice, 88 FR at 9561.
    \15\ Id.
    \16\ Id.
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    The MSRB also stated the number of municipal advisors that engage
in solicitations that may subject them to Proposed Rule G-46 comprise a
relatively small percentage of the municipal advisors that are
registered with the MSRB.\17\ Notwithstanding the relatively small size
of such solicitation market, the MSRB argued that it is important that
the fundamental protections extended to the municipal entity and
obligated person clients of other MSRB-regulated entities be extended
to the municipal entities and obligated persons with whom solicitor
municipal advisors interact.\18\ Due to such increased protections
contemplated by the proposed rule change, the MSRB concluded that the
proposed rule change would serve as an important bulwark against
potential improper practices in the municipal market and also would
provide greater certainty and transparency to solicitor municipal
advisors regarding regulatory expectations.\19\
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    \17\ Id.
    \18\ Id.
    \19\ Notice, 88 FR at 9562.
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    With respect to solicitations on behalf of third parties to provide
investment advisory services, the MSRB stated that there are two ways
(discussed below) in which a solicitor municipal advisor typically may
solicit a municipal entity: (1) directly or (2) through an
intermediary.\20\
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    \20\ Id.
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1. Direct Solicitations
    The MSRB identified that a solicitor municipal advisor often first
communicates with a staff member of the solicited entity (i.e., the
municipal entity or obligated person) who handles investment manager
research for the entity.\21\ The MSRB further described that this
individual generally is responsible for evaluating the solicitor
client's product/services to ensure they are appropriate for the entity
given the entity's investment policy statement guidelines and
restrictions.\22\ The MSRB elaborated that this first communication
potentially is one of many that may span years.\23\ Additionally, the
MSRB further observed the solicitor municipal advisor's client likely
will have its own communications with the solicited entity, which may
include board presentations, meetings and discussions during which the
solicitor municipal advisor may or may not be present.\24\
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    \21\ Id.
    \22\ Id.
    \23\ Id.
    \24\ Id.
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2. Indirect Solicitations Through an Intermediary
    The MSRB explained that a solicitor municipal advisor typically
initially will solicit a financial intermediary or an investment
consultant (collectively ``intermediary'') who is hired by the
solicited entity to conduct searches and identify appropriate
investment managers to meet a municipal entity's specific need.\25\
Such intermediary itself may be a solicitor municipal advisor.
According to the MSRB, when a solicitor municipal advisor first
solicits the intermediary, the solicitor municipal advisor may not
necessarily know who the intermediary represents (i.e., whether the
intermediary represents municipal entities, obligated persons, other
private entities, or all of the above).\26\ Additionally, the MSRB
noted that the solicitor municipal advisor generally will not know
whether the intermediary will recommend the solicitor municipal
advisor's client to the intermediary's municipal entity client(s) (if
any). As a result, at the time of the first solicitation, the MSRB
stated that a solicitor municipal advisor may not know if it is
indirectly soliciting a municipal entity.\27\ The MSRB noted that
moreover, the solicitor municipal advisor's client (e.g., the
investment adviser) may engage in multiple subsequent communications
with either the intermediary and/or the intermediary's client (e.g.,
the municipal entity or obligated person), during which the solicitor
municipal advisor may or may not be present.\28\ In some instances, the
solicitor municipal advisor may never meet or directly communicate with
an intermediary's municipal entity or obligated person client.\29\
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    \25\ Id.
    \26\ Id.
    \27\ Id.
    \28\ Id.
    \29\ Id.
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B. Summary of Proposed Rule G-46

    As described in further detail below and in the Notice, the MSRB
stated that Proposed Rule G-46 would establish the core standards of
conduct and duties of ``solicitor municipal advisors'' when engaging in
solicitation activities that would require them to register with the
SEC and the MSRB as municipal advisors.\30\ The MSRB also noted that
Proposed Rule G-46 would codify certain statements contained in an MSRB
notice issued in 2017 pertaining

to the application of MSRB rules to solicitor municipal advisors.\31\
Those statements relate to the obligation of solicitor municipal
advisors under MSRB Rule G-17 (``Rule G-17''), on conduct of municipal
securities and municipal advisory activities (the ``G-17 Excerpt for
Solicitor Municipal Advisors'').\32\ In addition to codifying much of
the substance of the G-17 Excerpt for Solicitor Municipal Advisors, the
MSRB stated that the Proposed Rule G-46 also would add additional
requirements that would better align some of the obligations imposed on
solicitor municipal advisors with those applicable to: non-solicitor
municipal advisors under MSRB Rule G-42 (``Rule G-42''), on duties of
non-solicitor municipal advisors; underwriters under Rule G-17, on fair
dealing; and certain solicitations undertaken on behalf of third-party
investment advisers under the SEC's marketing rule for investment
advisers (the ``IA Marketing Rule'' or ``IA Rule 206(4)-1'').\33\
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    \30\ Id.
    \31\ See MSRB Regulatory Notice 2017-08, Application of MSRB
Rules to Solicitor Municipal Advisors (May 4, 2017), available at
https://www.msrb.org/sites/default/files/2017-08.pdf (``Regulatory
Notice 2017-08'').
    \32\ Notice, 88 FR at 9562.
    \33\ 17 CFR 275.206(4)-1; Notice, 88 FR at 9562.
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    In summary, the MSRB stated that the core provisions of Proposed
Rule G-46 generally would:
     Set forth definitions for terms used in the proposed rule;
\34\
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    \34\ Notice, 88 FR at 9562.
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     Require solicitor municipal advisors to provide to their
solicitor clients full and fair disclosure in writing of all of their
material conflicts of interest and material legal or disciplinary
events; \35\
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    \35\ Id.
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     Require solicitor municipal advisors to document their
relationships in writing(s), deliver such writing(s) to their solicitor
clients, and set forth certain minimum content that must be included in
such writing(s); \36\
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    \36\ Id.
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     Prohibit solicitor municipal advisors from making a
representation that the solicitor municipal advisor knows or should
know is either materially false or misleading regarding the capacity,
resources or knowledge of the solicitor client and require solicitor
municipal advisors to have a reasonable basis for any material
representations it makes to a solicited entity regarding the capacity,
resources or knowledge of the solicitor client; \37\
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    \37\ Id.
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     Require solicitor municipal advisors to disclose to
solicited entities material facts about the solicitation, including but
not limited to an obligation to disclose information about the
solicitor municipal advisor's role and compensation, the solicitor
municipal advisor's material conflict of interest; and information
regarding the solicitor client; \38\
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    \38\ Id.
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     Set forth a dual disclosure standard with respect to
required disclosures to solicited entities; \39\ and
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    \39\ Notice, 88 FR at 9563.
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     Expressly prohibit solicitor municipal advisors from:
delivering an inaccurate invoice for fees or expenses and making
payments for the purpose of obtaining or retaining an engagement to
perform municipal advisory activities subject to exceptions specified
in the rule.\40\
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    \40\ Id.
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    The MSRB stated that the supplementary material to Proposed Rule G-
46 generally would:
     Provide additional explanation regarding the MSRB's
expectations with respect to the reasonable basis a solicitor municipal
advisor must have for certain of its representations; \41\
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    \41\ Id.
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     Explain the relationship between a solicitor municipal
advisor's fair dealing obligations and a federal fiduciary duty for
municipal advisors; \42\
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    \42\ Id.
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     Explain the relationship between a municipal advisor's
obligations under Proposed Rule G-46 and Rule G-42; \43\ and
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    \43\ Id.
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     Provide additional explanation applicable to a solicitor
municipal advisor's obligation to document its compensation arrangement
and make related disclosures.\44\
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    \44\ Id.
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1. Definitions
    The MSRB explained that Proposed Rule G-46(a) would set forth a set
of definitions for terms used in the rule.\45\ In the proposed rule
change, the MSRB would define the terms ``compensation,'' \46\
``excluded communications,'' \47\ ``solicitation,'' ``solicited
entity,'' ``solicitor client,'' ``solicitor municipal advisor,'' and
``solicitor relationship.'' \48\ As detailed below, the MSRB identified
that several of these definitions are integral to understanding nearly
all of the provisions of Proposed Rule G-46, and the MSRB discussed
each of these definitions in fuller detail and context.
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    \45\ Id.
    \46\ Id. Proposed Rule G-46(a)(i) generally would provide that
``compensation'' means any cash, in-kind or non-cash remuneration,
including but not limited to merchandise, gifts, travel expenses,
meals and lodging. Notice, 88 FR at 9563, n.17.
    \47\ Notice, 88 FR at 9563. Proposed Rule G-46(a)(ii) generally
would provide that ``excluded communications'' means (A) advertising
by a dealer, municipal advisor, or investment adviser; (B) direct or
indirect communications with an obligated person if such obligated
person is not acting in the capacity of an obligated person; (C)
direct or indirect communications with an obligated person made for
the purpose of obtaining or retaining an engagement that is not in
connection with the issuance of municipal securities or with respect
to municipal financial products; and (D) direct or indirect
communications made for the purpose of obtaining or retaining an
engagement for or in connection with municipal financial products
that are investment strategies to the extent that those investment
strategies are not plans or programs for the investment of the
proceeds of municipal securities or the recommendation of and
brokerage of municipal escrow investments. Notice, 88 FR at 9563,
n.18. The term ``excluded communications'' is used in the term
``solicitation,'' which would be defined in Proposed Rule G-
46(a)(iii). Id.
    \48\ Notice, 88 FR at 9563. Proposed Rule G-46(a)(vii) generally
would provide that, for purposes of the rule, a ``solicitor
relationship'' is deemed to exist when a municipal advisor enters
into an agreement to undertake a solicitation of a municipal entity
or obligated person within the meaning of Exchange Act Section
15B(e)(9) and the rules and regulations thereunder. Notice, 88 FR at
9563, n.19. The solicitor relationship shall be deemed to have ended
on the date which is the earlier of (i) the date on which the
solicitor relationship has terminated pursuant to the terms of the
documentation of the solicitor relationship required by Proposed
Rule G-46(c) or (ii) the date on which the solicitor municipal
advisor withdraws from the solicitor relationship. Id.
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    The MSRB noted that Proposed Rule G-46(a)(iii) generally would
define the term ``solicitation'' to mean a direct or indirect
communication with a municipal entity or obligated person made by a
solicitor municipal advisor, for direct or indirect compensation, on
behalf of a municipal advisor or investment adviser that does not
control, is not controlled by, or is not under common control with the
solicitor municipal advisor for the purpose of obtaining or retaining
an engagement by a municipal entity or obligated person of a municipal
advisor for or in connection with municipal financial products or the
issuance of municipal securities or of an investment adviser to provide
investment advisory services to or on behalf of a municipal entity;
provided, however, that it does not include excluded communications, as
defined in Proposed Rule G-46(a)(ii).\49\ The MSRB stated that this
definition is consistent with the defined term ``solicitation of a
municipal entity or obligated person'' under Exchange Act Section
15B(e)(9), except to the extent that the term ``solicitation'' under
Proposed Rule G-46(a)(iii) does not address solicitations undertaken on
behalf of a third-party dealer.\50\ The

