relevant funds constitute proceeds of municipal securities for purposes
of Rule 15Ba1-1(m), a person may rely on representations in writing
made by a knowledgeable official of the municipal entity or obligated
person whose funds are to be invested regarding the nature of such
funds, provided the person has a reasonable basis for such
reliance.\363\ Under Rule 15Ba1-1(m)(3), a person need not obtain a
separate written representation each time an investment is made, and
can instead rely on a prior written representation if the person has a
reasonable basis for reliance. The Commission believes that a
determination of whether or not a person has a reasonable basis to rely
on a written representation requires reasonable diligence, based on all
the facts and circumstances, including review of the written
representation and other relevant information reasonably available to
the person. For example, a person should not ignore information \364\
in the person's possession as a result of which such person would know
that the representation is inaccurate. In such a circumstance, the
person seeking to rely on the representation should make further
inquiry to verify the accuracy of the representation in order to show a
reasonable basis for the reliance. However, a person relying on a
written representation generally need not independently verify all the
information underlying the representation. Depending on the particular
facts and circumstances, however, a person seeking to rely on such
representations should take into account other information, including,
but not limited to, information that is reasonably available to such
person either as a result of the person's relationship with the
municipal entity or obligated person or that is provided by other
parties to the relevant transaction.\365\
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    \363\ See Rule 15Ba1-1(m)(3).
    \364\ For example, such person may have acquired other
information as a result of its interaction with the municipal entity
or obligated person, either in connection with the transaction with
respect to which it received the written representation or
otherwise.
    \365\ The Commission notes that it has in other contexts
expressed similar views on whether a person's reliance on
information is reasonable. For example, under Regulation R, a bank
or a broker-dealer satisfies its customer eligibility requirements
if the bank or broker-dealer ``has a reasonable basis to believe
that the customer'' is an institutional customer or high net worth
customer before the time specified in the rule. See 17 CFR 247.701.
When adopting Regulation R, the Commission stated that a bank or
broker-dealer would have a ``reasonable basis to believe'' if it
obtains a signed acknowledgment that the customer met the applicable
standards, unless it had information that would cause it to believe
that the information provided by the customer was or was likely to
be false. See Definitions of Terms and Exemptions Relating to the
``Broker'' Exceptions for Banks, Securities Exchange Act Release No.
56501 (September 28, 2007), 72 FR 56514 (October 3, 2007).
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Municipal Escrow Investments
    Section 15B(e)(3) of the Exchange Act provides that the term
investment strategies includes, in part, ``the recommendation of and
brokerage of municipal escrow investments.'' \366\ However, Section
15B(e) of the Exchange Act does not define the term ``municipal escrow
investments.''
---------------------------------------------------------------------------

    \366\ 15 U.S.C. 78o-4(e)(3).
---------------------------------------------------------------------------

    Several commenters discussed the term ``municipal escrow
investments'' as used in the context of investment strategies and some
asked for further Commission guidance on the meaning of this term.\367\
For example, one commenter stated that Congress intended the term to be
limited to accounts holding the proceeds of municipal securities
pending deployment.\368\ Another commenter stated that municipal escrow
investments means investments deposited in an escrow account to
``defease'' \369\ municipal securities.\370\ Another commenter stated
that municipal escrow investments are

