acts outside of the scope of authority of his or her position.\547\
---------------------------------------------------------------------------

    \547\ The exemption only applies ``to the extent such person is
acting within the scope of such person's official capacity'' or
``employment,'' as applicable. See Rule 15Ba1-1(d)(3)(ii).
---------------------------------------------------------------------------

ii. Responses to Requests for Proposals or Requests for Qualifications
    In the Proposal, the Commission requested comment about banks that
respond to municipal entities' RFPs regarding investment products
offered, such as money market mutual funds or other exempt
securities.\548\ The Commission received a number of comments regarding
responses to RFPs or RFQs by banks and other entities.\549\
---------------------------------------------------------------------------

    \548\ See Proposal, 76 FR 837.
    \549\ See also supra notes 421-423 and accompanying text
(discussing RFPs and RFQs in the context of the solicitation prong,
including whether a market professional's activities assisting a
municipal entity or obligated person in their selection of another
market professional as part of an RFP process constitute municipal
advisory activities); and infra Section III.A.1.c.vii. (discussing
the treatment of responses by attorneys to RFPs from municipal
entities and obligated persons).
---------------------------------------------------------------------------

    Several commenters stated that responses to RFPs and RFQs should
not require a person to register as a municipal advisor. For example,
one commenter suggested that, with respect to municipal derivatives,
responding to RFPs or RFQs from a municipal entity or obligated person
does not constitute ``advice.'' \550\ Similarly, another commenter
stated generally that certain

activities should be expressly excluded from the definition of
``advice,'' including responding to RFPs or RFQs and providing terms on
which a financial institution would be prepared to enter into a
transaction or purchase securities issued by a municipal entity.\551\
This commenter also stated that bid documents submitted in response to
a municipal entity's request for private financing proposals should not
constitute advice.\552\ Another commenter concurred that responses to
RFPs should not be treated as advice.\553\
---------------------------------------------------------------------------

    \550\ See BNY Letter.
    \551\ See Letter from Nick Butcher, Senior Managing Director,
Macquarie Capital Advisors, dated February 22, 2011 (``Macquarie
Letter'').
    \552\ See Macquarie Letter.
    \553\ See OCC Letter. This commenter stated, among other things,
that banks respond to RFPs on a competitive basis, and many
municipalities are required by statute to issue RFPs to banks for
their operating accounts. See id.
---------------------------------------------------------------------------

    The Commission has carefully considered the issues raised by
commenters on the Proposal and agrees that responses to RFPs or RFQs
alone do not constitute municipal advisory activities.\554\ Therefore,
the Commission is adopting Rule 15Ba1-1(d)(3)(iv), which exempts from
the definition of municipal advisor ``[a]ny person providing a response
in writing or orally to a request for proposals or qualifications from
a municipal entity or obligated person for services in connection with
a municipal financial product or the issuance of municipal securities;
provided however, that such person does not receive separate direct or
indirect compensation for advice provided as part of such response.''
\555\
---------------------------------------------------------------------------

    \554\ For a discussion of RFPs and RFQs in the context of the
solicitation prong, see supra notes 421-423 and accompanying text.
    \555\ The Commission notes that FINRA applies a similar approach
in connection with the application of its suitability rule to
broker-dealers. See FINRA Rule 2111. In a recent Regulatory Notice,
FINRA explained that, where a registered representative makes a
recommendation to purchase a security to a potential investor, the
suitability rule would apply to the recommendation if that
individual executes the transaction through the broker-dealer with
which the registered representative is associated or the broker-
dealer receives or will receive, directly or indirectly,
compensation as a result of the recommended transaction. See FINRA
Regulatory Notice 12-55. For purposes of the municipal advisor
registration rules, if a person is selected as a result of an RFP or
RFQ, any applicable law or rule (e.g., fair dealing, suitability,
fiduciary duty) will apply to that person's activities in the role
for which the person was selected.
---------------------------------------------------------------------------

    Responses to RFPs or RFQs are provided at the request of, and
established by, a municipal entity or obligated person as part of a
competitive process. Therefore, it is reasonable to believe that the
municipal entity or obligated person would understand that service
providers respond to RFPs and RFQs in order to obtain business and
would not rely on such responses as it would on advice from its
advisor. Further, persons who respond to RFPs or RFQs are likely to be
already regulated entities, such as registered municipal advisors,
brokers, dealers, or investment advisers. Accordingly, their responses
may be subject to fair dealing, suitability, or other standards.
Moreover, if a person is selected by a municipal entity or obligated
person as a result of an RFP or RFQ, such person could be required to
register as a municipal advisor for its subsequent activities.
    For the same reasons discussed above for other RFPs, the exemption
pursuant to Rule 15Ba1-1(d)(3)(iv) also includes responses to so-called
``mini-RFPs'' that might only be distributed to service providers that
have been pre-screened or pre-qualified by the municipal entity or
obligated person. For the exemption to apply, a person providing advice
in response to an RFP or RFQ may not be separately compensated for
advice given as part of the RFP or RFQ process. Further, the
compensation such person receives, if hired as a result of the RFP or
RFQ, is not direct or indirect compensation for the advice provided as
part of the RFP or RFQ. However, assisting with the preparation of an
RFP or RFQ on behalf of a municipal entity or obligated person, or
assisting in the selection of a broker-dealer, investment adviser, or
financial advisor as part of an RFP process, could constitute municipal
advisory activity. Specifically, in assisting in the preparation of an
RFP or RFQ, a person could provide advice with respect to the
parameters of such RFP or RFQ, such as the potential use of municipal
financial products or the issuance of municipal securities. Further, in
assisting in the selection of a broker-dealer, investment adviser, or
municipal advisor as part of an RFP process, a person could provide
advice with respect to the responses to the RFP, including responses
related to the use of municipal financial products or the issuance of
municipal securities.\556\
---------------------------------------------------------------------------

    \556\ A person assisting a municipal entity or obligated person
in selecting a broker-dealer, investment adviser, or financial
advisor as part of an RFP process established by the municipal
entity or obligated person would not, however, be considered to be
undertaking a solicitation for purposes of the definition of
municipal advisor in Rule 15Ba1-1(d)(1), because such person would
not be soliciting ``on behalf of'' such broker-dealer, investment
adviser, or financial advisor. See supra Section III.A.1.b.x.
(discussing generally solicitation of a municipal entity or
obligated person). See also Rule 15Ba1-1(n) (defining solicitation
of a municipal entity or obligated person).
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission finds it consistent with
the public interest, the protection of investors, and the purposes of
Section 15B of the Exchange Act, to use its authority pursuant to
Exchange Act Section 15B(a)(4) \557\ to exempt persons responding to
RFPs and RFQs from the definition of municipal advisor, subject to the
limitations described above.
---------------------------------------------------------------------------

    \557\ Pursuant to Section 15B of the Exchange Act, the
Commission may exempt any class of municipal advisors from any
provision of Section 15B or the rules and regulations thereunder, if
it ``finds that such exemption is consistent with the public
interest, the protection of investors, and the purpose of [Section
15B].'' See 15 U.S.C. 78o-4(a)(4).
---------------------------------------------------------------------------

iii. Municipal Entity or Obligated Person Represented by an Independent
Municipal Advisor
    In the Proposal, the Commission sought comment on whether it should
provide other exclusions from the definition of municipal advisor.\558\
Several commenters suggested that a person providing advice with
respect to municipal financial products or the issuance of municipal
securities should not be regulated as a municipal advisor if the
municipal entity or obligated person is otherwise represented by a
municipal advisor with respect to the transaction.\559\ One commenter
argued that the Commission should provide that a person will not be
regulated as a municipal advisor to a municipal entity or obligated
person if such municipal entity or obligated person is or will be
represented by an ``independent advisor'' that is a registered
municipal advisor (or that is eligible for an exception) and any
relevant documentation states that: (1) The person is not acting as an
``advisor;'' and (2) the municipal entity or obligated person is not
relying on any advisory communications from such person.\560\ According
to another commenter, ``when a municipality has engaged an independent
financial advisor in connection with a proposed transaction,
unaffiliated counterparties or potential counterparties to the
transaction should not be deemed to be providing advice to the
municipality as it has already elected an entity to fulfill that
role.'' \561\ Another commenter stated that, in most cases where a bank
is ``providing a municipal derivative or other bank products and
services to a municipal entity or obligated person, a third party

advisor is providing advice on the transaction to the municipal entity
or obligated person.'' \562\ This commenter suggested that the
existence of such a third party relationship should be viewed as
evidence that the municipal entity or obligated person is not relying
on the bank for advice.\563\
---------------------------------------------------------------------------

    \558\ See Proposal, 76 FR 838.
    \559\ See, e.g., SIFMA Letter I; letter from Adella M. Heard,
Senior Vice President and Assistant General Counsel, First Tennessee
Bank National Association, dated February 18, 2011 (``First
Tennessee Bank National Association Letter''); BNY Letter.
    \560\ See SIFMA Letter I.
    \561\ See First Tennessee Bank National Association Letter.
    \562\ See BNY Letter.
    \563\ See BNY Letter.
---------------------------------------------------------------------------

    The Commission has carefully considered these comments and is
adopting Rule 15Ba1-1(d)(3)(vi), which exempts from the municipal
advisor definition any person engaging in municipal advisory activities
in a circumstance in which a municipal entity or obligated person is
otherwise represented by an independent registered municipal advisor
with respect to the same aspects of a municipal financial product or an
issuance of municipal securities, provided that the following
requirements are met.\564\ First, an independent registered municipal
advisor must be providing advice with respect to the same aspects of
the municipal financial product or issuance of municipal securities as
the person seeking to rely on Rule 15Ba1-1(d)(3)(vi).\565\ For purposes
of Rule 15Ba1-1(d)(3)(vi), the term ``independent registered municipal
advisor'' means a municipal advisor registered pursuant to Section 15B
of the Exchange Act and the rules and regulations thereunder and that
is not, and within at least the past two years was not, associated
\566\ with the person seeking to rely on Rule 15Ba1-1(d)(3)(vi). The
Commission believes that a two year cooling-off period represents an
appropriate period of time to help remove any actual or perceived
influence over a municipal advisor's ability to exercise independent
judgment when engaging in municipal advisory activities.\567\ Second, a
person seeking to rely on this exemption must receive from the
municipal entity or obligated person a representation in writing that
it is represented by, and will rely on the advice of, an independent
registered municipal advisor, and such person has a reasonable basis
for relying on the representation.\568\ Third, such person must provide
the required disclosures to the municipal entity or obligated person,
and provide a copy of such disclosures to the municipal entity's or
obligated person's independent registered municipal advisor. With
respect to a municipal entity, such person must disclose in writing to
the municipal entity that, by obtaining such representation from the
municipal entity, such person is not a municipal advisor and is not
subject to the fiduciary duty established in Section 15B(c)(1) of the
Exchange Act with respect to the municipal financial product or
issuance of municipal securities.\569\ With respect to an obligated
person, such person must disclose in writing to the obligated person
that, by obtaining such representation from the obligated person, such
person is not a municipal advisor with respect to the municipal
financial product or issuance of municipal securities.\570\ The rule
also requires that each such disclosure must be made at a time and in a
manner reasonably designed to allow the municipal entity or obligated
person to assess the material incentives and conflicts of interest that
such person may have in connection with the municipal advisory
activities.\571\ The level and timing of disclosure required may vary
according to the issuer's knowledge or experience.\572\
---------------------------------------------------------------------------