MSRB stated that because Rule G-38 generally prohibits a dealer from
providing or agreeing to provide payment to third parties for
solicitations of municipal securities business made on behalf of the
dealer, Proposed Rule G-46 assumes that such solicitations do not
occur.\51\
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    \49\ Notice, 88 FR at 9563.
    \50\ Id.; 15 U.S.C. 78o-4(e)(9).
    \51\ Notice, 88 FR at 9563.
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    The MSRB wrote that Proposed Rule G-46(a)(iv) generally would
define the term ``solicited entity'' to mean any municipal entity or
obligated person (as those terms are defined in Exchange Act Sections
15B(e)(8) and (e)(10) \52\ and the rules and regulations thereunder)
that the solicitor municipal advisor has solicited, is soliciting or
intends to solicit within the meaning of Exchange Act Sections
15B(e)(4)(A)(ii) and (e)(9) \53\ and the rules and regulations
thereunder.\54\
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    \52\ 15 U.S.C. 78o-4(e)(8) and (e)(10).
    \53\ 15 U.S.C. 78o-4(e)(4)(A)(ii) and (e)(9).
    \54\ Notice, 88 FR at 9563.
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    The MSRB generally defined ``solicitor client'' in Proposed Rule G-
46(a)(v) to mean the municipal advisor or investment adviser on behalf
of whom the solicitor municipal advisor undertakes a solicitation
within the meaning of Exchange Act Sections 15B(e)(4)(A)(ii) and (e)(9)
\55\ and the rules and regulations thereunder.\56\ As the MSRB
previously noted, Proposed Rule G-46 presumes that solicitors do not
conduct paid solicitations on behalf of third-party dealers because of
the prohibition set forth in Rule G-38.\57\ As a result, the MSRB noted
that Proposed Rule G-46(a)(v)'s definition of ``solicitor client'' does
not include dealers as solicitor clients.\58\
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    \55\ Id.
    \56\ Id.
    \57\ Id.
    \58\ Id.
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    The MSRB generally defined ``solicitor municipal advisor'' in
Proposed Rule G-46(a)(vi) to mean, for purposes of the rule, a
municipal advisor within the meaning of Exchange Act Section 15B(e)(4)
\59\ and other rules and regulations thereunder.\60\ The MSRB further
provided that Proposed Rule G-46(a)(vi) shall exclude a person that is
otherwise a municipal advisor solely based on activities within the
meaning of Exchange Act Section 15B(e)(4)(A)(i) \61\ and the rules and
regulations thereunder.\62\ The MSRB stated that, generally, this means
that a solicitor municipal advisor is any municipal advisor that is not
a non-solicitor municipal advisor.\63\
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    \59\ 15 U.S.C. 78o-4(e)(4).
    \60\ Notice, 88 FR at 9563.
    \61\ 15 U.S.C. 78o-4(e)(4)(A)(i).
    \62\ Notice, 88 FR at 9563.
    \63\ Id.
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2. Disclosure to Solicitor Clients
    The MSRB noted that its Proposed Rule G-46(b) would require a
solicitor municipal advisor to provide to a client full and fair
disclosure in writing of all material conflicts of interest and any
legal or disciplinary event that would be material to a reasonable
solicitor client's evaluation of the solicitor municipal advisor or the
integrity of its management or advisory personnel.\64\ Further, the
MSRB stated that these disclosures must be provided prior to or upon
engaging in municipal advisory activities.\65\
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    \64\ Notice, 88 FR at 9563-64.
    \65\ Notice, 88 FR at 9564.
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    The MSRB stated that the Proposed Rule G-46(b) sets forth an
alternative to providing a narrative description of any such legal or
disciplinary events by permitting solicitor municipal advisors to
reference such information in certain other publicly available
information if the conditions specified in the rule are met.\66\ As a
result, the MSRB posited, solicitor municipal advisors (that are also
registered broker-dealers or investment advisers) would be permitted to
identify the specific type of event and make specific reference to the
relevant portions of the solicitor municipal advisor's Form BD or Form
ADV if the solicitor municipal advisor provides detailed information
specifying where the client may electronically access such forms.\67\
The MSRB noted that all other municipal advisors would be permitted to
identify the specific type of event and make specific reference to the
relevant portions of the solicitor municipal advisor's most recent
Forms MA or MA-I filed with the Commission if the solicitor municipal
advisor provides detailed information specifying where the client may
electronically access such forms.\68\
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    \66\ Id.
    \67\ Id. For example, a solicitor municipal advisor could direct
a solicitor client to FINRA's BrokerCheck system or the Investment
Adviser Public Disclosure website, as applicable; provided, that the
direction is accompanied by information as to how to retrieve the
firm's specific Form BD or Form ADV and specific reference to the
relevant portions of the applicable form. Notice, 88 FR at 9564,
n.26.
    \68\ Notice, 88 FR at 9564.
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3. Documentation of the Solicitor Relationship
    The MSRB explained that Proposed Rule G-46(c) would require a
solicitor municipal advisor to evidence each of its solicitor
relationships by a writing or writings created and delivered to the
solicitor client prior to, upon or promptly after the establishment of
the solicitor relationship.\69\ The writing(s) would be required to be
dated and include, at a minimum:
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    \69\ Id.
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     a description of the solicitation activities to be engaged
in by the solicitor municipal advisor on behalf of the solicitor client
(including the scope of the agreed-upon activities and a statement that
the scope of the solicitation is anticipated to include the
solicitation of municipal entities and/or obligated persons); \70\
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    \70\ Id.
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     the terms and amount of the compensation to be received by
the solicitor municipal advisor for such activities; \71\
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    \71\ Id.
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     the date, triggering event, or means for the termination
of the relationship, or, if none, a statement that there is none; \72\
and
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    \72\ Id.
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     any terms relating to withdrawal from the
relationship.\73\
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    \73\ Id.
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    The MSRB stated that the proposed obligation to document the
relationship is generally consistent with a non-solicitor municipal
advisor's obligation to document its municipal advisory relationship
with a client under Rule G-42(c).\74\ The MSRB argued that this
documentation obligation will help ensure that the solicitor client has
certain basic material information about the engagement including the
scope of agreed-upon activities and information pertaining to
compensation for such activities.\75\ The MSRB also posited that this
documentation obligation will assist examining authorities in
understanding the solicitation arrangement and will provide them with
necessary information to assist in evaluating a solicitor municipal
advisor's compliance with relevant obligations.\76\
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    \74\ Id. Rule G-42(c) generally requires a municipal advisor to
evidence each of its municipal advisory relationships by a writing
or writings created and delivered to the municipal entity or
obligated person client prior to, upon or promptly after the
establishment of the municipal advisory relationship. Notice, 88 FR
at 9564, n.28.
    \75\ Notice, 88 FR at 9564.
    \76\ Id.
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    The MSRB stated that a solicitor may be asked to solicit a broad
range of entities on behalf of a client of the solicitor.\77\ These
entities may include municipal entities, obligated persons and
corporate entities that are not