investments of funds in a segregated escrow account established by the
municipal entity or obligated person to hold funds that have been
allocated for satisfying a specific and identified obligation of the
municipal entity or obligated person and maintained by an escrow agent
for the municipal entity or obligated person.\371\ One commenter stated
that the Commission should recognize that the term ``municipal escrow
investments'' has a different and narrower meaning than ``proceeds of
municipal securities'' and is limited to investments held in an escrow
account.\372\ This commenter also suggested that the Commission should
clarify that merely providing brokerage of municipal escrow investments
does not make a person a municipal advisor.\373\
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    \367\ See, e.g., ABA Letter and SIFMA Letter I.
    \368\ See letter from Charles W. Cary, Jr., Chief Investment
Officer, Division of Investment Services, Employees' Retirement
System of Georgia and Teachers Retirement System of Georgia, dated
February 21, 2011 (``Teachers Retirement System Letter'').
    \369\ The MSRB provides the following definition for
``defeasance'' or ``defeased''--``Termination of certain of the
rights and interests of the bondholders and of their lien on the
pledged revenues or other security in accordance with the terms of
the bond contract for an issue of securities. This is sometimes
referred to as a `legal defeasance.' Defeasance usually occurs in
connection with the refunding of an outstanding issue after
provision has been made for future payment of all obligations
related to the outstanding bonds, sometimes from funds provided by
the issuance of a new series of bonds. In some cases, particularly
where the bond contract does not provide a procedure for termination
of these rights, interests and lien other than through payment of
all outstanding debt in full, funds deposited for future payment of
the debt may make the pledged revenues available for other purposes
without effecting a legal defeasance. This is sometimes referred to
as an `economic defeasance' or `financial defeasance.' If for some
reason the funds deposited in an economic or financial defeasance
prove insufficient to make future payment of the outstanding debt,
the issuer would continue to be legally obligated to make payment on
such debt from the pledged revenues.'' See definition of
``Defeasance'' or ``Defeased'' in Glossary of Municipal Securities
Terms, MSRB (3d ed. 2013), available at http://msrb.org/glossary.aspx (``MSRB Glossary'').
    \370\ See Kutak Rock Letter.
    \371\ See SIFMA Letter I.
    \372\ See ABA Letter.
    \373\ See id. Rather, the commenter asserted that providing
advice with respect to the recommendation of, and brokerage of,
municipal escrow investments makes a person a municipal advisor.
---------------------------------------------------------------------------

    The Commission has carefully considered the issues raised by
commenters on the Proposal and has determined to provide a definition
for ``municipal escrow investments.'' \374\ For purposes of the
definition of investment strategies, the Commission is defining
``municipal escrow investments'' as proceeds of municipal securities
and any other funds of a municipal entity that are deposited in an
escrow account to pay the principal of, premium, if any, and interest
on one or more issues of municipal securities.\375\ Because it is a
separate component of the statutory definition of investment
strategies, the Commission agrees with the comments that ``municipal
escrow investments'' does not necessarily have the same meaning as
``proceeds.'' \376\ At the same time, however, municipal escrow
investments generally are funded with proceeds raised from the issuance
of municipal securities in refunding or refinancing transactions to be
used to provide for repayment of prior outstanding issues of municipal
securities and these escrows also may include certain other funds, such
as an issuer's cash contribution derived from revenues.\377\ In
addition, municipal escrow investments may be funded in part from
equity-type funds which may be viewed as equity or as a broad category
of proceeds as a result of their escrow pledge to secure the
outstanding municipal securities to be refinanced and their attendant
close nexus to those municipal securities.\378\ The definition of
municipal escrow investments provided herein, consistent with Rule
15Ba1-1(d)(3)(vii), protects funds that are used for payment of the
municipal securities issue, whether or not they are derived from the
sale of municipal securities.
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    \374\ See Rule 15Ba1-1(h).
    \375\ See Rule 15Ba1-1(h)(1).
    \376\ See Rule 15Ba1-1(m) (defining proceeds of municipal
securities).
    \377\ See, e.g., Ballard, ABCs of Arbitrage at 169 (``A
refunding escrow is any fund that contains proceeds of a refunding
issue for use in paying principal or interest on a prior issue.
Normally, an issuer will contribute either revenues or unspent prior
issue proceeds to a refunding escrow in addition to proceeds of the
refunding issue.). See also Treas. Reg. Sec.  1.148-1(b), which
defines a ``refunding escrow'' generally to mean ``one or more funds
established as part of a single transaction or a series of related
transactions, containing proceeds of a refunding issue and any other
amounts to provide for payment of principal or interest on one or
more prior issues.'')
    \378\ See Treas. Reg. Sec.  1.148-1(b) (definitions of
``proceeds'' and ``replacement proceeds,'' respectively).
---------------------------------------------------------------------------