    \564\ See Rule 15Ba1-1(d)(3)(vi).
    \565\ See Rule 15Ba1-1(d)(3)(vi)(A).
    \566\ For purposes of the definition of ``independent registered
municipal advisor'' in Rule 15Ba1-1(d)(3)(vi), the criteria for
association set forth in Section 15B(e)(7) (15 U.S.C. 78o-4(e)(7))
will apply. See Rule 15Ba1-1(d)(3)(vi)(A).
    \567\ A two-year period is also used to determine whether an
individual is a ``public representative'' for purposes of MSRB Board
membership. Specifically, for purposes of determining whether an
individual is a public representative, the MSRB defined the term
``no material business relationship'' to mean that, at a minimum,
the individual is not and, within the last two years, was not
associated with a municipal securities broker, municipal securities
dealer, or municipal advisor, and that the individual does not have
a relationship with any municipal securities broker, municipal
securities dealer, or municipal advisor, whether compensatory or
otherwise, that reasonably could affect the independent judgment or
decision making of the individual. See Securities Exchange Act
Release No. 63025 (September 30, 2010), 75 FR 61806, 61808 (October
6, 2010) (SR-MSRB-2010-08). Further, Rule 206(4)-5(a)(1) under the
Investment Advisers Act prohibits investment advisers from receiving
compensation for providing advice to a ``government entity'' within
two years after a ``contribution'' to an ``official'' of the
government entity has been made by the investment adviser or by any
of its ``covered associates.'' See 17 CFR 275.206(4)-5(a)(1). In
adopting this rule, the Commission stated that the two-year time out
is intended to discourage advisers from participating in pay-to-play
practices by requiring a cooling off period during which the effects
of a political contribution on the selection process can be expected
to dissipate. See Political Contributions Final Rule, 75 FR 41026.
    \568\ See Rule 15Ba1-1(d)(3)(vi)(B). The same standards and
principles apply in determining whether a person has a reasonable
basis for reliance as discussed previously with respect to reliance
on representations regarding proceeds determinations. See supra
notes 364-365 and accompanying text.
    \569\ See Rule 15Ba1-1(d)(3)(vi)(C)(1).
    \570\ See Rule 15Ba1-1(d)(3)(vi)(C)(2).
    \571\ See Rule 15Ba1-1(d)(3)(vi)(C)(3). The CFTC's business
conduct standards for swap dealers and major swap participants
contain similar standards for disclosure to counterparties.
Specifically, CFTC Rule 23.431(a) states that: ``At a reasonably
sufficient time prior to entering into a swap, a swap dealer or
major swap participant shall disclose to any counterparty to the
swap (other than a swap dealer, major swap participant, security-
based swap dealer, or major security-based swap participant)
material information concerning the swap in a manner reasonably
designed to allow the counterparty to assess [risks,
characteristics, and conflicts of interest related to the swap.]''
17 CFR 23.431(a).
    \572\ The Commission believes that some municipal advisors are
already familiar with this disclosure level and timing standard. See
Interpretive Notice Concerning the Application of MSRB Rule G-17 to
Underwriters of Municipal Securities (August 2, 2012), available at
http://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/General/Rule-G-17.aspx?tab=2 (stating that ``[t]he level of disclosure
required may vary according to the issuer's knowledge or experience
with the proposed financing structure or similar structures,
capability of evaluating the risks of the recommended financing, and
financial ability to bear the risks of the recommended financing, in
each case based on the reasonable belief of the underwriter''); MSRB
Notice 2013-08 (March 25, 2013) MSRB Answers Frequently Asked
Questions (FAQS) Regarding an Underwriter's Disclosure Obligations
to State and Local Government Issuer Under Rule G-17, available at
http://www.msrb.org/Rules-and-Interpretations/Regulatory-Notices/2013/2013-08.aspx (referencing the requirement under the
Interpretive Notice Concerning the Application of MSRB Rule G-17
that the arm's length nature of the relationship be provided ``At
the earliest stages of the relationship, generally at or before a
response to a request for proposals or promotional materials are
delivered to an issuer.'').
---------------------------------------------------------------------------

    The requirement that a copy of the disclosure be provided to the
independent registered municipal advisor is not intended to alter the
nature of the duty owed by the municipal advisor to its municipal
entity or obligated person client or the nature of such municipal
advisor's engagement.
    The Commission believes that exempting persons advising a municipal
entity or obligated person from the definition of municipal advisor
when the municipal entity or obligated person is represented by an
independent registered municipal advisor is consistent with the public
interest, the protection of investors, and the purposes of Section 15B
of the Exchange Act. The Commission believes that Rule 15Ba1-
1(d)(3)(vi) will allow parties to a municipal securities transaction
and others who are not registered municipal advisors to share advice
with municipal entities and obligated persons so long as the municipal
entity or obligated person is represented by an independent registered
municipal advisor. A municipal entity represented by an independent
registered municipal advisor will have the benefits associated with the
regulation of municipal advisors. Such benefits include, but are not
limited to, standards of conduct, training, and testing for municipal

advisors that may be required by the Commission or the MSRB, other
requirements unique to municipal advisors that may be imposed by the
MSRB,\573\ and fiduciary duty. While independent registered municipal
advisors do not owe a fiduciary duty to obligated persons, the
Commission notes that they have a duty to deal fairly with obligated
persons under MSRB Rule G-17.\574\ Also, as noted by commenters, the
engagement by a municipal entity or obligated person of an independent
registered municipal advisor indicates that the municipal entity or
obligated person intends to rely on the advice of that advisor. Rule
15Ba1-1(d)(3)(vi) requires that this intention be further evidenced by
a written representation that the municipal entity or obligated person
will rely on the advice of an independent registered municipal advisor.
Further, Rule 15Ba1-1(d)(3)(vi) requires the person receiving such
representation to have a reasonable basis for relying on the
representation.
---------------------------------------------------------------------------

    \573\ See supra note 190.
    \574\ See MSRB Rule G-17.
---------------------------------------------------------------------------

    So long as a municipal entity or obligated person is represented by
and relies on an independent registered municipal advisor, the
Commission believes it is appropriate to allow municipal entities and
obligated persons to receive as much advice and information as possible
from a variety of sources, even if the providers of such advice are not
subject to a fiduciary duty. The Commission does not seek to curtail
the receipt of important advice and information so long as the
municipal entities and obligated persons are represented by and rely on
independent registered municipal advisors who are subject to a
fiduciary or other duties and who can help the municipal entities and
obligated persons evaluate the advice and identify potential conflicts
of interest. Further, the requirement that a person seeking to rely on
this rule provide a copy of the disclosures under Rule 15Ba1-
1(d)(3)(vi)(C) to the independent registered municipal advisor will
help timely inform the independent registered municipal advisor that
the municipal entity or obligated person is receiving advice from a
person seeking to rely on Rule 15Ba1-1(d)(3)(vi).
    In addition, certain persons that may engage in municipal advisory
activities could also be counterparties to a municipal entity or
obligated person, such as swap dealers and security-based swap dealers.
The requirement for such persons to register as municipal advisors
could be inconsistent with their roles as counterparties to the
municipal entity or obligated person. While the Commission is
separately providing certain exemptions for counterparties of municipal
entities and obligated persons,\575\ such persons may also consider
whether they can rely on this exemption.
---------------------------------------------------------------------------

    \575\ See, e.g., infra Section III.A.1.c.vi. (discussing an
exemption for swap dealers).
---------------------------------------------------------------------------

iv. Broker, Dealer, or Municipal Securities Dealer Serving as an
Underwriter
    Exchange Act Section 15B(e)(4)(C) provides that the term
``municipal advisor'' does not include a broker, dealer, or municipal
securities dealer serving as an underwriter (as defined in Section
2(a)(11) of the Securities Act) (the ``underwriter exclusion'').\576\
In the Proposal, the Commission proposed to interpret this statutory
underwriter exclusion to apply solely to a broker, dealer, or municipal
securities dealer serving as an underwriter in connection with the
issuance of municipal securities.\577\ Further, the Commission proposed
that this exclusion would not apply when such persons are acting in a
capacity other than as an underwriter, and that, for example, this
exclusion would not apply to advice with respect to the investment of
bond proceeds or municipal derivatives.\578\
---------------------------------------------------------------------------

    \576\ See 15 U.S.C. 78o-4(e)(4)(C).
    \577\ See Proposal, 76 FR 832 and proposed Rule 15Ba1-
1(d)(2)(ii). See also Temporary Registration Rule Release, 75 FR
54467, note 19. In the Proposal, the Commission stated its belief
that Congress excluded from the definition of municipal advisor a
broker, dealer, or municipal securities dealer acting as an
underwriter on behalf of a municipal entity or obligated person in
connection with the issuance of municipal securities because such
activity is already subject to MSRB rules. See Proposal, 76 FR 832,
note 107.
    \578\ See Proposal, 76 FR 832.
---------------------------------------------------------------------------

    In the Proposal, the Commission requested comment on whether its
interpretation of the statutory exclusion from the definition of
municipal advisor for a broker, dealer, or municipal securities dealer
serving as an underwriter was appropriate.\579\ The Commission received
approximately 20 comment letters addressing the scope of this
underwriter exclusion. Most commenters suggested that this exclusion
should cover broker-dealer activities already subject to
regulation,\580\ and some commenters suggested that it should cover
broker-dealer activities that are solely incidental to underwriting an
issuance of municipal securities.\581\ By contrast, other commenters
supported a more limited scope for the underwriter exclusion, stating,
for example, that ``[u]nless the Commission recognizes and implements
in an appropriate manner the narrow character of the underwriter
definition referenced in the Dodd-Frank Act, the Commission will be
diminishing otherwise important protections for municipal entities and
obligated persons provided in that Act.'' \582\ Another commenter
suggested that the Commission clarify that an underwriter is not
permitted to provide ``advice'' with respect to the structure, timing,
or terms of the bond issue it seeks to purchase and distribute.\583\
---------------------------------------------------------------------------

    \579\ See id., at 836.
    \580\ See, e.g., letter from JoAnn Bourne, Senior Executive Vice
President, Global Treasury Management, Union Bank, N.A., dated
February 18, 2011 (``Union Bank Letter'') (stating the belief that,
while the Dodd-Frank Act only provided an exclusion for brokers and
dealers when they are serving as underwriters, Congress did not
intend to impose an additional level of regulation on broker-dealers
when they are providing advice that is already subject to
regulation); SIFMA Letter I; and letter from Noreen Roche-Carter,
Chair, Tax & Finance Task Force, Large Public Power Council, dated
February 22, 2011 (``Large Public Power Council Letter'') (stating
that ``[b]y limiting that exemption to instances where the broker-
dealer is acting as an underwriter, we are concerned this will limit
the types of services provided to our members by broker-dealers
compared to what has traditionally been provided to our members'').
    \581\ See infra note 637 and accompanying text.
    \582\ See, e.g., letter from Robert Doty, AGFS, dated February
22, 2011 (``Doty Letter I'').
    \583\ See letter from Colette-Irwin Knott, CIPFA, President,
National Association of Independent Public Finance Advisors, dated
February 22, 2011 (``NAIPFA Letter'').
---------------------------------------------------------------------------

    The Commission has carefully considered comments submitted about
the underwriter exclusion in the Proposal, as discussed further below,
and is adopting its proposed interpretation of the statutory
underwriter exclusion, with modifications and clarifications designed
to address commenters' concerns. Specifically, Rule 15Ba1-1(d)(2)(i)
provides that the term ``municipal advisor'' shall not include a
``broker, dealer, or municipal securities dealer serving as an
underwriter of a particular issuance of municipal securities to the
extent that the broker, dealer, or municipal securities dealer engages
in activities that are within the scope of an underwriting of such
issuance of municipal securities.''
    Under the Commission's modified interpretation of the underwriter
exclusion, if a broker, dealer, or municipal securities dealer is
serving as an underwriter of a particular issuance of municipal
securities, the underwriter exclusion would include advice provided by
that underwriter within the scope of underwriting and would generally
include advice with respect to the structure, timing, terms, and other
similar matters concerning that issuance of municipal securities.