obligated persons.\78\ Although the MSRB observed that the solicitation
of municipal entities and obligated persons generally would require
compliance with Proposed Rule G-46 (to the extent the solicitation
would make the solicitor a ``municipal advisor''), the MSRB concluded
that the solicitation of an entity that is not a municipal entity or an
obligated person would not require such compliance.\79\ The MSRB stated
that in order to promote certainty as to the applicable regulatory
scheme for any engagement, that it is imperative for any engagement to
be documented in a writing that clearly indicates whether the
solicitation of municipal entities and/or obligated persons is
anticipated.\80\ The MSRB also concluded that information pertaining to
termination of the relationship or withdrawal from the relationship
will similarly assist both solicitor clients and examination and
enforcement authorities in understanding the scope of an
engagement.\81\
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    \77\ Id.
    \78\ Id.
    \79\ Id.
    \80\ Id.
    \81\ Id.
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    The MSRB stated that Supplementary Material .04 to Proposed Rule G-
46 would provide additional guidance with respect to the obligation to
document the terms and the amount of compensation to be received.\82\
Specifically, the MSRB provided that such guidance provides that the
documentation(s) must clearly describe the structure of the
compensation arrangement and the amount of compensation paid or to be
paid.\83\
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    \82\ Id.
    \83\ Id.
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4. Representations to Solicited Entities
    The MSRB explained that Proposed Rule G-46(d)(i) expressly would
prohibit a solicitor municipal advisor from making a representation
that the solicitor municipal advisor knows or should know is either
materially false or materially misleading due to the omission of a
material fact about the capacity, resources, or knowledge of the
solicitor client.\84\ The MSRB stated that this prohibition is similar
to a prohibition applicable to non-solicitor municipal advisors under
Rule G-42 except that, unlike with Rule G-42, the prohibition for
solicitor municipal advisors would not be limited to representations
that occur in response to requests for proposals or qualifications or
in oral presentations to a client or prospective client for the purpose
of obtaining or retaining an engagement for the solicitor client.\85\
The MSRB explained this assertion by offering its belief that all of
the solicitor municipal advisor's communications regarding the
capacity, resources or knowledge of the solicitor's clients are
expected to be for the purpose of obtaining or retaining an engagement
for their clients.\86\
---------------------------------------------------------------------------

    \84\ Id.
    \85\ Id.
    \86\ Notice, 88 FR at 9564-65.
---------------------------------------------------------------------------

    The MSRB wrote that Proposed Rule G-46(d)(ii) would require a
solicitor municipal advisor to have a reasonable basis for any material
representations it makes to a solicited entity regarding the capacity,
resources, or knowledge of the solicitor client.\87\ The MSRB noted
that solicited entities should be entitled to rely on the material
representations made by solicitor municipal advisors, as regulated
financial professionals hired for the purpose of soliciting business on
behalf of their clients, with respect to the qualifications of their
clients.\88\ The MSRB further asserted that such representations should
have some reasonable basis.\89\
---------------------------------------------------------------------------

    \87\ Notice, 88 FR at 9565.
    \88\ Id.
    \89\ Id. The MSRB noted that this obligation bears some analogy
to a non-solicitor municipal advisor's duty of care obligation to
have a reasonable basis for any advice provided to or on behalf of a
client pursuant to Rule G-42, Supplementary Material .01. Notice, 88
FR at 9565, n.30. While a non-solicitor municipal advisor provides
advice to or on behalf of its municipal entity and obligated person
clients, the MSRB stated that a solicitor municipal advisor solicits
municipal entities and obligated persons on behalf of its clients.
The MSRB concluded that, in both cases, the municipal advisor would
be required to have a reasonable basis for what are likely to be the
core material statements the municipal advisor was hired to provide
to municipal entities and obligated persons. Id.
---------------------------------------------------------------------------

    The MSRB stated that Supplementary Material .01 would provide
guidance on compliance with the reasonable-basis standard.\90\
Specifically, the MSRB stated that this supplementary material would
clarify that while a solicitor municipal advisor must have a reasonable
basis for the representations described in Proposed Rule G-46(d), the
solicitor municipal advisor is not required to actively seek out every
piece of information that may be relevant to such representations.\91\
---------------------------------------------------------------------------

    \90\ Notice, 88 FR at 9565.
    \91\ Id.
---------------------------------------------------------------------------

5. Disclosures to Solicited Entities
    The MSRB's Proposed Rule G-46(e) would require a solicitor
municipal advisor to disclose to any solicited entity all material
facts about the solicitation in the manner specified in section (f) of
the proposed rule.\92\ The MSRB wrote that this proposed change would
include an obligation to disclose certain information pertaining to the
solicitor municipal advisor's: (i) role and compensation; (ii)
conflicts of interest; and (iii) client.\93\
---------------------------------------------------------------------------