    The Commission believes that this definition of municipal escrow
investments is appropriate in order to protect both investors in
municipal securities and municipal entities for reasons discussed
further below. These municipal escrow investments typically involve
investments of significant amounts of proceeds of municipal securities
for long periods of time linked to call restrictions or maturities of
refunded debt. These features make municipal escrow investments
particularly vulnerable to abuse, and in fact significant investment
pricing abuses have occurred in the area of municipal escrow
investments in the past and the potential for future pricing abuses
continues to exist in this area.\379\ In one particularly notable
historic example, pricing abuses involving municipal escrow investments
were the subject of a major joint enforcement initiative involving the
Commission, the Internal Revenue Service, and the U.S. Attorney for the
Southern District of New York that affected a large number of major
broker-dealers with respect to artificially high prices on U.S.
Treasury securities charged by such dealers in sales of such securities
to municipal entities to fund municipal escrow investments.\380\
---------------------------------------------------------------------------

    \379\ See generally Robert A. Fippinger, The Securities Law of
Public Finance (3rd Ed. 2012) at Sec.  14:12 entitled ``Markup
Fraud: Yield Burning.''
    \380\ See SEC Press Release No. 2000-45 (April 6, 2000), in
which the SEC announced a global settlement with 17 broker-dealers
with respect to pricing abuses in municipal escrow investments. The
artificial pricing practices are known as ``yield-burning'' and this
settlement is known as the ``global yield-burning settlement.''
---------------------------------------------------------------------------

    The Commission notes that a person merely providing brokerage of
municipal escrow investments would not be a municipal advisor if such
person does not provide advice with respect to such investments.\381\
The purchase and sale of escrow investments upon the direction of an
obligated person or its financial advisor without rendering advice is
merely a provision of brokerage services and does not render such
person a municipal advisor. It is the provision of advice to or on
behalf of a municipal entity or obligated person with respect to
municipal escrow investments that renders a person a municipal
advisor.\382\
---------------------------------------------------------------------------

    \381\ See infra Section III.A.1.c.iv. at notes 642-645 and
accompanying text (discussing that certain routine selling
activities would not constitute municipal advisory activities).
    \382\ See also infra notes 637-641 and accompanying text
(discussing when advice given by a broker-dealer is considered to be
``solely incidental'' to the conduct of his business as a broker or
dealer).
---------------------------------------------------------------------------

    Also, consistent with the definition of proceeds of municipal
securities that the Commission is adopting, the Commission is including
a written representation component in the definition of municipal
escrow investments. Accordingly, Rule 15Ba1-1(h)(2) states that, in
determining whether or not funds to be invested or reinvested
constitute municipal escrow investments for purposes of Rule 15Ba1-
1(h), a person may rely on representations in writing made by a
knowledgeable official of the municipal entity or obligated person
whose funds are to be invested or reinvested regarding the nature of
such investments, provided that the person seeking to rely on such
representations has a reasonable basis for such reliance.\383\ As with
the written representation component under the definition of proceeds
of municipal securities, under Rule 15Ba1-1(h), a person need not
obtain a separate written representation each time an investment is
made, and can instead rely on a prior written representation if the
person has a reasonable basis for reliance. For this purpose, the same
standard and principles apply in determining whether a person has a
reasonable basis for such reliance as discussed previously with respect
to reliance on representations regarding proceeds determinations.\384\
---------------------------------------------------------------------------

    \383\ See Rule 15Ba1-1(h)(2).
    \384\ See supra notes 364-365 and accompanying text.
---------------------------------------------------------------------------

Other Comments on the Scope of the Proposed Interpretation of
``Investment Strategies''
    In addition to responses to specific requests for comment, the
Commission received a number of other comments regarding its proposed
interpretation of the statutory definition of investment

strategies. For example, one commenter requested that the Commission
clarify that the term ``investment strategies'' does not include
separate accounts supporting insurance contracts or their underlying
investment vehicles.\385\ The commenter reasoned that the funds
invested in such insurance contracts are not proceeds of municipal
securities, but are employer and employee contributions.\386\ Another
commenter argued that the term ``municipal financial product'' should
not include ``an insurance product tailored to a municipal entity,''
because ``such products . . . are already quite well regulated.'' \387\
---------------------------------------------------------------------------