    It is important to note that the following advice would be outside
the scope of an underwriting for purposes of this exclusion: (1) Advice
on investment strategies; (2) advice on municipal derivatives; and (3)
advice otherwise identified by the Commission to be outside the scope
of an underwriting.\584\ Such advice generally is not within the scope
of serving as an underwriter on an issuance of municipal securities and
can raise issues that implicate the policy objectives of municipal
advisor registration. For example, municipal entities suffered
significant losses in the financial crisis related to advice on complex
municipal derivatives,\585\ and advice on investments,\586\ such as
refunding escrow investments provided by underwriters \587\ and
investments involving fraud in investment bidding procedures,\588\ has
been the subject of significant enforcement activity. In other
circumstances, such advice may create conflicts of interest for an
underwriter, such as when the advice addresses whether to issue debt or
whether to conduct a competitive sale instead of a negotiated
underwriting. In addition, as discussed further below, the underwriter
exclusion does not include all activities that may be solely incidental
to an underwriting, such as advice on investment strategies or advice
on municipal derivatives, because these activities are not within the
scope of an underwriting and are activities for which municipal
entities and obligated persons require the protections afforded by
municipal advisors.
---------------------------------------------------------------------------

    \584\ See infra note 612 and accompanying text.
    \585\ See supra note 3 and accompanying text.
    \586\ See supra note 106 and accompanying text.
    \587\ See supra note 380 and accompanying text.
    \588\ See supra note 287 and accompanying text.
---------------------------------------------------------------------------

    Although, as noted above, ``issuance of municipal securities''
should be construed broadly,\589\ the Commission believes that, in
order for a person to be ``serving as an underwriter'' \590\ with
respect to an issuance of municipal securities, there must be a
relationship to a particular transaction.\591\ For example, a
contractual engagement by a municipal entity of a broker-dealer to
serve as underwriter on a specific planned transaction for the issuance
of municipal securities would constitute the requisite engagement on a
particular issuance of municipal securities. By contrast, an engagement
by a municipal entity of a broker-dealer to serve as underwriter for
some period of time or to serve as a member of an underwriting ``pool''
without specifying the broker-dealer's assignment expressly to serve as
underwriter on one or more particular planned transactions would not
constitute serving as an underwriter on a particular issuance of
municipal securities. Further, an underwriter providing advice with
respect to related transactions or tranches on which it is not engaged
would be acting within the scope of the underwriter exclusion only if
such advice is also related to the tranche or transaction on which the
underwriter is engaged. For example, an underwriter may give advice
about the timing of a sale of a related transaction on which it is not
engaged by noting that shifting the timing of such sale will have a
positive impact on market demand for the transaction on which it is
engaged. Such advice would fall within the underwriter exclusion
because such advice concerns the timing of the particular issuance of
municipal securities for which it is acting as underwriter and is not
regarded by the Commission as being outside the scope of an
underwriting.
---------------------------------------------------------------------------

    \589\ See supra Section III.A.1.b.vii (discussing the term
``issuance of municipal securities'').
    \590\ See Rule 15Ba1-1(d)(2)(i).
    \591\ See, e.g., In re Laser Arms Corp. Sec. Litig., 794 F.Supp.
475, 484 (S.D.N.Y. 1989) (citing L. LOSS, THE FUNDAMENTALS OF
SECURITIES REGULATION 278 (1983)). As set forth in Section 2(11) of
the Securities Act, the definition of a statutory underwriter turns
on the relationship of the party and the offering. Professor Loss
has observed that ``[t]he term `underwriter' is defined not with
reference to the particular person's general business but on the
basis of his relationship to the particular offering.''
---------------------------------------------------------------------------

    The Commission recognizes, however, that a municipal entity issuer
may wish to request advice on an issuance of municipal securities from
a broker-dealer serving as a member of its underwriting ``pool'' that
does not yet have a specific assignment or from a broker-dealer engaged
on related transactions or tranches. In such circumstances, the broker-
dealer could respond within the requirements of one of the other
exemptions of general applicability discussed above. For example, if
the municipal entity issuer was seeking the advice in response to a
``mini-RFP'' sent to members of the underwriting pool, the broker-
dealer could respond and provide advice within the limitations of the
exemption for responses to RFPs and RFQs.\592\ In addition, if the
municipal entity is represented by an independent registered municipal
advisor with respect to such issuance of municipal securities, the
broker-dealer could respond and provide advice if the requirements of
the exemption available when a municipal entity is otherwise
represented by an independent registered municipal advisor with respect
to the same aspects of the issuance of municipal securities were
satisfied.\593\ Finally, depending on the nature of the requested
information and the response, it might be considered a communication or
effort to win business that is not municipal advisory activity.\594\
---------------------------------------------------------------------------

    \592\ See supra Section III.A.1.c.ii.
    \593\ See supra Section III.A.1.c.iii.
    \594\ See infra notes 615-618 and accompanying text.
---------------------------------------------------------------------------

    In response to commenters that suggested that underwriters should
not be permitted to provide ``advice'' with respect to the structure,
timing and terms of the bond issue it seeks to purchase and
distribute,\595\ the Commission points out that, subsequent to the
Proposal, the MSRB provided additional interpretive guidance under MSRB
Rule G-17, which requires that brokers, dealers, and municipal
securities dealers acting as underwriters make certain disclosures to
municipal issuers about the roles of underwriters in negotiated sales
of municipal securities, including disclosures about their duty of fair
dealing with a municipal issuer (but not a fiduciary duty to a
municipal issuer) and their actual or potential, material conflicts of
interest. The Commission continues to believe that allowing
underwriters to give advice within the scope of an underwriting with
respect to the structure, timing, terms, and other similar matters
concerning an issuance is consistent with the aim of improving the
quality of advice that municipal entities and obligated persons
receive, because these Rule G-17 disclosure requirements should assist
them in clarifying the duties of underwriters to municipal issuers,
identifying conflicts of interest, and appropriately evaluating the
advice they receive from underwriters with that informed
perspective.\596\
---------------------------------------------------------------------------

    \595\ See, e.g., NAIPFA Letter.
    \596\ See MSRB Notice 2012-25 (May 7, 2012) (Securities and
Exchange Commission Approves Interpretive Notice on the Duties of
Underwriters to State and Local Government Issuers). In response to
comments on this Rule G-17 interpretive guidance, the MSRB also
indicated that it would continue to study whether to impose a
suitability standard on the types of financial products (including
types of bond structures) that may be sold to municipal entities.
See letter from Margaret Henry, General Counsel, Market Regulation,
MSRB, dated February 13, 2012, available at http://www.sec.gov/comments/sr-msrb-2011-09/msrb201109-24.pdf.
---------------------------------------------------------------------------

    The Commission continues to believe that a broker, dealer, or
municipal securities dealer engaging in municipal advisory activities
outside the scope of underwriting a particular issuance of municipal
securities should be subject to municipal advisor registration, absent
the availability of another exemption or exclusion. With respect to the
treatment of advice on municipal derivatives as

outside the underwriter exclusion, the Commission notes that one
purpose of the municipal advisor provision in the Dodd-Frank Act was to
address concerns about advice to municipalities on complex municipal
derivatives in which municipalities suffered significant losses in the
financial crisis.\597\
---------------------------------------------------------------------------

    \597\ See S. Rep. No. 111-176, at 38 (2010).
---------------------------------------------------------------------------

    Several commenters requested additional guidance from the
Commission regarding the types of activities that would fall within the
Commission's interpretation of the statutory underwriter exclusion for
activity within the scope of an underwriting of an issuance of
municipal securities. For example, one commenter stated that the
exclusion should clearly extend to a full range of activities ``closely
related'' to the underwriting.\598\ Another commenter asserted that
certain municipal advisory activities and, in particular, certain
``transaction-related services'' provided by underwriters are integral
to fulfilling the function of an underwriter in a professional manner
but did not specify which activities were integral.\599\ A few
commenters stated that the Proposal did not provide sufficient guidance
regarding the scope of the underwriter exclusion and requested further
clarification.\600\
---------------------------------------------------------------------------

    \598\ See SIFMA Letter I. This commenter recommended that
covered activities for the underwriter exclusion should include: (1)
Advice regarding the issuance of municipal securities, municipal
financial products, or any other securities in the context of an
underwriting; (2) advice on the advisability of a municipal
derivative (including entering into a new derivative or amending or
terminating an existing derivative) in connection with an
underwriting; (3) advice in the capacity of a member of the
municipal entity or obligated person's underwriting pool, even if
not in the context of a particular deal, or other services after the
closing of an issuance of municipal securities but which relate to
the issuance for which the underwriter acted as an underwriter; (4)
communications and analyses that are part of an effort or
presentation to obtain business from the municipal entity or
obligated person, or otherwise part of seeking to serve as an
underwriter on future transactions; (5) assistance on related
transactions and related tranches of the offering; and (6) service
as a dealer-manager on a related tender or exchange offer for
outstanding securities.
    \599\ See letter from Alan Polsky, Chair, MSRB, dated November
9, 2011 (``MSRB Letter II'') (including a listing of transaction-
related services of which, according to the commenter, some may be
appropriately performed by a broker-dealer as part of an
underwriting). See also letter from Robert K. Dalton, Vice Chairman,
George K. Baum & Company, dated December 20, 2011 (the ``Baum
Letter'') (noting that in the text of their November 9, 2011 letter
the MSRB noted that not only transaction-related services are
integral to an underwriting). But see NAIPFA Letter and letter from
Colette Irwin-Knott, President, NAIPFA, dated November 30, 2011
(``NAIPFA Letter II'') (stating its belief that certain of such
transaction-related services listed in the MSRB's letter are not so
``integrally related'' to an underwriter's duties to warrant
exclusion from regulation as a municipal advisor).
    \600\ See, e.g., letter from Robert J. Stracks, Counsel, BMO
Capital Markets GKST Inc., dated February 22, 2011 (``BMO Capital
Markets Letter'') (stating that the Commission has made no attempt
to clarify the myriad of confusing issues it has raised with respect
to the exclusion for underwriters); Joy Howard WM Financial
Strategies Letter (stating that ``it is unclear what trigger event
would create an underwriting relationship as opposed to a municipal
advisory relationship''); Bond Dealers of America Letter (noting
that the underwriter exclusion is not clearly defined).
---------------------------------------------------------------------------

    Set forth below are non-exclusive examples of activities that the
Commission considers to be within or outside the scope of the
underwriter exclusion to the municipal advisor definition,
respectively.
Examples of Activities Within the Scope of Serving as an Underwriter of
a Particular Issuance Municipal Securities for Purposes of the
Underwriter Exclusion
    The Commission agrees with those commenters \601\ that stated that
it is not possible to provide an exhaustive list of all activities that
would be considered to be within the scope of an underwriting. As a
general matter, the Commission considers activities that are integral
to the purchase and distribution of a particular issuance of municipal
securities on which a broker, dealer, or municipal securities dealer is
engaged to serve in the capacity as underwriter to be within the scope
of the underwriter exclusion. The Commission also considers activities
that are integral to fulfilling the role of an underwriter, such as the
obligations of underwriters under the antifraud provisions of the
federal securities laws and obligations of underwriters under MSRB
rules, to be within the scope of an underwriting.\602\
---------------------------------------------------------------------------

    \601\ See, e.g., MSRB Letter II.
    \602\ See Securities Exchange Act Release No. 26985 (June 28,
1989), 54 FR 28799, 2811-28812 (July 10, 1989); Securities Exchange
Act Release No. 62184A (May 27, 2010), 75 FR 33100, 33123-33125
(June 10, 2010); See also MSRB Rules G-17 and G-19.
---------------------------------------------------------------------------

    The Commission considers the following activities, identified by
commenters,\603\ to be within the scope of the underwriting exclusion:
\604\ (1) advice regarding the structure, timing, terms, and other
similar matters concerning a particular issuance of municipal
securities (except as otherwise provided herein with respect to advice
on investment strategies, municipal derivatives, or other activities
identified by the Commission as outside the scope of an underwriting);
(2) preparation of rating strategies and presentations related to the
issuance being underwritten; (3) preparations for and assistance with
investor ``road shows'' and investor discussions related to the
issuance being underwritten; (4) advice regarding retail order periods
and institutional marketing if the municipal entity has determined to
engage in a negotiated sale; (5) assistance in the preparation of the
preliminary and final official statements for the municipal securities;
(6) assistance with the closing of the issuance of municipal
securities, including negotiation and discussion with respect to all
documents, certificates, and opinions needed for such closing; (7)
coordination with respect to obtaining CUSIP numbers and the
registration of the issue of municipal securities with the book-entry
only system of the Depository Trust Company; (8) preparation of post-
sale reports for such municipal securities; and (9) structuring of
refunding escrow cash flow requirements necessary to provide for the
refunding and defeasance of an issue of municipal securities (provided,
however, that the recommendation of and brokerage of particular
municipal escrow investments is outside the scope of the underwriting
exclusion).
---------------------------------------------------------------------------

    \603\ See, e.g., MSRB Letter II; NAIPFA Letter; NAIPFA Letter
II; SIFMA Letter I; and Baum Letter.
    \604\ This list of activities includes examples of activities
that the Commission considers to be within the scope of an
underwriting; the list does not purport to cover all possible
activities qualifying for the underwriter exclusion.
---------------------------------------------------------------------------