    \92\ Id.
    \93\ Id.
---------------------------------------------------------------------------

i. Role and Compensation Disclosures
    The MSRB stated that Proposed Rule G-46(e)(i) would require a
solicitor municipal advisor to disclose to any solicited entity the
solicitor municipal advisor's name; the solicitor client's name; the
type of business being solicited (i.e., municipal advisory business or
investment advisory services); the material terms of the solicitor
municipal advisor's compensation arrangement, including a description
of the compensation provided or to be provided, directly or indirectly,
to the solicitor municipal advisor for such solicitation; and payments
made by the solicitor municipal advisor to another solicitor municipal
advisor to facilitate the solicitation.\94\
---------------------------------------------------------------------------

    \94\ Id.
---------------------------------------------------------------------------

    The MSRB stated that Supplementary Material .04 would provide
additional guidance with respect to the obligation to disclose the
material terms of the solicitor municipal advisor's compensation
arrangement.\95\ Specifically, the MSRB noted that Proposed Rule G-
46(e)(i)(D) would require disclosure of at least the same information
as that required by Proposed Rule G-46(c)(ii), to the extent
material.\96\ However, Proposed Rule G-46(e)(i)(D) also may require the
disclosure of additional information, depending on the facts and
circumstances. For example, if the solicitor municipal advisor receives
indirect compensation for the solicitation, information pertaining to
the indirect compensation also must be disclosed.\97\
---------------------------------------------------------------------------

    \95\ Id.
    \96\ Id.
    \97\ Id.
---------------------------------------------------------------------------

    Additionally, the solicitor municipal advisor would be required to
disclose the following statements:
     In connection with its solicitation activities as a
municipal advisor, a solicitor municipal advisor does not owe a
fiduciary duty under Section 15B(c)(i) of the Exchange Act \98\ or MSRB
rules to the entities that it solicits and is not required by those
provisions to act in the best interests of such entities without regard
to the solicitor municipal advisor's own financial or other interests.
However, in connection with such solicitation activities, a solicitor
municipal advisor is required

to deal fairly with all persons, including both solicited entities and
the solicitor municipal advisor's clients; \99\ and
---------------------------------------------------------------------------

    \98\ Id.
    \99\ Id.
---------------------------------------------------------------------------

     A solicitor municipal advisor's primary role is to solicit
the solicited entity on behalf of certain third-party regulated
entities and the solicitor municipal advisor will be compensated for
its solicitation services by the solicitor municipal advisor's
client.\100\
---------------------------------------------------------------------------

    \100\ Id.
---------------------------------------------------------------------------

    The MSRB stated that these statements draw from analogous
disclosures that underwriters must make to their issuer clients
pursuant to Rule G-17,\101\ but are tailored to reflect the existence
of a federal fiduciary duty for non-solicitor municipal advisors and to
make clear that a solicitor municipal advisor's fair dealing
obligations apply in connection with its solicitation activities.\102\
---------------------------------------------------------------------------

    \101\ More specifically, the MSRB explained that these
disclosures include an obligation to disclose that: Rule G-17
requires an underwriter to deal fairly at all times with both
issuers and investors; 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 interests of the issuer without regard to its own
financial or other interests; and 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. Notice, 88
FR at 9565, n.32; see MSRB Interpretive Notice Concerning the
Application of MSRB Rule G-17 to Underwriters of Municipal
Securities (March 31, 2021) (the ``G-17 Underwriter's Guidance''),
available at https://www.msrb.org/Interpretive-Notice-Concerning-Application-MSRB-Rule-G-17-Underwriters-Municipal-Securities.
    \102\ Notice, 88 FR at 9565.
---------------------------------------------------------------------------

    The MSRB stated that Supplementary Material .02 to Proposed Rule G-
46 would expound on the relationship between Proposed Rule G-46 and the
fair dealing obligation under Rule G-17 and includes similar discussion
regarding application of the federal fiduciary duty to a solicitor
municipal advisor's solicitations of solicited entities.\103\ The MSRB
clarified, however, that this proposed change would specify that
solicitor municipal advisors may be subject to fiduciary or other
duties under state or other laws and that nothing in Proposed Rule G-46
shall be deemed to supersede any more restrictive provision of state or
other laws applicable to municipal advisory activities.\104\ Finally,
the MSRB described that Supplementary Material .02 would include a
cross reference to Supplementary Material .03 and would remind
solicitor municipal advisors that, to the extent they also engage in
non-solicitor municipal advisory activity, the requirements of Rule G-
42 will apply with respect to such activity and a federal fiduciary
duty will apply with respect to the municipal entity clients of the
municipal advisor.\105\
---------------------------------------------------------------------------

    \103\ Id.
    \104\ Id.
    \105\ Id.
---------------------------------------------------------------------------

ii. Conflicts Disclosures
    The MSRB stated that Proposed Rule G-46(e)(ii) would require a
solicitor municipal advisor to disclose any material conflicts of
interest, including but not limited to the fact that, because the
solicitor municipal advisor is compensated for its solicitation
efforts, it has an incentive to recommend its clients, resulting in a
material conflict of interest.\106\ The MSRB noted that a solicitor
municipal advisor also would be required to disclose any material
conflicts of interest, of which the solicitor municipal advisor is
aware after reasonable inquiry that could reasonably be anticipated to
impair the solicitor municipal advisor's ability to solicit the
solicited entity in accordance with its duty of fair dealing.\107\ The
MSRB stated that this obligation is comparable to a non-solicitor
municipal advisor's obligation under Rule G-42 to disclose to its
clients all material conflicts of interest, including any conflicts, of
which the municipal advisor is aware after reasonable inquiry, that
could reasonably be anticipated to impair the municipal advisor's
ability to provide advice to or on behalf of the client in accordance
with the standards set forth in the rule.\108\ The MSRB observed that
this proposed change is comparable to the obligation under the IA
Marketing Rule to disclose that a promoter, due to the fact that it is
compensated, has an incentive to recommend the investment adviser it
promotes, resulting in a material conflict of interest.\109\ The MSRB
concluded that disclosure of such conflict-of-interest information is
key to assisting a solicited entity in evaluating the solicitor
municipal advisor's statements and in determining whether to retain the
solicitor's client.\110\ In Amendment No. 1., the MSRB corrected a
typographical error (i.e., remove an errant ``'s'' from the rule text)
in proposed Rule G-46(e)(ii).\111\
---------------------------------------------------------------------------

    \106\ Notice, 88 FR at 9565-66.
    \107\ Notice, 88 FR at 9566.
    \108\ Id.; see Rule G-42(b)(i)(F).
    \109\ Notice, 88 FR at 9566.
    \110\ The MSRB offered the example that, without a specific
disclosure about a solicitor municipal advisor's incentives, a
solicitation creates a risk that the solicited entity would
mistakenly view the solicitor municipal advisor's recommendation as
being an unbiased opinion about the solicitor client's ability to,
for example, manage the solicited entity's assets, and would rely on
that recommendation more than the solicited entity otherwise would
if the solicited entity knew of the solicitor municipal advisor's
incentive. Id.
    \111\ Amendment No. 1.
---------------------------------------------------------------------------

iii. Solicitor Client Disclosures
    The MSRB wrote that Proposed Rule G-46(e)(iii) would require a
solicitor municipal advisor to provide to the solicited entity the
following information regarding the solicitor client the type of
information that is generally available on Form MA (in the case of a
municipal advisor client) or Form ADV, Part 2 (in the case of an
investment adviser client) or Form ADV, Part 2 (in the case of an
investment adviser client); and a description of how the solicited
entity can obtain a copy of the solicitor client's Form MA or Form ADV,
Part 2, as applicable.\112\
---------------------------------------------------------------------------