    \385\ See Committee of Annuity Insurers Letter I.
    \386\ See id. The commenter explained that variable annuity
contracts issued by its members are supported by insurance company
separate accounts. Insurance company separate accounts could be
limited to insurance contracts issued only to governmental
retirement plans. The commenter noted that, if the Commission adopts
its proposal to define municipal entity as including 457 plans and
403(b) plans, these insurance company separate accounts could then
be viewed as pooled investment vehicles limited to municipal entity
investors (i.e., 457 plans and 403(b) plans). The commenter noted
that the definition of investment strategies could be read to imply
that an insurance company separate account, whose assets are limited
to contributions from insurance contracts held by governmental
retirement plans, is an investment strategy. The commenter stated
that it has found no indication in the legislative history that
Congress intended this result. The commenter noted that the funds
invested in these insurance contracts are not proceeds of municipal
securities, but rather employer and employee contributions. In the
case of employee contributions from salary deduction arrangements,
such salary funds are equity funds of the employees upon receipt,
regardless of the source of those salaries, and thus are not
proceeds of municipal securities.
    \387\ See Kutak Rock Letter.
---------------------------------------------------------------------------

    The Commission agrees that employee contributions are not proceeds
of municipal securities because these funds are derived from salary
deduction arrangements with individual employees and not from the
issuance of a municipal security. Therefore, a person providing advice
with respect to such contributions would be exempt from the definition
of municipal advisor to the extent their municipal advisory activities
are limited to such advice. Whether a person providing advice with
respect to employer contributions will be exempt, however, will depend
upon whether such funds are proceeds of municipal securities. In
general, public pension plans do not include proceeds of municipal
securities because proceeds of tax-exempt municipal securities
generally cannot be spent to fund investments for pension
liabilities.\388\ Further, the Commission agrees that a person
providing advice with respect to other insurance products tailored to a
municipal entity would not be engaged in municipal advisory activities
if the insurance products do not involve the investment of proceeds of
municipal securities because the final rules narrow the focus of the
term ``investment strategies'' to those involving investments of
proceeds of municipal securities and municipal escrow investments with
a new exemption in Rule 15Ba1-1(d)(3)(vii).
---------------------------------------------------------------------------

    \388\ See 26 U.S.C. 148(a)(2) and Treas. Reg. Sec.  1.148-1(e)
(investment property definition).
---------------------------------------------------------------------------

ix. Pooled Investment Vehicles
    As discussed above, the Commission proposed to interpret the
statutory definition of the term ``investment strategies'' to include
``pools of assets that invest funds held by or on behalf of a municipal
entity.'' \389\ Further, as part of the discussion of the term
``investment strategies,'' the Commission noted in the Proposal that,
to the extent a person is providing advice to certain pooled investment
vehicles in which a municipal entity has invested funds along with
other investors, such pooled investment vehicles would not be
considered funds ``held by or on behalf of a municipal entity.'' \390\
Consequently, a person providing advice to such vehicle would not have
to register as a municipal advisor. However, the Commission noted that,
to the extent that the pooled investment vehicle is a LGIP, the pooled
investment vehicle would be considered to be funds ``held by or on
behalf of'' a municipal entity and a person providing advice with
respect to a LGIP would have to register as a municipal advisor, absent
eligibility for some other exclusion or exemption.\391\
---------------------------------------------------------------------------

    \389\ See supra Section III.A.1.b.viii. See also proposed Rule
15Ba1-1(b).
    \390\ See Proposal, 76 FR 830.
    \391\ See id., at note 98.
---------------------------------------------------------------------------