Examples of Activities Outside the Scope of Serving as an Underwriter
of a Particular Issuance of Municipal Securities for Purposes of the
Underwriter Exclusion
    Several commenters \605\ also requested clarification as to whether
certain strategic, transaction-related, and post-issuance activities
would be considered acting within the scope of the underwriter
exclusion. The Commission notes that an underwriter providing certain
advice outside the scope of the underwriter exclusion would not be
required to be registered as a municipal advisor in order to provide
that advice if: (a) the advice does not relate to a municipal financial
product \606\ or the issuance of municipal securities,\607\ (b) the
advice is given in response to a request for proposal \608\ or is
otherwise permitted when seeking to obtain

business,\609\ or (c) the advice is given when the municipal entity has
engaged an independent registered municipal advisor.\610\
---------------------------------------------------------------------------

    \605\ See, e.g., NAIPFA Letter.
    \606\ See supra Section III.A.1.b.iv. (discussing the definition
of ``municipal financial products'').
    \607\ See supra Section III.A.1.b.vii. (discussing the term
``issuance of municipal securities'').
    \608\ See supra Section III.A.1.c.ii. (discussing the exemption
for responses to RFPs and RFQs).
    \609\ See infra notes 615 and 616 and accompanying text
(discussing communications or efforts to win business).
    \610\ See supra Section III.A.1.c.iii. (discussing the exemption
when the municipal entity or obligated person is represented by an
independent municipal advisor).
---------------------------------------------------------------------------

    The Commission considers the following activities, identified by
commenters,\611\ to be outside the scope of the underwriter exclusion:
\612\ (1) advice on investment strategies; (2) advice on municipal
derivatives (including derivative valuation services); (3) advice on
what method of sale (competitive sale \613\ or negotiated sale \614\) a
municipal entity should use for an issuance of municipal securities;
(4) advice on whether a governing body of a municipal entity or
obligated person should approve or authorize an issuance of municipal
securities; (5) advice on a bond election campaign; (6) advice that is
not specific to a particular issuance of municipal securities on which
a person is serving as underwriter and that involves analysis or
strategic services with respect to overall financing options, debt
capacity constraints, debt portfolio impacts, analysis of effects of
debt or expenditures under various economic assumptions, or other
impacts of funding or financing capital projects or working capital;
(7) assisting issuers with competitive sales, including bid
verification, true interest cost (TIC) calculations and
reconciliations, verifications of bidding platform calculations, and
preparation of notices of sale; (8) preparation of financial
feasibility analyses with respect to new projects; (9) budget planning
and analyses and budget implementation issues with respect to debt
issuance and collateral budgetary impacts; (10) advice on an overall
rating strategy that is not related to a particular issuance of
municipal securities on which a person is serving as an underwriter,
including advice and actions taken on behalf of a municipal entity or
obligated person between financing transactions; (11) advice on overall
financial controls that are not related to a particular issuance of
municipal securities on which a person is serving as an underwriter; or
(12) advice regarding the terms of requests for proposals or requests
for qualification for the selection of underwriters or other
professionals for a project financing and advice regarding review of
responses to such requests, including matters regarding compensation of
such underwriters or other professionals.
---------------------------------------------------------------------------

    \611\ See, e.g., MSRB Letter II; NAIPFA Letter; NAIPFA Letter
II; SIFMA Letter I; and Baum Letter.
    \612\ For broker-dealers serving as underwriters for a
particular issuance of municipal securities, these activities would
not be excluded from the definition of municipal advisor because
they are not within the scope of an underwriting of such issuance of
municipal securities. This list of activities includes examples of
activities that the Commission considers to be outside the scope of
the underwriter exclusion; the list does not purport to cover all
possible activities not qualifying for the underwriter exclusion.
    \613\ Competitive sale is a method of sale chosen by an issuer,
requesting underwriters to submit a firm offer to purchase a new
issue of municipal securities. The issuer awards the municipal
securities to the ``winning'' underwriter or syndicate presenting a
bid complying with the terms of a Notice of Sale that provides the
lowest interest rate cost according to stipulated criteria set forth
in the Notice of Sale. See definition of ``Competitive Sale'' in
MSRB Glossary.
    \614\ Negotiated sale is the sale of a new issue of municipal
securities by an issuer directly to an underwriter or underwriting
syndicate selected by the issuer. See definition of ``Negotiated
Sale'' in MSRB Glossary.
---------------------------------------------------------------------------

    The Commission believes the above-listed activities are not within
the scope of the underwriter exclusion because the activities are
either not specific to a particular issuance of municipal securities
for which a broker, dealer or municipal securities dealer could be
serving as an underwriter or the activities are not integral to
fulfilling the role of an underwriter.
Communications or Efforts to Win Business
    A few commenters asked whether communications and analyses that are
part of an effort to win business would be considered municipal
advisory activity.\615\ The Commission notes that not all
communications with a municipal entity or obligated person constitute
municipal advisory activities. If the person has identified himself or
herself as seeking to obtain business, such as serving as an
underwriter on future transactions, whether such communications and
analyses constitute municipal advisory activities or the provision of
general information (as discussed further above \616\) will depend on
the specific facts and circumstances. For example, pursuant to the
Commission's interpretation of the treatment of the provision of
general information, the Commission believes that a broker-dealer who
provides information to a municipal entity regarding its underwriting
capabilities and experience or general market or financial information
that might indicate favorable conditions to issue or refinance debt
likely would not be treated as engaging in municipal advisory activity.
---------------------------------------------------------------------------

    \615\ See SIFMA Letter I. See also letter from Nathan R. Howard,
Esq., Municipal Advisor, WM Financial Strategies, dated February 22,
2011 (``Nathan R. Howard WM Financial Strategies Letter'') (stating
that when the services provided by a broker-dealer are merely
informational non-municipal advisory services, the broker-dealer
should be excluded from the definition of municipal advisor).
    \616\ See supra Section III.A.1.b.i. (discussing, among other
things, the provision of general information).
---------------------------------------------------------------------------

    On the other hand, for purposes of this rule and in response to
comments,\617\ the Commission does not consider advice rendered by a
broker-dealer in its capacity as a member of an ``underwriting pool''
for a municipal entity or obligated person (and in the absence of a
designation of that broker-dealer to serve as underwriter on the
particular issuance of municipal securities on which the advice is
given) to be advice within the scope of the underwriting exclusion. An
underwriting pool generally includes a group of underwriters selected
by a municipal entity pursuant to an RFP or other process \618\ from
which the municipal entity may select one or more firms to underwrite a
specific transaction. As noted above, a broker-dealer that is merely a
part of an underwriting pool is not engaged to underwrite any
particular issuance, and therefore, is not acting as an underwriter. As
described above, however, depending on the particular facts and
circumstances, the broker-dealer's activities as part of an
underwriting pool may be within the requirements of one of the
exemptions of general applicability,\619\ may be considered to be an
effort to obtain underwriting business on its own behalf, or may be
otherwise exempt, which would not require municipal advisor
registration.
---------------------------------------------------------------------------

    \617\ See SIFMA Letter I.
    \618\ See infra Section III.A.1.c.ii.
    \619\ See supra notes 592 and 593 and accompanying text.
---------------------------------------------------------------------------

Post-Offering Services
    Commenters asked whether post-offering work performed by an
underwriter would qualify for the underwriter exclusion or whether it
would constitute municipal advisory activity requiring
registration.\620\ For purposes of this rule, the Commission considers
post-offering work performed by an underwriter to be municipal advisory
activity unless it is a request for information or services that would
have been provided as part of the underwriting (such as resending cash
flow and other similar information related to the offering) or is
required for an underwriter to fulfill its regulatory

obligations as underwriter.\621\ If an issuance has closed and the
underwriting period \622\ has terminated, the broker-dealer cannot be
considered to be acting as an underwriter with respect to the issuance
of municipal securities. Therefore, any advice or recommendation with
respect to the issuance of municipal securities or a municipal
financial product given after the termination of the underwriting
period generally would be municipal advisory activities. Accordingly,
broker-dealers should consider whether particular post-offering work
they provide would constitute advice with respect to the issuance of
municipal securities or a municipal financial product.
---------------------------------------------------------------------------

    \620\ See, e.g., SIFMA Letter I.
    \621\ See Securities Exchange Act Release No. 26985 (June 28,
1989), 54 FR 28799, 28805, 2811-28812 (July 10, 1989); Securities
Exchange Act Release No. 62184A (May 27, 2010), 75 FR 33100, 33123-
33125 (June 10, 2010); See also MSRB Rules G-17; G-19 and G-32.
    \622\ For purposes of MSRB rules and Exchange Act Rule 15c2-12,
the underwriting period is the period in connection with a primary
offering of municipal securities ending on the later of the closing
of the underwriting or the sale of the last of the securities by the
syndicate. See definition of ``Underwriting Period'' in MSRB
Glossary.
---------------------------------------------------------------------------

    The Commission notes that assisting a municipal entity or obligated
person with filing annual financial information, audited financial
statements, or material event notices, as required by Rule 15c2-
12,\623\ after an issuance has closed and after the underwriting period
has terminated, would generally be outside the scope of the
underwriting exclusion. A determination as to whether or not these
activities would constitute advice would be based on all the facts and
circumstances.\624\
---------------------------------------------------------------------------

    \623\ 17 CFR 240.15c2-12.
    \624\ See supra Section III.A.1.b.i (discussing the advice
standard in general).
---------------------------------------------------------------------------

Broker-Dealers Acting as Placement Agents, Dealer-Managers, and
Remarketing Agents
    A few commenters emphasized the similarity between private
placement agents and underwriters, and suggested that private placement
agents should be included in the underwriter exclusion.\625\ One
commenter stated that a private placement agent offering securities of
a municipal entity or obligated person in a private placement under the
Securities Act, even if the agent is not serving as an underwriter
within the strict meaning of Section 2(a)(11) of the Securities Act,
serves almost exactly the same role underwriters play in assisting
issuers.\626\ This commenter also noted that ``[a]ny uncertainty with
respect to a private placement agent's role can be adequately clarified
to municipal issuers or obligors through mandatory disclosures.'' \627\
---------------------------------------------------------------------------

    \625\ See SIFMA Letter I; Chapman & Cutler Letter (concurring
with SIFMA that the duties of placement agents with respect to the
sale and pricing of municipal securities are similar to the duties
of underwriters); Piper Jaffray Letter.
    \626\ See Piper Jaffray Letter.
    \627\ See id.
---------------------------------------------------------------------------

    The Commission believes that any registered broker-dealer who
participates in a particular issuance of municipal securities, whether
the broker-dealer is acting as agent (such as in a best-efforts
offering) or is acting as principal (such as in a firm commitment
offering) would not have to register as a municipal advisor if facts
and circumstances indicate that the registered broker-dealer is
performing municipal advisory activities that otherwise would be
considered within the scope of the underwriting of a particular
issuance of municipal securities as discussed above.\628\ Registered
broker-dealers are subject to regulation under the Exchange Act,
regardless of whether they act as principal or agent in a municipal
securities offering. The Commission does not believe that the
underwriter exclusion should be limited to a particular type of
underwriting or particular type of offering.\629\ 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 above, the broker-dealer would not have to
register as a municipal advisor.
---------------------------------------------------------------------------

    \628\ A registered broker-dealer acting as a placement agent in
the issuance of non-municipal securities, however, would not be able
to rely on the underwriter exclusion and, based on the facts and
circumstances, might be engaged in solicitation activity. See supra
note 462 and accompanying text (discussing when a placement agent
for an investment adviser to a pooled-investment vehicle would be
considered a third-party solicitor that falls within the definition
of municipal advisor). In addition, a placement agent may have other
duties, including a fiduciary duty to its client, that arise as a
matter of common law or another statutory or regulatory regime.
    \629\ Whether or not a particular offering would be a
distribution for purposes of Section 2(a)(11) of the Securities Act
is a facts and circumstances determination. Whether there is a
``distribution'' does not affect the role of a registered broker-
dealer in a municipal securities offering for purposes of this
underwriter exclusion.
---------------------------------------------------------------------------

    In addition, the Commission has determined that a broker-dealer
acting as a dealer-manager for a tender offer, without more,\630\ would
not be municipal advisory activity because tender offers typically
involve only the purchase of municipal securities and the purchase is
not itself an advisory activity. Similarly, a broker-dealer acting as a
dealer-manager for an exchange offer would generally involve only two
transactions--the purchase of one security in the tender offer and the
underwriting of a particular issuance of municipal securities in
exchange for such tendered securities. Since the purchase itself is not
advisory activity and the underwriting of the new issue of municipal
securities would be excluded under the underwriter exclusion, neither
component of the exchange offer would be considered municipal advisory
activity.\631\
---------------------------------------------------------------------------