    \112\ Notice, 88 FR at 9566.
---------------------------------------------------------------------------

    The MSRB stated that these requirements are designed to help ensure
that, at any early stage, solicited entities are directed to important
written information about the entities the solicitor municipal advisor
represents--including, but not limited to, information about the
disciplinary history of the solicitor municipal advisor's clients.\113\
However, the MSRB provided that it does not require solicitor municipal
advisors to obtain a copy of these documents and provide them to their
solicited entities, nor does it require a solicitor municipal advisor
to disclose any specific information about the client that is included
in such forms.
---------------------------------------------------------------------------

    \113\ Id.
---------------------------------------------------------------------------

6. Timing and Manner of Disclosures to Solicited Entities
    The MSRB explained that Proposed Rule G-46(f), as modified by
Amendment No. 1., would provide that any disclosures required under
section (e) of the proposed rule (pertaining to disclosures to
solicited entities) must be made in writing.\114\ The MSRB also noted
the proposed rule would provide for a dual-disclosure requirement, such
that solicitations that result in a solicited entity engaging a
solicitor client would receive the requisite disclosures twice.\115\
Specifically, the MSRB explained that the solicited entity would
receive the disclosures once at the time of the first communication
giving rise to the solicitation and again at the time that engagement
documentation pertaining to the solicited entity's engagement of the
solicitor client is delivered (or promptly thereafter).\116\
---------------------------------------------------------------------------

    \114\ Id. See also Amendment No. 1.
    \115\ Notice, 88 FR at 9566.
    \116\ Id.

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

i. Initial Disclosure at the Time of the First Communication
    The MSRB stated that the disclosures would be required to be
delivered at the time of the first communication (as that term is used
in the definition of ``solicitation'') with a solicited entity on
behalf of a specific solicitor client.\117\ Specifically, the MSRB
wrote that the disclosures would be required to be provided to the
solicitor client representative with whom such communication is made.
In the case of an indirect solicitation--a solicitation of an
intermediary who represents a municipal entity or obligated person--the
MSRB expounded that disclosures must be provided to the intermediary
with whom such communication is made.\118\ In Amendment No. 1, the MSRB
made a technical correction to state that, at the time of such first
direct communication with a solicited entity on behalf of a specific
solicitor client, the requisite disclosures must be provided to the
solicited entity representative (rather than the solicitor client
representative as set forth in the Notice) with whom such communication
is made.\119\ Amendment No. 1 also corrected an errant cross-reference
in proposed Rule G-46(f)(i)
---------------------------------------------------------------------------

    \117\ Id.
    \118\ Id.
    \119\ Amendment No. 1.
---------------------------------------------------------------------------

ii. Second Disclosure at the Time of the Solicitor Client's Engagement
With the Solicited Entity
    The MSRB noted that if the solicitation results in a solicited
entity engaging a solicitor client for investment advisory services or
municipal advisory services, all disclosures required by Proposed Rule
G-46(e) would be required to be provided at the time that such
engagement documentation is delivered to the solicited entity or
promptly thereafter.\120\ The MSRB concluded that this is the case even
if there are no changes between the initial set of disclosures and the
second set of disclosures.\121\
---------------------------------------------------------------------------

    \120\ Notice, 88 FR at 9566.
    \121\ Id.
---------------------------------------------------------------------------

    The MSRB also described that the second set of disclosures may be
provided by either the solicitor client or the solicitor municipal
advisor.\122\ The MSRB wrote that this flexibility would permit, for
example, a solicitor municipal advisor's investment adviser client to
provide the solicitor's disclosures to the solicited entity at the time
that the investment adviser enters into an engagement with the
solicited entity.\123\ Further, the MSRB noted that these disclosures
would be required to be made to an official of the solicited entity
that: (1) the solicitor municipal advisor (or, the solicitor client, if
the solicitor client provides such disclosures) reasonably believes has
the authority to bind the solicited entity by contract; and (2) is not
a party to a disclosed conflict.\124\ The MSRB explained that these two
conditions would not apply to the initial delivery of disclosures.\125\
---------------------------------------------------------------------------

    \122\ Id.
    \123\ Id.
    \124\ Notice, 88 FR at 9566-67.
    \125\ Notice, 88 FR at 9567.
---------------------------------------------------------------------------

    The MSRB stated that this dual or bifurcated approach would help
ensure that the person that is initially solicited receives this key
information in time to consider it in connection with the initial
solicitation.\126\ However, the MSRB explained that, because such
person(s) may not have the authority to bind the solicited entity by
contract (particularly where such person is an intermediary between the
solicitor and the solicited entity), the MSRB would require the
disclosures to be provided again at the time of the engagement between
the solicited entity and the solicitor client (or promptly
thereafter).\127\ The MSRB posited that any risk associated with the
first disclosures not being passed on to a knowledgeable person with
the authority to bind the solicited entity in contract would be
mitigated by requiring that the disclosures are provided again at the
time of the engagement--this time, to someone who does have such
authority.\128\ Additionally, the MSRB noted that the MSRB has observed
that solicitations may sometimes span years, and particularly in such
instances, the MSRB concluded that it is important that the solicited
entity receives the disclosures again at the time of the solicitor
client's engagement with the solicited entity.\129\
---------------------------------------------------------------------------

    \126\ Id.
    \127\ Id.
    \128\ Id.
    \129\ Id.
---------------------------------------------------------------------------

7. Specified Prohibitions
    The MSRB stated that Proposed Rule G-46(g) expressly would prohibit
a solicitor municipal advisor from delivering an invoice for fees or
expenses for municipal advisory activities that is materially
inaccurate in its reflection of the activities actually performed or
the personnel that actually performed those activities; and making
payments for the purpose of obtaining or retaining an engagement to
perform municipal advisory activities.\130\ Specifically, the MSRB
wrote that solicitor municipal advisors would be prohibited from making
payments for the purpose of obtaining or retaining an engagement to
perform municipal advisory activities other than:
---------------------------------------------------------------------------

    \130\ Id.
---------------------------------------------------------------------------

     payments to an affiliate for a direct or indirect
communication with a municipal entity or obligated person on behalf of
the solicitor municipal advisor where such communication is made for
the purpose of obtaining or retaining an engagement to perform
municipal advisory activities; \131\
---------------------------------------------------------------------------

    \131\ Id.
---------------------------------------------------------------------------

     reasonable fees paid to another municipal advisor
registered as such with the Commission and the MSRB for making a
communication for the purpose of obtaining or retaining an engagement
to perform municipal advisory activities; \132\ and
---------------------------------------------------------------------------

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

     payments that are permissible ``normal business dealings''
as described in Rule G-20, on gifts, gratuities, non-cash compensation
and expenses of issuance.\133\
---------------------------------------------------------------------------

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

    The MSRB explained that that these specified prohibitions are
modeled on similar prohibitions applicable to non-solicitors under Rule
G-42(e)(i) and to a lesser degree would align with certain prohibitions
applicable to underwriters under the G-17 Underwriter's Guidance.\134\
---------------------------------------------------------------------------

    \134\ Id. See Rule G-42(e)(i); see also G-17 Underwriter's
Guidance at section titled, ``Underwriter Compensation and New Issue
Pricing.''
---------------------------------------------------------------------------

    In Amendment No. 1 the MSRB proposed to correct an errant internal
cross-reference in Proposed Rule G-46(g)(ii).\135\
---------------------------------------------------------------------------

    \135\ Amendment No. 1.
---------------------------------------------------------------------------

C. Proposed Rule G-46 Supplementary Material

    Proposed Rule G-46 would set forth four supplementary material
sections:
     Providing additional explanation regarding the MSRB's
expectations with respect to the reasonable basis a solicitor municipal
advisor must have for the representations described in Proposed Rule G-
46(d); \136\
---------------------------------------------------------------------------

    \136\ Notice, 88 FR at 9567.
---------------------------------------------------------------------------

     Explaining the relationship between a solicitor municipal
advisor's fair dealing obligations and the applicability of a federal
fiduciary duty for municipal advisors; \137\
---------------------------------------------------------------------------

    \137\ Id.
---------------------------------------------------------------------------

     Explaining the relationship between a municipal advisor's
obligations under Proposed Rule G-46 and Rule G-42; \138\ and
---------------------------------------------------------------------------

    \138\ Id.