    The Commission requested comment on whether it should modify or
clarify its proposed interpretation of the circumstances under which a
pooled investment vehicle would be considered to involve funds ``held
by or on behalf of a municipal entity,'' including whether the proposed
interpretation should no longer apply if municipal entities are not
considered to be the ``primary investors'' in the pooled investment
vehicle or if funds of municipal entities exceed a certain threshold in
the pooled investment vehicle.\392\ The Commission received several
comment letters addressing the interpretation.
---------------------------------------------------------------------------

    \392\ See id., at 835.
---------------------------------------------------------------------------

    One commenter supported the Commission's proposed interpretation,
without further request for modification.\393\ Two commenters opposed
any approach to determine municipal advisory status based on whether
municipal entities were the ``primary investors'' in the pooled
vehicle, citing the difficulty of making such a determination on an
ongoing basis.\394\ Another commenter urged the Commission to reiterate
that an adviser to a pooled investment vehicle in which a municipal
entity or obligated person invests is not a municipal advisor by virtue
of providing advice to such a vehicle, and that purchasing an interest
in a vehicle does not create an advisory engagement between the
investor and the vehicle's adviser.\395\ This commenter suggested that,
``so long as there is at least one bona fide investor that is not a
municipal entity or obligated person, the adviser to the vehicle should
not be a municipal advisor.'' \396\ The commenter also stated that not
exempting advisors to pooled vehicles would particularly limit
investment choices for public pension funds.\397\
---------------------------------------------------------------------------

    \393\ See American Bankers Association Letter I. This commenter
urged the Commission to reiterate its position in the final rules
and clarify that the interpretation applies to collective investment
funds. A collective investment fund (``CIF'') is a bank-administered
trust that holds commingled assets that meet specific criteria
established by 12 CFR 9.18. The bank acts as a fiduciary for the CIF
and holds legal title to the fund's assets. CIFs allow banks to
avoid costly purchases of small lot investments for their smaller
fiduciary accounts. See Office of the Comptroller of the Currency,
Collective Investment Funds, available at http://www.occ.treas.gov/topics/capital-markets/asset-management/collective-investment-funds/index-collective-investment-funds.html. The Commission notes that a
CIF would have to contain no proceeds of municipal securities or
fall within an exclusion or exemption to not require municipal
advisor registration. See infra Section III.A.1.c.viii. (discussing
the bank exemption).
    \394\ See letter from Stuart J. Kaswell, Executive Vice
President and Managing Director, General Counsel, Managed Funds
Association, dated February 22, 2011 (``MFA Letter'') (stating that
``imposing such an artificial threshold would create uncertainty for
private fund managers, require burdensome, ongoing monitoring of the
level of municipal entity investments, and limit or even prevent
municipal entities from investing in private funds''). See also
Kutak Rock Letter (suggesting that terminology involving the concept
of ``municipal entities are the primary investors'' not be utilized,
because ``it is too difficult to determine just what `primary'
means[,]'' and that too many difficult questions regarding an
objective, numbers-based approach used to determine primary
investorship would arise).
    \395\ See SIFMA Letter I.
    \396\ Id.
    \397\ See id. Specifically, the commenter stated that absent the
suggested exemptions, fewer pooled investment vehicles would be
offered to municipal entities (particularly public pension plans)
and obligated persons, which would disserve municipal entities and
obligated persons by limiting their access to important vehicles for
the long-term investment of their funds. The commenter also stated
that local government investment pools are often the only available
option for the short-term investment of operating funds and are
subject to state laws, which often include a fiduciary duty. The
commenter stated that the Proposal likely would reduce the number of
local government investment pool options available to
municipalities.

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

    The Commission has carefully considered these comments and is not
adopting its proposed interpretation of when a pooled investment
vehicle will be considered to be funds held by or on behalf of a
municipal entity. It is also not adopting an interpretation that would
tie the determination of whether a person providing advice to a pooled
investment vehicle is a municipal advisor, to whether municipal
entities are the primary investors in the pooled investment vehicle.
Instead, consistent with the narrowed approach that the Commission is
adopting for ``investment strategies,'' the Commission is interpreting
a pooled investment vehicle to be an investment strategy, and an
advisor to such a pool to be a municipal advisor, when the pooled
investment vehicle contains proceeds of an issuance of municipal
securities, regardless of whether all funds invested in the vehicle are
funds of municipal entities.\398\ In such a case, an advisor to such a
pooled investment vehicle will be required to register as a municipal
advisor, unless an exclusion or exemption applies.
---------------------------------------------------------------------------