    \630\ However, if, for example, the registered broker-dealer
provides advice as to the benefits of a tender offer in comparison
to the alternative of issuing refunding bonds, then, depending on
the facts and circumstances, they might be engaged in municipal
advisory activity outside the scope of an underwriting.
    \631\ Any advice or recommendations to undertake such a tender
or exchange offer, or regarding the timing or terms of such tender
or exchange offer, would have to be evaluated in the context of that
issuance or the issuance of other securities to determine if the
advice was advice with respect to the structure, timing, terms, or
other similar matters concerning an issuance being underwritten, and
thus within the underwriter exclusion.
---------------------------------------------------------------------------

    A few commenters also suggested that remarketing agents should be
included in the underwriter exclusion.\632\ Generally, the Commission
also would not consider a remarketing agent \633\ acting only in its
capacity as a remarketing agent to be a municipal advisor because the
mere remarketing of bonds likely would not constitute an issuance of
municipal securities. If, however, the remarketing constitutes a
primary offering,\634\ then the

remarketing agent would need to evaluate its activities to determine if
an exemption or exclusion from registration (such as the underwriter
exclusion) applies. A primary offering is an issuance of municipal
securities for purposes of the municipal advisor registration
regime.\635\ Similarly, if the activities of a remarketing agent
include providing advice (such as advice with respect to the investment
of proceeds) beyond merely determining a remarketing price for bonds
that have already been issued and that are not being reoffered, the
remarketing agent would need to evaluate its activities to determine if
an exception to registration (such as the investment adviser exclusion)
applies.
---------------------------------------------------------------------------

    \632\ See SIFMA Letter I (stating that activities in which a
remarketing agent engages when it resells an issuance in the
secondary market are similar to those of an underwriter of a primary
issuance by a municipal entity or obligated person); Chapman &
Cutler Letter (concurring with SIFMA that the duties of remarketing
agents with respect to the sale and pricing of municipal securities
are similar to the duties of underwriters).
    \633\ A remarketing agent is a municipal securities dealer
responsible for reselling to investors securities (such as variable
rate demand obligations and other tender option bonds) that have
been tendered for purchase by their owner. The remarketing agent
also typically is responsible for resetting the interest rate for a
variable rate issue and may act as tender agent. See definition of
``Remarketing Agent'' in MSRB Glossary.
    \634\ Whether a remarketing is a ``primary offering'' of the
municipal securities and whether the remarketing agent is an
underwriter for purposes of the Securities Act of 1933 will depend
on, among other matters, the level of issuer involvement in the
remarketing. Whether a particular remarketing is a primary offering
by the issuer of the securities requires an evaluation of relevant
provisions of the governing documents, the relationship of the
issuer to the other parties involved in the remarketing transaction,
and other facts and circumstances pertaining to such remarketing,
particularly with respect to the extent of issuer involvement. See,
e.g., Securities Exchange Act Release No. 62184A (May 27, 2010), 75
FR 33100, 33103 (June 10, 2010). Although not applicable in
determining whether an offering is a primary offering for purposes
of the Securities Act of 1933, the Commission also notes that for
purposes of Rule 15c2-12, a ``primary offering'' is defined to mean
``an offering of municipal securities directly or indirectly by or
on behalf of an issuer of such securities, including any remarketing
of municipal securities'' that meets certain specified conditions.
See 17 CFR 240.15c2-12(f)(7). See also Securities Exchange Act
Release No. 34961 (November 10, 1994), 59 FR 59590 (November 17,
1994).
    \635\ See supra Section III.A.1.b.vii. (discussing the term
``issuance of municipal securities''). The Commission notes that,
although it is likely in such a circumstance for the underwriter
exemption to apply, if the agent is engaging in municipal advisory
activity that is outside of the scope of underwriting activity and
no other exemption or exclusion applies, such agent would be
required to register as a municipal advisor.
---------------------------------------------------------------------------

Solely Incidental Services
    Many commenters recommended that the municipal advisor registration
rules include an exclusion for broker-dealers that is similar in scope
to the broker-dealer exclusion under Section 202(a)(11)(C) of the
Investment Advisers Act.\636\ Specifically, these commenters stated
that the Commission should exclude from registration broker-dealers
that provide advice that is solely incidental to a transaction.\637\
These commenters generally noted that broker-dealers are already
regulated by the Commission and should not be subject to additional or
duplicative regulation.\638\
---------------------------------------------------------------------------

    \636\ Section 202(a)(11)(C) of the Investment Advisers Act
excludes from the definition of ``investment adviser'' a broker or
dealer ``whose performance of [advisory] services is solely
incidental to the conduct of his business as a broker or dealer who
receives no special compensation therefor.'' 15 U.S.C. 80b-
2(a)(11)(C).
    \637\ See, e.g., Union Bank Letter (stating that advice supplied
that is ``solely incidental to the conduct of his business as a
broker or dealer and who receives no special compensation therefor''
(Section 202(a)(11) of the Investment Advisers Act) should be
excluded from the definition of ``advice''); SIFMA Letter I (stating
that ``broker-dealers providing advice that is solely incidental to
a transaction should be excluded from the definition of municipal
advisor for the same reason that registered investment advisers are
excluded (in some instances): they are already regulated'');
Financial Services Institute Letter (stating that broker-dealers
should be treated as in the Investment Advisers Act, i.e., where a
municipal entity enters into an ordinary brokerage transaction, any
incidental advice provided in the scope of that relationship should
not require the broker-dealer to register as a municipal advisor).
    \638\ See, e.g., Union Bank Letter (stating that Congress did
not intend for broker-dealers and registered investment advisers
that already engage in regulated activities for their municipal
clients to be subject to the additional layer of regulation that
would accompany municipal advisor registration); ICI Letter (noting
that broker-dealers that are underwriters are already subject to
MSRB Rule G-37 and are also regulated by the Commission as broker-
dealers); SIFMA Letter I.
---------------------------------------------------------------------------

    The Commission is not adopting an exemption from the definition of
municipal advisor for a broker-dealer that engages in municipal
advisory activities that are solely incidental to the conduct of its
business as a broker-dealer because the Commission believes that it has
otherwise addressed commenters' concerns regarding duplicative
regulation. As discussed above, the Commission is exempting from the
definition of municipal advisor persons that provide advice with
respect to investment strategies that are not plans or programs for the
investment of the proceeds of municipal securities and the
recommendation of and brokerage of municipal escrow investments.\639\
As discussed below, based on the application of the adopted rules,
broker-dealers that sell securities to municipal entities and obligated
persons would generally not be engaging in municipal advisory
activity.\640\ The application of the adopted rules limits the range of
municipal financial products to which duplicative regulation could
apply. As noted above, the Commission believes that registered broker-
dealers that engage in municipal advisory activities by advising on the
investment of proceeds of municipal securities or municipal escrow
investments should not be exempt from municipal advisor
registration.\641\
---------------------------------------------------------------------------

    \639\ See supra note 327 and accompanying text and Rule 15Ba1-
1(d)(3)(vii).
    \640\ See infra note 644 and accompanying text.
    \641\ See supra Section III.A.1.b.viii. (discussing the
Commission's views on why advice with respect to the investment of
proceeds of municipal securities should be subject to municipal
advisor registration notwithstanding the existence of other
regulatory regimes). See also infra Section III.A.1.c.v.
(discussing, among other things, the Commission's position that
registered investment advisers engaging in municipal advisory
activities are only excluded from registration to the extent their
activities are investment advice). Likewise, the Commission believes
that broker-dealers that engage in municipal advisory activities
that are outside of the scope of the underwriting of a particular
issuance of municipal securities should be regulated and registered
as municipal advisors.
---------------------------------------------------------------------------

Broker-Dealers Selling Securities to Municipal Entities and Obligated
Persons
    Several commenters suggested that, based on the Proposal, the
Commission appears to conclude that ``a broker-dealer that sells a
security to a municipal entity where it is not serving as an
underwriter'' is engaged in municipal advisory activity, because advice
is integral to the sale of securities.\642\ That is not the conclusion
of the Commission. The municipal advisor registration requirement does
not apply in the absence of advice (or solicitation). As noted above,
for purposes of the municipal advisor definition, ``advice'' includes,
without limitation, a recommendation that is particularized to the
needs and circumstances of a municipal entity or obligated person with
respect to municipal financial products or the issuance of municipal
securities, based on all the facts and circumstances.\643\ Thus, a
broker-dealer that effects a transaction that it has not recommended
will not be a ``municipal advisor'' with respect to such activity.\644\
However, the sale of a security to a municipal entity or obligated
person constitutes a municipal advisory activity if: (1) the monies
used to purchase such security are proceeds of municipal securities;
\645\ and (2) in executing such transaction, the broker-dealer also
recommends the investment or otherwise offers advice to the municipal
entity or obligated person about which securities to purchase or sell.
---------------------------------------------------------------------------

    \642\ See Insurance Companies Letter (stating that the
Commission appears to conclude that every time a broker-dealer sells
a security to a municipal entity where it is not serving as an
underwriter, it must register as a municipal advisor, and that such
an approach seems inconsistent with Congressional intent due to pre-
existing broker-dealer regulation). See also ICI Letter (stating
that the Commission proposed that the broker-dealer exclusion means
that a broker, dealer or municipal securities dealer would be
eligible for the exclusion only when acting in its capacity as an
underwriter; and suggesting that the broker-dealer exclusion should
include brokers, dealers, and municipal securities dealers who
engage in additional activities while serving as underwriters to
municipal entities or obligated persons); and Large Public Power
Council Letter (expressing concern that the Commission is limiting
the broker-dealer exemption to situations in which the broker-dealer
is acting as an underwriter).
    \643\ See supra Section III.A.1.b.i. (discussing the advice
standard in general).
    \644\ See supra note 162 (discussing the term ``advice'' in
contexts outside of the municipal advisor definition).
    \645\ See supra notes 330-343 and accompanying text (discussing
the definition of ``proceeds of municipal securities'').
---------------------------------------------------------------------------

    Another commenter urged the Commission to exclude broker-dealers
affiliated with life insurance companies from municipal advisor
registration,

because such ``limited service'' broker-dealers are substantively
different from ``full service'' broker-dealers.\646\ The Commission
notes that broker-dealers affiliated with insurance companies are only
required to register as municipal advisors to the extent their
activities constitute advice to (or solicitation of) a municipal entity
or obligated person with respect to municipal financial products or the
issuance of municipal securities. The mere fact that a broker-dealer is
affiliated with a life insurance company and may not sell as wide a
range of securities as other broker-dealers is not determinative as to
whether such broker-dealer must register as a municipal advisor. As
noted in the paragraph above, such broker-dealers may sell securities
to a municipal entity without triggering municipal advisor
registration.
---------------------------------------------------------------------------

    \646\ See ACLI Letter (stating that the range of products
offered by these limited purpose broker-dealers is typically narrow
and focuses upon the distribution of variable insurance contracts
and mutual funds; and that such broker-dealers primarily elicit
orders from variable contract and mutual fund purchasers).
---------------------------------------------------------------------------

Broker-Dealers Providing Advice to Individual Plan Participants in a
Public Employee Benefit Plan
    One commenter expressed concern that broker-dealers that provide
investment advice (such as asset allocation) to individual plan
participants in the context of a 403(b) retirement plan or a similar
defined contribution plan might trigger municipal advisor registration.
This commenter recommended that such broker-dealers be specifically
excluded from registration.\647\
---------------------------------------------------------------------------

    \647\ See letter from Adym W. Rygmyr, Associate General Counsel,
TIAA-CREF Individual & Institutional Services, LLC, dated February
22, 2011 (``TIAA-CREF Letter'').
---------------------------------------------------------------------------

    The definition of municipal advisor states that a municipal advisor
is a person that provides advice ``to or on behalf of a municipal
entity or obligated person.'' As described above, advice related to
investment strategies that would require registration is limited to
advice with respect to ``the investment of proceeds of municipal
securities . . . and the recommendation of and brokerage of municipal
escrow investments.'' \648\ Thus, the provision of investment advice to
individual plan participants in a public employee benefit plan is not a
municipal advisory activity, as long as the individual plan participant
is not a municipal entity.\649\
---------------------------------------------------------------------------