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

     Providing additional detail regarding a solicitor
municipal advisor's compensation documentation and disclosure
obligations.\139\
---------------------------------------------------------------------------

    \139\ Id.
---------------------------------------------------------------------------

    The MSRB stated that Supplementary Material .03 explains that
municipal advisors should be mindful that one may be, simultaneously,
both a solicitor municipal advisor for purposes of Proposed Rule G-46
and a non-solicitor municipal advisor for purposes of Rule G-42.\140\
For example, the MSRB explained that a municipal advisor may provide
``advice'' as defined in Rule G-42 to a municipal entity (the
``advisory engagement'') and separately may act as a solicitor
municipal advisor with respect to that same municipal entity or another
municipal entity as contemplated in Proposed Rule G-46 (the ``solicitor
municipal advisor engagement'').\141\ The MSRB wrote that the municipal
advisor would be subject to Rule G-42 with respect to the advisory
engagement and would be subject to Proposed Rule G-46 with respect to
the solicitor municipal advisor engagement.\142\ The MSRB stated that
municipal advisors should evaluate the activity undertaken with respect
to each engagement to determine which rule governs and ensure the
written supervisory procedures required under Rule G-44 reflect
such.\143\
---------------------------------------------------------------------------

    \140\ Id.
    \141\ Id.
    \142\ Id.
    \143\ Id.
---------------------------------------------------------------------------

D. Proposed Amendments to MSRB Rule G-8

    The MSRB explained that proposed amendments to Rule G-8 would add
specific recordkeeping obligations designed to help facilitate and
document compliance with Proposed Rule G-46. Specifically, the MSRB
stated that these amendments would add new subsection (viii) requiring
solicitor municipal advisors to make and keep the following books and
records: \144\
---------------------------------------------------------------------------

    \144\ Id.
---------------------------------------------------------------------------

     evidence that the disclosures required by Proposed Rule G-
46(b) were made in the manner required by that section; \145\
---------------------------------------------------------------------------

    \145\ Id.
---------------------------------------------------------------------------

     a copy of each writing or writings required by Proposed
Rule G-46(c); \146\
---------------------------------------------------------------------------

    \146\ Id.
---------------------------------------------------------------------------

     documentation substantiating the solicitor municipal
advisor's reasonable basis for believing its representations as
described in Proposed Rule G-46(d) (e.g., a checklist confirming that
an investment adviser client's Form ADV was reviewed); \147\ and
---------------------------------------------------------------------------

    \147\ Id.
---------------------------------------------------------------------------

     evidence that the disclosures required by Proposed Rule G-
46(e) were made in the manner described in Proposed Rule G-46(f) (e.g.,
automatic email delivery receipt).\148\
---------------------------------------------------------------------------

    \148\ Id.
---------------------------------------------------------------------------

III. Summary of Comment Received and MSRB's Response

    The Commission received one comment letter on the proposed rule
change, as well as response from the MSRB to this comment letter. As
more fully described below, the SIFMA Letter argued that the proposed
MSRB Rule G-46 is unclear and unworkable in several areas, and
therefore, urged the SEC to disapprove the proposed rule.\149\ The
MSRB's Response Letter responded directly to each of these points.\150\
---------------------------------------------------------------------------

    \149\ SIFMA Letter at 1.
    \150\ See Response Letter.
---------------------------------------------------------------------------

Avoiding Unnecessary Regulation

    SIFMA explained that its members believe that the proposed rule
change is confusing and unnecessary, as many solicitor municipal
advisors are already regulated by the SEC pursuant to the Investment
Advisers Act.\151\ SIFMA also reiterated a request for the MSRB to
prohibit municipal advisors from paying third-party municipal advisors
for a solicitation of municipal advisory business.\152\ Finally, SIFMA
warned that solicitation of municipal advisors could ``create material
conflict of interest,'' and thereby, create circumstances leading to
corruption that ``could be damaging to the integrity of the municipal
securities market.'' \153\
---------------------------------------------------------------------------

    \151\ SIFMA Letter at 2.
    \152\ Id.
    \153\ Id.
---------------------------------------------------------------------------

    In its Response Letter, the MSRB stated that the proposed rule
change is designed to harmonize with relevant rules under comparative
regimes, including the regime for investment advisers.\154\ The MSRB
also indicated that the MSRB does not believe that the fact that some
solicitor municipal advisors are also investment advisers obviates the
need for regulation in their capacity as solicitor municipal
advisors.\155\ Further, the MSRB responded to SIFMA's conflict of
interest concerns by noting that, among other things, the proposed rule
change is designed to address these material conflicts of interest and
to provide some guardrails around such solicitation activities.\156\
The MSRB concluded that the proposed rule change's approach (as opposed
to the outright prohibition on paying solicitor municipal advisors for
their third-party solicitations of municipal advisory business) is
consistent with the apparent intent in the Dodd-Frank Act in granting
rulemaking authority to the MSRB over such conduct.\157\
---------------------------------------------------------------------------

    \154\ Response Letter at 2.
    \155\ Id.
    \156\ Id.
    \157\ Id.
---------------------------------------------------------------------------

Inadvertent Solicitations

    SIFMA further indicated that a safe harbor for inadvertent
solicitations is warranted because there confusion exists as to what
disclosures are due to which parties and when.\158\
---------------------------------------------------------------------------

    \158\ SIFMA Letter at 2.
---------------------------------------------------------------------------

    In response to SIFMA's concern, the MSRB explained that, as
described in Amendment No. 1, the MSRB made a technical correction to
the proposed rule change to correct a typographical error in Proposed
Rule G-46(f)(i)(A) that it believes may have inadvertently contributed
to any confusion.\159\ The MSRB identified that Amendment No. 1's
revisions clarify that, at the time of the first direct communication
with a solicited entity on behalf of a specific solicitor client, the
requisite disclosures must be provided to the solicited entity
representative (rather than the solicitor client representative as set
forth in the Notice) with whom such communication is made.\160\
Further, the MSRB explained that this prose is consistent with the
heading of section (f) of Proposed Rule G-46 (titled ``Timing and
Manner of Disclosures to Solicited Entities'').\161\
---------------------------------------------------------------------------

    \159\ Response Letter at 2.
    \160\ Id.
    \161\ Id.
---------------------------------------------------------------------------