    \648\ Rule 15Ba1-1(b) and Rule 15Ba1-1(d)(3)(vii).
    \649\ See supra Section III.A.1.b.viii. (distinguishing
individual contributions from municipal entity contributions to 529
Savings Plans and public retirement plans, among other plans).
---------------------------------------------------------------------------

v. Registered Investment Advisers
    Exchange Act Section 15B(e)(4)(C) excludes from the definition of
municipal advisor ``any investment adviser registered under the
Investment Advisers Act of 1940, or persons associated with such
investment advisers who are providing investment advice.'' \650\ The
Commission proposed in Rule 15Ba1-1(d)(2)(ii) to interpret the
statutory exclusion for registered investment advisers from the
definition of municipal advisor.\651\ Specifically, the Commission
proposed that the term ``municipal advisor'' shall not include ``[a]n
investment adviser registered under the Investment Advisers Act of 1940
. . . or a person associated with such registered investment adviser,
unless the registered investment adviser or person associated with the
investment adviser engages in municipal advisory activities other than
providing investment advice that would subject such adviser or person
associated with such adviser to the Investment Advisers Act of 1940.''
\652\
---------------------------------------------------------------------------

    \650\ 15 U.S.C. 78o-4(e)(4)(C).
    \651\ See proposed Rule 15Ba1-1(d)(2)(ii).
    \652\ See id. See also Temporary Registration Rule Release, 75
FR 54467.
---------------------------------------------------------------------------

    In the Proposal, the Commission stated that a registered investment
adviser or an associated person of a registered investment adviser
would fall within the definition of municipal advisor and be required
to register with the Commission as a municipal advisor if the adviser
or associated person engages in any municipal advisory activities
(including solicitation) that would not be investment advice subject to
the Investment Advisers Act.\653\ In the Proposal, the Commission
stated its belief that this interpretation is in furtherance of the
goals of the Dodd-Frank Act to regulate persons that engage in
municipal advisory activities.\654\
---------------------------------------------------------------------------

    \653\ See Proposal, 76 FR 833.
    \654\ See id.
---------------------------------------------------------------------------

    As discussed further below, the Commission received several
comments in response to its proposed interpretation of the statutory
exclusion relating to investment advisers. After careful consideration,
to address commenters' concerns, the Commission is modifying proposed
Rule 15Ba1-1(d)(2)(ii) to provide certain clarifications. Specifically,
Rule 15Ba1-1(d)(2)(ii), as adopted, provides that the definition of
municipal advisor excludes ``[a]ny investment adviser registered under
the Investment Advisers Act of 1940 . . . or any person associated with
such registered investment adviser to the extent that such registered
investment adviser or such person is providing investment advice in
such capacity.'' Moreover, the Commission clarifies in Rule 15Ba1-
1(d)(2)(ii) that ``investment advice,'' solely for purposes of this
rule, ``does not include advice concerning whether and how to issue
municipal securities, advice concerning the structure, timing, and
terms of an issuance of municipal securities and other similar matters,
advice concerning municipal derivatives, or a solicitation of a
municipal entity or obligated person.'' \655\
---------------------------------------------------------------------------

    \655\ See Rule 15Ba1-1(d)(2)(ii).
---------------------------------------------------------------------------

Interpretation of the Statutory Language
    Several commenters stated that the Commission's proposed
interpretation is contrary to the plain meaning of the statute and
exceeds its intended scope.\656\ One commenter stated that the statute
excludes ``any'' registered investment adviser--without
limitation.\657\ Similarly, another commenter stated that the phrase
``who are providing investment advice'' refers only to the immediately
previous phrase, ``persons associated with such investment advisers''--
not to ``such registered advisers'' themselves.\658\ As such, this
commenter also encouraged the Commission to interpret the exclusion for
investment advisers to apply to all registered investment advisers, not
just those who are providing investment advice.\659\ Yet another
commenter stated that the statute's exclusion of investment advisers
``who are providing investment advice'' cannot be interpreted to only
exclude advisers providing ``investment advice'' subject to the
Investment Advisers Act, because not all ``investment advice'' requires
registration under the Investment Advisers Act (e.g., advice with
respect to instruments that are not securities).\660\ This commenter
stated that the Commission's interpretation would mean that ``[a
Commission]-registered investment adviser would be excepted from
municipal advisor registration for only some, but not all, of its
investment activities.'' \661\ The commenter described the Commission's

interpretation as ``without an apparent reason or policy
justification.'' \662\
---------------------------------------------------------------------------

    \656\ See, e.g., IAA Letter; ICI Letter; SIFMA Letter I; and
letter from Heidi Stam, Managing Director and General Counsel, The
Vanguard Group, Inc., dated February 22, 2011 (``Vanguard Letter'').
    \657\ See Vanguard Letter. See also ICI Letter.
    \658\ See ICI Letter. See also IAA Letter.
    \659\ See ICI Letter.
    \660\ See SIFMA Letter I. See also text accompanying infra notes
682 and 683.
    \661\ SIFMA Letter I.
    \662\ Id.
---------------------------------------------------------------------------

    In commenting that registered investment advisers should be
excluded broadly from municipal advisor registration, one commenter
stated that the municipal advisor registration requirement established
by the Dodd-Frank Act was ``primarily aimed at registering unregulated
persons.'' \663\ Registered investment advisers, in the view of some
commenters, are ``already subject to the fiduciary duties and
comprehensive registration and disclosure requirements mandated by the
Investment Advisers Act.'' \664\ The proposal would therefore subject
them to ``duplicative and overlapping regulation.''\665\
---------------------------------------------------------------------------

    \663\ See Vanguard Letter.
    \664\ Id. See also MFA Letter.
    \665\ See Vanguard Letter.
---------------------------------------------------------------------------

    Some commenters stated that the Commission's proposed
interpretation of the exclusion ``interjects ambiguity'' on how to
determine whether registered investment advisers must also register as
municipal advisors.\666\ These commenters stated that the Commission's
interpretation would create ``widespread uncertainty'' \667\ among
investment advisers regarding whether certain of their activities are
subject to regulation as municipal advisory activities. One commenter
stated that the uncertainty would be compounded by the lack of a
definition concerning the kind of investment advice that would exempt a
registered investment adviser from the municipal advisor registration
requirement.\668\
---------------------------------------------------------------------------

    \666\ See, e.g., Vanguard Letter.
    \667\ MFA Letter.
    \668\ See Vanguard Letter.
---------------------------------------------------------------------------

    One commenter requested that the Commission include a non-exclusive
interpretation that ``any advice provided by a registered investment
adviser pursuant to a written agreement with a municipal entity to whom
the adviser owes a fiduciary duty as an investment adviser constitutes
the rendering of investment advice.'' \669\ The requested
interpretation would thereby exempt the investment adviser from
registration as a municipal advisor.\670\
---------------------------------------------------------------------------

    \669\ Id.
    \670\ See id.
---------------------------------------------------------------------------

    As stated above, the Commission is adopting a revised Rule 15Ba1-
1(d)(2)(ii). Under the rule the Commission is adopting today, a
registered investment adviser could provide advice concerning the
investment of proceeds in securities without registering as a municipal
advisor because it would be ``providing investment advice'' in its
capacity as a registered investment adviser. Further, if the advice is
provided pursuant to an advisory agreement that extends to investments
in both securities and non-security financial instruments, such advice
would still be excluded, because investment advice provided pursuant to
the advisory agreement would be investment advice for purposes of Rule
15Ba1-1(d)(2)(ii).\671\
---------------------------------------------------------------------------

    \671\ As discussed below, solely for purposes of the municipal
advisor registration rules, ``investment advice'' does not include
advice concerning whether and how to issue municipal securities,
advice concerning the structure, timing, and terms of an issuance of
municipal securities and other similar matters, advice concerning
municipal derivatives, or a solicitation of a municipal entity or
obligated person, even if such activities are under an advisory
agreement. Also, investment advice provided pursuant to the advisory
agreement would be subject to the anti-fraud provisions of the
Investment Advisers Act. See 15 U.S.C. 80b-6(1) and 80b-6(2). The
Supreme Court has construed Investment Advisers Act Sections 206(1)
and (2) as establishing a fiduciary standard for investment advisers
that imposes the ``affirmative duty of `utmost good faith, and full
and fair disclosure of all material facts,' as well as an
affirmative obligation to `employ reasonable care to avoid
misleading'' ' their clients. SEC v. Capital Gains Research Bureau,
Inc., 375 U.S. 180, 194 (1963).
---------------------------------------------------------------------------

    However, the Commission notes that, solely for purposes of the
municipal advisor registration rules, pursuant to Rule 15Ba1-
1(d)(2)(ii), ``investment advice'' does not include advice concerning
whether and how to issue municipal securities, advice concerning the
structure, timing, and terms of an issuance of municipal securities and
other similar matters, advice concerning municipal derivatives, or a
solicitation of a municipal entity or obligated person. Notwithstanding
that these activities may constitute advice under the Investment
Advisers Act, the Commission believes that this approach is appropriate
given that Section 15B(e) of the Exchange Act expressly designates
these activities as requiring municipal advisor registration.\672\
Accordingly, a registered investment adviser that provides these types
of advice to municipal entities or obligated persons would need to
register as a municipal advisor.
---------------------------------------------------------------------------

    \672\ See 15 U.S.C. 78o-4(e)(4). The Commission notes that this
interpretation of the term investment advice relates solely to
whether a registered investment adviser, or an associated person of
such adviser, would need to register as a municipal advisor.
---------------------------------------------------------------------------

    The Commission interprets the statutory language, which provides an
exclusion for registered investment advisers and associated persons
``who are providing investment advice,'' as evidence that Congress did
not intend to grant a blanket exemption from municipal advisor
registration for all registered investment advisers and their
associated persons regardless of the activities in which they are
engaged. The Commission believes the phrase ``who are providing
investment advice'' limits the exclusion. Under this interpretation, if
an associated person or a registered investment adviser engages in
municipal advisory activities that do not constitute ``investment
advice'' for purposes of Rule 15Ba1-1(d)(2)(ii), both the registered
investment adviser and the associated person of such adviser engaging
in the municipal advisory activities would be ``municipal advisors''
unless eligible for another exclusion or exemption.\673\
---------------------------------------------------------------------------

    \673\ Consequently, both the registered investment adviser and
the associated person would be required to register, unless the
associated person meets the requirements of the exemption from
registration in Rule 15Bc4-1 discussed below. See infra Section
III.A.7.
---------------------------------------------------------------------------

    The Commission further notes that the municipal advisor
registration and regulatory regime relates to issues that are unique to
municipal advisory activities--particularly the advice concerning
utilization of municipal derivatives, whether and how to issue
municipal securities, and the structure, timing, and terms of issuances
of municipal securities and other similar matters. The registration of
registered investment advisers as municipal advisors, to the extent
they engage in these activities, whether or not already subject to the
Investment Advisers Act, is necessary to provide the benefits
associated with the regulation of persons who engage in municipal
advisory activities. Such benefits include, but are not limited to,
standards of conduct, training, and testing for municipal advisors that
may be required by the Commission or the MSRB, and other requirements
unique to municipal advisors that may be imposed by the MSRB.\674\
---------------------------------------------------------------------------

    \674\ See supra note 190.
---------------------------------------------------------------------------

    The Commission believes that the clarifications described above
address the comments that the Commission's interpretation introduces
``ambiguity'' and will lead to ``widespread uncertainty'' among
registered investment advisers. In particular, permitting a Commission-
registered investment adviser to rely on the exclusion when providing
any advice under an investment advisory agreement that is subject to
the Investment Advisers Act, as long as such advice is not specifically
excluded from the definition of ``investment advice'' under Rule 15Ba1-
1(d)(2)(ii), will allow registered investment advisers to achieve
greater certainty about the scope of the exclusion at the time they
enter into an advisory

agreement.\675\ If an investment adviser firm engages in a municipal
advisory activity that is not within the registered investment adviser
exclusion, such as advice concerning the issuance of municipal
securities or the utilization of swaps by municipalities, the mere fact
that the firm is registered under the Investment Advisers Act would not
exempt that firm from registration as a municipal advisor.\676\
---------------------------------------------------------------------------