    The MSRB described that the dual disclosure obligation set forth in
the proposed rule change require the following. For direct
solicitations of a solicited entity by a solicitor municipal advisor,
the MSRB stated that, at the time of the first solicitation, the
solicitor municipal advisor would be required to make the disclosures
required by Proposed Rule G-46(e) to the solicited entity
representative (i.e., the person actually solicited, such as an
employee of the solicited entity).\162\ The MSRB also noted that, if
that solicitation results in the solicited entity engaging the
solicitor client for investment advisory services or municipal advisory
services, all disclosures required by Proposed Rule G-46(e) would be
required to be provided again at the time that such engagement
documentation is delivered to the solicited entity or promptly

thereafter.\163\ The MSRB wrote that the same standard would apply for
indirect solicitations, except for the fact that, at the time of the
first solicitation, the disclosures would be required to be provided to
the intermediary with whom such communication is made.\164\
---------------------------------------------------------------------------

    \162\ Response Letter at 2-3.
    \163\ Response Letter at 3.
    \164\ Id.
---------------------------------------------------------------------------

    The MSRB stated that a solicitor municipal advisor may make
multiple solicitations of a solicited entity (sometimes spanning more
than one year) before a solicitation may result in a solicited entity
engaging a solicitor client.\165\ As a result, the MSRB concluded that
it is important that the disclosures set forth in Proposed Rule G-46(e)
are provided twice--once in connection with the initial solicitation so
that the solicitee can appropriately evaluate the disclosures in
connection with the solicitation and again at the time of the relevant
engagement when an official that is reasonably believed to have the
authority to bind the solicited entity by contract is guaranteed to
receive the disclosures.\166\
---------------------------------------------------------------------------

    \165\ Id.
    \166\ Id.
---------------------------------------------------------------------------

    Next, the MSRB asserted that, pursuant to Sections 15B(e)(4)(ii)
and (e)(9) of the Exchange Act,\167\ one meets the definition of a
``municipal advisor'' if, in relevant part, one undertakes a direct or
indirect communication with a municipal entity or obligated
person.\168\ Consequently, the MSRB deemed it consistent with a
regulated entity's supervisory and compliance obligations to expect
regulated entities to be cognizant of their communications and to put
into place appropriate processes to help them ascertain whether or not
they are engaging in municipal advisory activity.\169\ The MSRB
explained that, in the context of third-party solicitations, one such
mechanism may be to inquire of intermediaries whether they represent
municipal entities or obligated persons.\170\ The MSRB also noted that
nothing would prohibit a solicitor municipal advisor from, out of an
abundance of caution, providing the disclosures specified in Proposed
Rule G-46(e) to all intermediaries that the solicitor municipal advisor
solicits.
---------------------------------------------------------------------------

    \167\ 15 U.S.C. 78o-4(e)(4) and (e)(9).
    \168\ Response Letter at 3.
    \169\ Id.
    \170\ Id.
---------------------------------------------------------------------------

    After careful consideration, the MSRB stated that a safe harbor for
inadvertent solicitations is not warranted. The MSRB explained that,
consistent with the definition of ``municipal advisor'' under the
Exchange Act, to trigger the application of Proposed Rule G-46, a
solicitor municipal advisor must undertake the relevant solicitation
``for the purpose of obtaining or retaining'' an engagement between the
solicited entity and the solicitor client.\171\ Because this requires
affirmative intent, the MSRB deemed that a provision for
``inadvertent'' solicitations is not appropriate.\172\ To that end, the
MSRB concluded that the example set forth in the SIFMA Letter would
subject a firm to Proposed Rule G-46. If a firm initially solicits a
solicited entity on its own behalf, but the solicited entity
unilaterally chooses not to engage the firm and, instead, seeks to
engage a third-party investment adviser and the firm earns compensation
based on such engagement, the MSRB does not believe that the firm would
be subject to Proposed Rule G-46 if it has not solicited the solicited
entity for the purpose of obtaining or retaining an engagement on
behalf of that third-party investment adviser.\173\
---------------------------------------------------------------------------

    \171\ Exchange Act Section 15B(e)(9), 15 U.S.C. 78o-4(e)(9).
    \172\ Response Letter at 3.
    \173\ Response Letter at 3-4.
---------------------------------------------------------------------------

III. Discussion of Commission's Findings

    The Commission has carefully considered the proposed rule change,
the comment letter received, the MSRB Response Letter, and Amendment
No. 1. The Commission finds that the proposed rule change, as modified
by Amendment No. 1, is consistent with the requirements of the Exchange
Act, and the rules and regulations thereunder applicable to the MSRB.
    In particular, the Commission believes that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
provisions of Section 15B(b)(2)(C), which provides, in part, that the
MSRB's rules shall 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.\174\
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    \174\ 15 U.S.C. 78o-4(b)(2)(C).
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    The Commission finds that the proposed rule change, as modified by
Amendment No. 1, will: (i) prevent fraudulent and manipulative acts and
practices; (ii) foster cooperation and coordination among regulators;
and (iii) protect investors, municipal entities, obligated persons, and
the public interest.

A. Prevention of Fraudulent and Manipulative Acts and Practices

    The Commission finds that the proposed rule change, as modified by
Amendment No. 1, would help prevent fraudulent and manipulative acts
and practices.
    First, Proposed Rule G-46 would expressly prohibit solicitor
municipal advisors from making a representation that the solicitor
municipal advisor knows or should know is either materially false or
misleading regarding the capacity, resources or knowledge of the
solicitor client.\175\ Second, Proposed Rule G-46 would require
solicitor municipal advisors to have a reasonable basis for any
material representations the solicitor municipal advisor makes to a
solicited entity regarding the capacity, resources or knowledge of the
solicitor client.\176\ Third, Proposed Rule G-46 expressly would
prohibit solicitor municipal advisors from delivering an inaccurate
invoice for fees or expenses.\177\ The Commission believes that the
proposed rule change's prohibitions prevent either: (i) forms of
fraudulent and manipulative acts and practices themselves (e.g.,
materially false or misleading representations and inaccurate invoices
for fees or expenses) or (ii) behavior that could reasonably be
understood to accompany (or serve as indicia of) the commission of
fraudulent and manipulative acts and practices, if they are not
fraudulent and manipulative acts and practices themselves (e.g.,
lacking reasonable basis for a material representation). Furthermore,
the proposed Supplementary Materials to Rule G-46 provide explanations
of Proposed Rule G-46's prohibitions of fraudulent and manipulative
acts and practices. This increased clarity would increase the
effectiveness of such prohibitions by raising understanding of these
prohibitions among solicitor municipal advisors and the municipal
entities and obligated persons with whom they interact.
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    \175\ Notice, 88 FR 9568.
    \176\ Id.
    \177\ Id.
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    Additionally, Proposed Rule G-46 prohibit solicitor municipal
advisors from making payments for the purpose of obtaining or retaining
an engagement to perform municipal advisory activities

(subject to specified exceptions).\178\ Among other things, the
Commission finds that this prohibition would effectively require
solicitor municipal advisors to use only associated persons or other
regulated solicitor municipal advisors to obtain business on their
behalf. This proposed rule change would help ensure that only regulated
persons (who are subject to rules designed to prevent fraudulent and
manipulative acts and practices) may engage in solicitation activities
on behalf of a solicitor municipal advisor.
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    \178\ Id.
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    As such, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, helps prevent fraudulent and manipulative
acts and practices.

B. Fostering Cooperation and Coordination

    The Commission finds that the proposed rule change, as modified by
Amendment No. 1, would foster cooperation and coordination with persons
engaged in regulating transactions in municipal securities and
municipal financial products.
    Proposed Rule G-46 requires solicitor municipal advisors to
document their relationships in writing that includes certain minimum
content that is vital to the solicitor municipal advisor, its clients
and applicable regulators in understanding the material terms of an
engagement (including the scope of agreed-upon activities, information
pertaining to compensation for such activities and whether the
solicitation of municipal entities and/or obligated persons is
anticipated).\179\ Proposed Rule G-46's new documentation obligation
(and the Supplementary Materials to Rule G-46 explaining it) would help
promote certainty as to the applicable regulatory scheme for any
engagement since only solicitations of municipal entities and obligated
persons would be subject to Proposed Rule G-46, whereas other
solicitations may fall within the jurisdiction of the rules of other
regulators (e.g., the Commission or the Financial Industry Regulatory
Authority). By promoting certainty regarding the regulatory scheme
applicable to solicitor municipal advisors, the proposed rule change
will allow different regulators to operate with a common understanding
that these solicitations fall under the new regulatory regime for
solicitor municipal advisors.
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    \179\ Id.
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    Similarly, the Commission finds that proposed Rule G-46 and the
proposed amendments to Rule G-8 would assist regulators who examine
solicitor municipal advisors understand the solicitation arrangement
through both Proposed Rule G-46's documentation requirements, as well
as Rule G-8's requirements that such documentation be preserved in
solicitor municipal advisor's books and records.\180\ Furthermore,
these proposals would provide these regulators with necessary
information to assist in evaluating a solicitor municipal advisor's
compliance with relevant obligations.\181\ The Commission further
believes that the proposed amendments to Rule G-8 (with the ensuing
application of existing MSRB Rule G-9 on records preservation) would
help create an audit trail, assisting examination and enforcement
authorities in their examination for compliance with, and prosecution
of, these prohibitions.\182\
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    \180\ Id.
    \181\ Id.
    \182\ Notice, 88 FR at 9567-68.
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    As such, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, fosters cooperation and coordination among
persons engaged in regulating transactions in municipal securities and
municipal financial products.

C. Protection of Municipal Entities, Obligated Persons, and the Public
Interest

    The Commission believes that the proposed rule change, as modified
by Amendment No. 1, would protect municipal entities, obligated
persons, and the public interest.
    Specifically, Proposed Rule G-46 requires solicitor municipal
advisors to disclose in writing all of their material conflicts of
interest and material legal or disciplinary events to the entities that
determine whether to hire such solicitor municipal advisors.\183\ The
Commission finds that this requirement would increase solicitor
municipal advisor accountability and discourage conduct inconsistent
with a solicitor municipal advisor's obligations under Proposed Rule G-
46 because such conduct would be required to be disclosed in
information provided to clients. Specifically, the Commission finds
that a municipal entity or obligated person could view a solicitor
municipal advisor's disclosure of material conflict of interests and/or
disclosure of material legal or disciplinary events as a reason to
avoid retaining that solicitor municipal advisor. Therefore, the
Commission believes that a solicitor municipal advisors may try to
avoid such behavior to avoid losing future engagements. As such, the
Commission finds that the proposed rule change incentivizes firms to
refrain from behavior that could harm municipal entities and obligated
persons, and therefore, protect municipal entities, obligated persons,
and the public interest.
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    \183\ Notice, 88 FR at 9565-66.
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    The proposed rule change also would protect municipal entities,
obligated persons, and the public interest by setting forth obligations
applicable to solicitor municipal advisors similar to those applicable
to non-solicitor municipal advisors to their clients under Rule G-42.
Like non-solicitor municipal advisors, solicitor municipal advisors
would be required to: disclose their material conflicts of interest;
\184\ document their relationships in writing; \185\ and refrain from
certain conduct such as making certain materially false or misleading
representations,\186\ delivering a materially inaccurate invoice,\187\
and making certain payments for the purpose of obtaining or retaining
an engagement.\188\ Under Proposed Rule G-46, the protections provided
by these provisions would be provided to municipal entities and
obligated persons solicited by solicitor municipal advisors.
Furthermore, the proposed changes to Rule G-8 would mandate preserving
records related to Proposed Rule G-46; as such, Rule G-8 would
strengthening these new protections by compelling contemporaneous
documentation of compliance with them.
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    \184\ See Rule G-42(b)(i)(F).
    \185\ See Rule G-42(c) and Proposed Rule G-46(c).
    \186\ See Rule G-42(e)(i)(C) and Proposed Rule G-46(d)(i).
    \187\ See Rule G-42(e)(i)(B) and Proposed Rule G-46(g)(i).
    \188\ See Rule G-8 and Rule G-46.
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    As such, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, protects municipal entities, obligated
persons, and the public interest.
    In approving the proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation.\189\ Exchange Act Section
15B(b)(2)(C) \190\ requires that MSRB rules not be designed to impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Exchange Act. The Commission does not believe
the proposed rule change, as modified by Amendment No. 1, would impose
any new burden on competition as it would apply a regulatory regime
equally to all

solicitor municipal advisors (similar to the regime that currently
exists for non-solicitor municipal advisors under Rule G-42 and Rule G-
8 on recordkeeping, and for underwriters under the Rule G-17
Underwriter's Guidance).\191\ This consequence of the proposed rule
change, as modified by Amendment No. 1, would not burden competition.
Further, the Commission finds that on an ongoing year-by-year basis,
the additional regulatory burden imposed would be proportional to each
solicitor municipal advisory firm's size and business activities.
Accordingly, the Commission does not believe that the proposed rule
change, as modified by Amendment No. 1, would result in any additional
burden on competition that is not necessary or appropriate in in
furtherance of the purposes of the Exchange Act.
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    \189\ 15 U.S.C. 78c(f).
    \190\ 15 U.S.C. 78o-4(b)(2)(C).
    \191\ See Rules G-42; G-8; and G-17.
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    The Commission also finds that the proposed rule change, as
modified by Amendment No. 1, will not hinder capital formation. As
noted above, the proposed rule change brings a regulatory regime to
solicitor municipal advisors similar to the regimes that currently
exist for non-solicitor municipal advisors and underwriters. Therefore,
Commission finds that the proposed rule change would not negatively
impact the municipal securities market's operational efficiency.
    The Commission also finds that the proposed rule change includes
provisions that could help promote efficiency. As noted above, the
Commission believes that the proposed rule change would promote clearer
regulatory requirements for all solicitor municipal advisors.
    As noted above, the Commission received one comment letter on the
filing. The Commission believes that the MSRB, through its response and
Amendment No. 1, addressed the commenters' concerns. For the reasons
noted above, the Commission believes that the proposed rule change, as
modified by Amendment No. 1, is consistent with the Exchange Act.

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
is consistent with the Exchange Act. Comments may be submitted by any
of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-MSRB-2023-02 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2023-02. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the MSRB. All comments received
will be posted without change; the Commission does not edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2023-02 and should be
submitted on or before April 25, 2023.

VI. Accelerated Approval of Proposed Rule Change as Modified by
Amendment No. 1

    The Commission finds good cause for approving the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of notice of Amendment No. 1 in the Federal
Register. As noted by the MSRB, Amendment No. 1 does not raise any
significant issues with respect to the proposed rule change and only
provides a minor change to address an issue raised by the commenter and
other technical corrections. Further, the proposed rule change, as
modified by Amendment No. 1, is designed to ease burdens without
negatively affecting investors or the public interest.
    For the foregoing reasons, the Commission finds good cause for
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis, pursuant to Section 19(b)(2) of the Exchange Act.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\192\ that the proposed rule change (SR-MSRB-2023-02) be,
and hereby is, approved.
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    \192\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Office of Municipal Securities,
pursuant to delegated authority.\193\
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    \193\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-06899 Filed 4-3-23; 8:45 am]
BILLING CODE 8011-01-P