    \675\ See also Ancillary or Additional Advisory Services
Provided by Investment Advisers section below.
    \676\ The Commission acknowledges commenters' concerns that
there will be overlapping requirements for registered investment
advisers that engage in municipal advisory activities, just as there
are for investment advisers that engage in broker-dealer activities.
The Commission notes that it is permitting investment advisers that
have already filed a Form ADV with the Commission to incorporate by
reference in their Form MA certain information that they have
already supplied in Form ADV. See infra Sections II.A.2.
---------------------------------------------------------------------------

    As discussed above in Section III.A.1.b.viii., the Commission is
narrowing the application of the term ``investment strategies'' from
all plans, programs, or pools of assets that invest funds held by or on
behalf of a municipal entity to plans or programs for the investment of
the proceeds of municipal securities and the recommendation of and
brokerage of municipal escrow investments. Accordingly, the municipal
advisor registration regime, as adopted, will provide appropriate
protection for advice with respect to proceeds of municipal securities
while mitigating many of the commenters' concerns with respect to funds
of municipal entities other than proceeds of municipal securities.
Moreover, because advice provided to fewer types of plans, programs, or
pools of assets would require municipal advisor registration, the
Commission's exemption for persons providing advice with respect to
certain investment strategies will result in fewer registered
investment advisers having to register as municipal advisors compared
to Rule 15Ba1-1(b) as originally proposed.\677\ For example, under the
narrow scope of investment strategies, investment advisers who provide
advice to public employee benefit plans, participant-directed
investment plans such as 529, 403(b) or 457 plans that do not include
proceeds of municipal securities would not be required to register as
municipal advisors.
---------------------------------------------------------------------------

    \677\ See supra Section III.A.1.b.viii. (discussing the term
``investment strategies'' and the exemption pursuant to Rule 15Ba1-
1(d)(3)(vii)).
---------------------------------------------------------------------------

    As noted above, one commenter suggested that any advice pursuant to
a written agreement between an investment adviser and a municipal
entity to whom the adviser owes a fiduciary duty should be considered
investment advice and thus exclude the adviser from registration as a
municipal advisor.\678\ In the Commission's view, this approach fails
to recognize that the regulatory regime for municipal advisors set
forth in the Dodd-Frank Act includes more than a fiduciary duty.\679\
Accordingly, unless an exclusion or exemption applies, a municipal
advisor must register with the Commission and comply with the
applicable MSRB rules.\680\
---------------------------------------------------------------------------

    \678\ See supra notes 669-670 and accompanying text (discussing
the Vanguard Letter).
    \679\ See 15 U.S.C. 78o-4(c)(1). As noted above, benefits
associated with the regulation of municipal advisors also include,
but are not limited to, the application of standards of conduct,
training, and testing for municipal advisors that may be required by
the Commission or the MSRB, and other requirements unique to
municipal advisors that may be imposed by the MSRB. See supra note
190.
    \680\ See, e.g., MSRB Rule G-17 (Conduct of Municipal Securities
and Municipal Advisory Activities).
---------------------------------------------------------------------------

Ancillary or Additional Advisory Services Provided by Investment
Advisers
    Several commenters urged the Commission to carve out from the
definition of municipal advisor certain investment advisers that
provide various specific kinds of advice to municipal entities. For
example, some commenters noted that a registered investment adviser may
provide clients with services ancillary to its investment advice in
``the normal course of its advisory services.'' \681\ Such ancillary
service includes advice regarding investments other than securities
(e.g., bank deposits, currencies, real estate, futures, and forward
contracts),\682\ research, and reports.\683\ One commenter stated that
such services may not subject the adviser providing such services to
the Investment Advisers Act but would require the provider to register
as a municipal advisor. According to the commenter, an adviser would
have to ``segregate its activities into those that are exempt and those
which require registration as a municipal advisor and follow
potentially conflicting rules.'' \684\
---------------------------------------------------------------------------

    \681\ See, e.g., MFA Letter.
    \682\ See, e.g., MFA Letter and ICI Letter. See also SIFMA
Letter I and American Bankers Association Letter I.
    \683\ See, e.g., MFA Letter.
    \684\ American Bankers Association Letter I.
---------------------------------------------------------------------------

    Another commenter stated that managers at investment adviser firms
``would need to regularly monitor each service they provide to
municipal entities,'' which would be ``burdensome for a private fund
manager or other investment manager'' and ``would divert resources from
the performance of [their] core advisory services.'' \685\ The
commenter stated that the proposed rules could also cause some managers
to ``choose to reduce the types of services they provide,'' which could
``harm fund managers and their municipal entity clients.'' \686\
---------------------------------------------------------------------------

    \685\ See MFA Letter.
    \686\ Id.
---------------------------------------------------------------------------

    Another commenter suggested an exemption for a ``particularized
recommendation regarding the structuring or issuance of municipal
securities'' when such advice is provided in the context of the
investment adviser providing investment advisory services.\687\ For
example, according to this commenter, an investment adviser would be
exempt if it recommends changes to the terms of a municipal entity's
proposed bond offering so that the municipal entity can pay a lower
interest rate on the securities and invest the proceeds in less risky
investment vehicles.\688\
---------------------------------------------------------------------------

    \687\ SIFMA Letter I.
    \688\ See id.
---------------------------------------------------------------------------

    The Commission carefully considered the comments received,
including comments regarding the burden for firm managers to monitor
each service provided by the firm to determine whether it would require
municipal advisor registration. The Commission, however, is not
exempting from the definition of municipal advisor a registered
investment adviser that engages in municipal advisory activities that
are ``in the ordinary course of'' investment advice or ``ancillary'' to
such investment advice. The determination of whether a particular
activity is ``in the ordinary course of'' or ``ancillary'' is very much
based on facts and circumstances. Thus, the Commission is concerned
that such a standard could be easily circumvented and could create a
pretext for abuse.\689\
---------------------------------------------------------------------------

    \689\ See supra Section III.A.1.c.iv. (discussing broker-dealers
selling securities and solely incidental services).
---------------------------------------------------------------------------

    The Commission interprets the registered investment adviser
exclusion to include any advice provided pursuant to an advisory
agreement. However, Rule 15Ba1-1(d)(2)(ii) excludes from ``investment
advice'' advice concerning: (1) Whether and how to issue municipal
securities; (2) the structure, timing, and terms of issuances of
municipal securities and other similar matters; and (3) municipal
derivatives. Additionally, the registered investment adviser exclusion
does not cover solicitation of a municipal entity or obligated person,
as defined in Rule 15Ba1-1(n). The Commission does not believe that it
is necessary to adopt most

of the interpretations or carve-outs from the municipal advisor
definition that commenters suggested because it anticipates that most
of these additional services would be covered by advisory agreements.
For example, as discussed above, a registered investment adviser that
advises a municipal entity to invest the proceeds of an issuance of
municipal securities in an asset class other than securities will not
be required to register as a municipal advisor, if that advice is
provided pursuant to an advisory agreement between the registered
investment adviser and the municipal entity. Similarly, if ancillary
services are provided pursuant to an advisory agreement and these
services are not of the type specifically excluded from ``investment
advice'' under Rule 15Ba1-1(d)(2)(ii), the investment adviser exclusion
would apply. The Commission believes that its interpretation of the
investment adviser exclusion should mitigate commenters' concerns
regarding segregating activities into those that are exempt and those
that are not and following potentially conflicting rules.\690\ The
Commission also believes that its interpretation should mitigate
commenters' concerns regarding the burden for a firm to monitor its
activities \691\ because a firm would only need to monitor for the
specific types of activities that are excluded from ``investment
advice'' under Rule 15Ba1-1(d)(2)(ii) and the activities that are not
covered by advisory agreements.
---------------------------------------------------------------------------

    \690\ See supra note 684 and accompanying text.
    \691\ See supra notes 685-686 and accompanying text.
---------------------------------------------------------------------------

    The Commission is also not adopting a commenter's suggestion to
create a specific exemption for ``a particularized recommendation
regarding the structuring or issuance of municipal securities.'' \692\
The Commission believes that an adviser offering advice regarding the
issuance of municipal securities, including advice with respect to the
structuring, timing, terms, and other similar matters, clearly is a
municipal advisor because the statutory definition of municipal advisor
expressly includes such activities.
---------------------------------------------------------------------------

    \692\ See supra notes 687-688 and accompanying text.
---------------------------------------------------------------------------

Affiliates of Investment Advisers Providing Municipal Advisory Services
    As discussed above, Exchange Act Section 15B(e)(4)(A)(ii) includes
in the definition of municipal advisor a person that ``undertakes a
solicitation of a municipal entity.'' \693\ Section 15B(e)(9), however,
excludes a person that controls, is controlled by, or is under common
control with a registered investment adviser \694\ from the requirement
to register as a municipal advisor when it solicits municipal entities
or obligated persons on behalf of the affiliated investment
adviser.\695\ Thus, an affiliate of a registered investment adviser may
engage in such solicitation without registering as a municipal advisor.
Neither the statute nor the rules, as proposed, otherwise exclude an
affiliate of a registered investment adviser from the definition of
municipal advisor.
---------------------------------------------------------------------------

    \693\ 15 U.S.C. 78o-4(e)(4)(A)(ii).
    \694\ For purposes of this discussion, the term ``affiliate of a
registered investment adviser'' means such a person.
    \695\ See 15 U.S.C. 78o-4(e)(9).
---------------------------------------------------------------------------

    One commenter stated that registered investment advisers ``often
assign or delegate management of a portion of their client's assets to
an affiliated entity . . . when they seek specialized expertise for
particular regions, strategies, or products.'' \696\ The commenter
stated that such affiliated entities ``are typically part of the same
organization as the registered adviser and are subject to the same or
similar compliance and management structures.'' \697\ Further, they are
usually ``organized as separate legal entities rather than branch
offices'' for ``tax or other purposes.'' \698\ The commenter stated
that, because the registered investment advisers themselves are exempt
from registration as municipal advisors when they provide investment
advice, it would be incongruous to require their affiliates to register
as municipal advisors.\699\ The commenter further stated that
registration would ``simply add costs to the industry and regulators
without additional public policy benefits.'' \700\
---------------------------------------------------------------------------

    \696\ See MFA Letter.
    \697\ Id.
    \698\ Id.
    \699\ Id.
    \700\ Id.
---------------------------------------------------------------------------

    The Commission disagrees that there should be a general exemption
for affiliates of registered investment advisers that engage in
municipal advisory activities. The Commission notes that Congress
explicitly exempted affiliates from the solicitation prong of the
municipal advisor definition, but not from the prong relating to
advisory and other activities. Accordingly, the Commission believes
that the statute does not contemplate exempting affiliates from
municipal advisor registration, except when an affiliate specifically
solicits business for its affiliated entity.
    Further, as discussed below, the Commission does not believe that
any additional exemption is necessary or appropriate. In the case of
solicitations, the Commission notes that, although the statute excludes
solicitation by an affiliate from the definition of municipal
advisor,\701\ the Commission would still have regulatory authority over
the entity on whose behalf the affiliate is soliciting, as a municipal
advisor, if it engages in municipal advisory activities. If the entity
is also a registered investment adviser and falls under the investment
adviser exclusion in Rule 15Ba1-1(d)(2)(ii), the Commission would
continue to have regulatory authority over that entity as a registered
investment adviser. In a case where an affiliate of a registered
investment adviser is engaged in municipal advisory activities as a
municipal advisor, however, the Commission would not necessarily have
regulatory authority outside of the municipal advisor registration
regime. Also, as discussed more fully above, the Commission's exemption
for persons that provide advice with respect to investment strategies
that are not plans or programs for the investment of the proceeds of
municipal securities or the recommendation of and brokerage of escrow
investments \702\ should reduce the likelihood that specialized
expertise from affiliates, such as foreign affiliates, will require
registration.
---------------------------------------------------------------------------

    \701\ See 15 U.S.C. 78o-4(e)(9) (defining ``solicitation of a
municipal entity or obligated person'').
    \702\ See supra Section III.A.1.b.viii. (discussing the
Commission's application of the term ``investment strategies'').
---------------------------------------------------------------------------

Investment Adviser Solicitations and Referrals
    Some commenters requested clarification on the exclusion for
investment advisers from the solicitation prong of the municipal
advisor definition. One commenter requested that the Commission confirm
that the exclusion for investment advisers applies to the investment
adviser and its employees ``who may solicit municipal entities as part
of their regular responsibilities to market the adviser's investment
advisory services or who may incidentally discuss the adviser's
advisory services with municipal entities.'' \703\
---------------------------------------------------------------------------

    \703\ See IAA Letter.
---------------------------------------------------------------------------

    The Commission agrees with this comment and notes that a registered
investment adviser that solicits on its own behalf does not fall within
the ``solicitation'' prong of the municipal advisor definition.
Exchange Act Section 15B(e)(9) provides that the term ``solicitation of
a municipal entity or obligated person'' means a

communication ``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.'' \704\ Thus, Section 15B(e)(9)
permits a registered investment adviser and its employees, who market
the adviser's investment advisory services, to solicit municipal
entities or obligated persons, including discussing the adviser's
advisory services, without triggering regulatory obligations, to the
extent such solicitation is on behalf of the registered investment
adviser. As discussed above, the same is true for affiliates of
registered investment advisers.
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    \704\ 15 U.S.C. 78o-4(e)(9).
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    One commenter expressed concern that an investment adviser
providing advice to a client regarding the selection or retention of
another investment manager could constitute a solicitation of a
municipal entity or obligated person under Section 15B(e)(9) of the
Exchange Act.\705\ The Commission confirms that a registered investment
adviser will not be required to register as a municipal advisor in this
scenario, unless it receives direct or indirect compensation and acts
on behalf of the recommended investment adviser. Absent such facts, the
registered investment adviser is not soliciting on behalf of another
broker, dealer, municipal securities dealer, municipal advisor, or
investment adviser, and thus would not be engaging in solicitation
requiring municipal advisor registration.\706\
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    \705\ See Insurance Companies Letter.
    \706\ However, such advice may be considered investment advice
under the Investment Advisers Act. See supra note 423.
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State-Registered Investment Advisers
    As a result of changes in the threshold for registration as an
investment adviser with the Commission,\707\ certain entities are not
required to register as investment advisers under the Investment
Advisers Act and instead are subject to state registration
requirements.\708\ In the Proposal, the Commission sought comment on
whether state-registered investment advisers should be exempt from the
municipal advisor definition to the extent they are providing advice
that otherwise would be subject to the Investment Advisers Act, but for
the operation of a prohibition on, or exemption from, Commission
registration.\709\
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    \707\ See 15 U.S.C. 80b-3a(a).
    \708\ See Investment Advisers Act Release No. 3221 (June 22,
2011), 76 FR 42950 (July 19, 2011) (implementing the statutory shift
to the states the responsibility for oversight of investment
advisers that have between $25 million and $100 million of assets
under management). Approximately 2,400 Commission-registered
investment advisers withdrew their registrations and registered with
state securities authorities in 2012 and 2013.
    \709\ See Proposal, 76 FR 836.
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    Several commenters supported an exemption for state-registered
investment advisers.\710\ One commenter, for example, stated that
``Congress has recognized the efficacy of state regulation of
investment advisers.'' \711\ Therefore, ``the Commission should
similarly recognize the efficacy of state regulation of investment
advisers, particularly since the provision of advice to municipal
entities is a matter of special interest to state authorities.'' \712\
Another commenter stated that state-registered investment advisers are
already subject to significant regulation by state regulators,
including fiduciary obligations with respect to investment management
activities. Consequently, the commenter stated that ``imposing an
additional layer of regulation on these persons would not provide an
appreciable regulatory benefit or increase the protection of municipal
entities or obligated persons.'' \713\
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    \710\ See, e.g., ABA Letter; MFA Letter; SIFMA Letter I; letter
from Rex A. Staples, General Counsel, North American Securities
Administrators Association, Inc., dated March 15, 2011 (``NASAA
Letter'').
    \711\ ABA Letter.
    \712\ Id.
    \713\ SIFMA Letter I.
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    After considering the commenters' views, the Commission is not
adopting an exemption for state-registered investment advisers at this
time. The Commission notes that the statutory definition of municipal
advisor excludes only federally-registered investment advisers. The
Commission also notes that state regulation of investment advisers is
not always similar to regulation under the Investment Advisers Act. For
example, state-registered investment advisers are not subject to the
Commission's pay-to-play rule.\714\ Furthermore, because the Commission
is limiting the kinds of advice with respect to ``investment
strategies'' that would require a person to register as a municipal
advisor,\715\ the Commission believes that fewer state-registered
investment advisers will be required to register as municipal advisors
than as originally proposed.\716\
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    \714\ See Investment Advisers Act Release No. 3043 (July 1,
2010), 75 FR 41018, 41019 (July 14, 2010) (``Political Contributions
Final Rule'').
    \715\ See supra Section III.A.1.b.viii.
    \716\ For example, under the exemption pursuant to Rule 15Ba1-
1(d)(3)(vii), state-registered investment advisers who provide
advice to public employee benefit plans (including participant
directed plans or plans such as 529 Savings Plans, 403(b) plans, and
457 plans) that do not include proceeds of municipal securities
would not be required to register as municipal advisors.
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Exempt Reporting Advisers
    Finally, the Commission is not adopting the suggestion of one
commenter to exempt the category of ``Exempt Reporting Advisers'' from
registration as municipal advisors.\717\ The commenter stated that the
Exempt Reporting Advisers exemption from registration under the
Investment Advisers Act indicates that policy makers have determined
that ``such investment advisers are not of the type that must register
with the [Commission] and be subject to Commission oversight as a
registered investment adviser.'' \718\ The commenter stated that it
would be ``consistent with these policy determinations to similarly
exempt these advisers from the definition of municipal advisor in
connection with providing investment advice to a municipal entity.''
\719\
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    \717\ See MFA Letter (citing Investment Advisers Act Release No.
3111 (November 19, 2010), 75 FR 77190 (December 10, 2010) (Proposed
Exemptions for Advisers to Venture Capital Funds, Private Fund
Advisers with Less Than $150 Million in Assets Under Management, and
Foreign Private Advisers)). The Commission subsequently adopted the
exemption from registration under the Investment Advisers Act for
Exempt Reporting Advisers. See Investment Advisers Act Release No.
3222 (June 22, 2011), 76 FR 39646 (July 6, 2011) (Exemptions for
Advisers to Venture Capital Funds, Private Fund Advisers With Less
Than $150 Million in Assets Under Management, and Foreign Private
Advisers).
    \718\ MFA Letter.
    \719\ Id.
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    The Commission does not agree. The Commission believes that, if
Exempt Reporting Advisers engage in municipal advisory activities,
consistent with the protection of municipal entities and obligated
persons, and consistent with the policy objectives of Congress and this
rulemaking, they should not be exempt from the municipal advisor
registration requirement based on status. Specifically, while Congress
determined that Exempt Reporting Advisers do not need to be registered
in connection with their investment advisory activities, that does not
suggest that Exempt Reporting Advisers should similarly be exempt from
regulation as municipal advisors. Therefore, Exempt Reporting Advisers
who are exempt from registration as investment advisers must register
as municipal advisors if they engage in municipal advisory activities,
unless they qualify for an exclusion or exemption. However, as
discussed above, the Commission is exempting from the definition of
municipal advisor persons that provide advice with respect to
investment strategies that are not

plans or programs for the investment of the proceeds of municipal
securities or the recommendation of and brokerage of municipal escrow
investments.\720\ Accordingly, the Commission believes that fewer
Exempt Reporting Advisers will be required to register as municipal
advisors than as originally proposed. For example, under the narrow
scope of investment strategies, Exempt Reporting Advisers who provide
advice to private funds that do not include proceeds of municipal
securities would not be required to register as municipal advisors.
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    \720\ See supra Section III.A.1.b.viii.
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vi. Registered Commodity Trading Advisors; Swap Dealers
    Exchange Act Section 15B(e)(4)(C) excludes from the definition of
municipal advisor any commodity trading advisor registered under the
Commodity Exchange Act or persons associated with a commodity trading
advisor who are providing advice related to swaps. In the Proposal, the
Commission interpreted the statutory exclusion for registered commodity
trading advisors and their associated persons to apply only to such
persons when they are providing advice related to swaps, as that term
is defined in Section 1a(47) of the Commodity Exchange Act and Section
3(a)(69) of the Exchange Act,\721\ and any rules and regulations
promulgated thereunder.\722\ As proposed in Rule 15Ba1-1(d)(2)(iii), a
commodity trading advisor, or an associated person of a commodity
trading advisor, would be required to register with the Commission as a
municipal advisor if the commodity trading advisor, or an associated
person of the commodity trading advisor, engages in any municipal
advisory activities that are not advice related to swaps.\723\ Further,
a commodity trading advisor would be required to register with the
Commission if the advisor provides advice with respect to swaps on
behalf of a municipal entity or obligated person, but is not registered
as a commodity trading advisor under the Commodity Exchange Act or is
not a person associated with a registered commodity trading advisor
providing advice related to swaps.\724\
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    \721\ 7 U.S.C. 1a(47) and 15 U.S.C. 78c(a)(69). Consistent with
the statutory exclusion, the Commission's proposed interpretation of
the statutory exclusion would not apply when such persons are
providing advice with respect to security-based swaps.
    \722\ See Proposal, 76 FR 833. See also Temporary Registration
Rule Release, 75 FR 54467.
    \723\ See Proposal, 76 FR 833. As an example, the Commission
noted that if an advisor is providing advice to a municipal entity
with respect to engaging in a swap transaction and provides advice
to the municipal entity with respect to the structure of a municipal
securities offering, the advisor would have to register with the
Commission as a municipal advisor and would be subject to regulation
by the MSRB as a municipal advisor. See id.
    \724\ See id.
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    The Commission requested comment on, and received several comments
regarding, its interpretation of the exclusion for commodity trading
advisors.\725\ One commenter agreed that the exclusion should only be
available when the registered commodity trading advisor is providing
advice related to swaps.\726\ This commenter believed that Congress
intended a single comprehensive municipal advisor regulatory structure
to govern advice to municipal entities, particularly in, but not
necessarily limited to, the context of a municipal securities
offering.\727\
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    \725\ See id., at 837.
    \726\ See MSRB Letter.
    \727\ See id.
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    Another commenter expressed concern that the Commission's proposed
interpretation of the exclusion could have the unintended consequence
of requiring commodity trading advisors to register as municipal
advisors if, ``in connection with providing advice about swaps, [a
commodity trading advisor] provide[s] clients or prospective clients
with research or advice about instruments other than swaps.'' \728\ The
commenter expressed concern that a registered commodity trading advisor
would need to register as a municipal advisor if these ancillary
services fall within the scope of municipal advisory activities and are
not deemed to be the type of advice described in the exclusion.
According to the commenter, the types of ancillary services that a
commodity trading advisor may provide to a municipal entity would be
subject to ``regular oversight by the [Commission] and CFTC.'' \729\ In
addition, the commenter stated that the rules would create widespread
uncertainty among registered commodity trading advisors regarding
whether the services they perform would require registration as
municipal advisors.\730\ According to the commenter, in order to comply
with the proposed rules, managers would need to regularly monitor each
service they provide to municipal entities, determine which of the
services are municipal advisory activities, and further determine which
of the services, if any, may not be deemed to be advice related to
swaps.\731\
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    \728\ MFA Letter.
    \729\ Id. According to the commenter, such ancillary services
include providing clients or prospective clients with research or
advice about instruments other than swaps in connection with
providing advice about swaps.
     The Commission notes that providing certain general information
to clients or prospective clients, such as research and general
information about products, would not be municipal advisory
activity. See supra Section III.A.1.b.i.
    \730\ See MFA Letter.
    \731\ See id.
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    Another commenter urged the Commission to ``honor a waiver, no-
action letters or other remedy from the CFTC regarding the requirement
to register as a commodity trading advisor.'' \732\ The same commenter
stated that ``the CFTC has established a `private advisor' limited
exemption from commodity trading advisor registration.'' \733\ Under
this exemption, a person does not have to register as a commodity
trading advisor if it has not provided commodity trading advice to more
than fifteen persons during the preceding twelve months and does not
hold itself out to the public as a commodity trading advisor.\734\ The
commenter suggested that the Commission should implement a similar
exemption for purposes of determining when a person must register as a
municipal advisor.\735\ In addition, the commenter stated that creating
an exemption for providing advice to a de minimis number of entities
would help distinguish between entities whose principal business is to
be a municipal advisor and others.\736\
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