    \398\ See Rule 15Ba1-1(d)(1) (defining ``municipal advisor'')
and Rule 15Ba1-1(b) (defining ``investment strategies'' as including
the statutorily identified items: ``plans or programs for the
investment of proceeds of municipal securities that are not
municipal derivatives or guaranteed investment contracts, and the
recommendation of and brokerage of municipal escrow investments'').
---------------------------------------------------------------------------

    The Commission recognizes commenters' concerns that requiring
advisors to pooled investment vehicles that include funds of municipal
entities to register as municipal advisors could have the effect of
limiting investment choices for municipal entities, including
investment choices for public pension funds. As noted above, however,
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.\399\ Contrary to the construction under
the proposed definition of ``investment strategies,'' \400\ under the
definition of ``investment strategies'' as adopted and the exemption in
Rule 15Ba1-1(d)(3)(vii), whether or not the funds invested in a pooled
investment vehicle are considered to be ``funds held by or on behalf of
a municipal entity'' does not determine whether a person providing
advice to such a vehicle is required to register as a municipal
advisor. Rather, under the rule as adopted, the determination of
whether a person providing advice to a pooled investment vehicle is
required to register as a municipal advisor depends upon the narrower
inquiry of whether the funds in the pooled investment vehicle
constitute ``proceeds of municipal securities that are not municipal
derivatives or guaranteed investment contracts, and the recommendation
of and brokerage of municipal escrow investments.'' \401\ Also, the
Commission notes that many advisors to pooled investment vehicles will
be registered investment advisers or employees of municipal entities.
Therefore, many advisors would or could be either exempted or excluded
from registration as municipal advisors.\402\ Moreover, the Commission
believes that this approach to pooled investment vehicles appropriately
focuses protection on those activities related to investment of the
proceeds of municipal securities and related escrow investments, with
respect to which there has been significant enforcement activity.\403\
---------------------------------------------------------------------------

    \399\ See supra Section III.A.1.b.viii. (discussing the
exemption as it relates to the application of the statutory
definition of ``investment strategies'').
    \400\ See supra note 389 and accompanying text.
    \401\ See Rule 15Ba1-1(b).
    \402\ See infra Sections III.A.1.c.v. and III.A.1.c.i.
(discussing, respectively, the exclusion for registered investment
advisers and their associated persons and an exemption for employees
of municipal entities and obligated persons).
    \403\ See supra note 287.
---------------------------------------------------------------------------

    One commenter expressed concern that pooled investment vehicles
whose investors are limited to one or more municipal entities (e.g., a
government retirement pension plan) would be considered investment
strategies under the Proposal.\404\ This commenter suggested that the
term ``investment strategies'' should not include insurance company's
separate accounts supporting variable annuity contracts (and their
underlying investment vehicles) offered to or held by municipal
entities, even if the assets of the separate account are limited only
to contributions from municipal entities.\405\
---------------------------------------------------------------------------

    \404\ See Committee of Annuity Insurers Letter I.
    \405\ See id.
---------------------------------------------------------------------------

    To the extent that an insurance company's separate accounts
supporting variable annuity contracts offered to or held by municipal
entities do not include ``proceeds of municipal securities,'' persons
providing advice with respect to such accounts would not be required to
register as municipal advisors because they would be exempt with
respect to such municipal advisory activity.\406\ Specifically, the
Commission notes that, as a result of the exemption in Rule 15Ba1-
1(d)(3)(vii) adopted today, a person providing 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'' will
be exempt from the definition of municipal advisor with respect to such
activities. Further, the definition of ``proceeds of municipal
securities'' is limited to the monies derived by a municipal entity
from the sale of municipal securities, investment income derived from
such monies, and other monies of a municipal entity (or obligated
person) held in funds under legal documents for the municipal
securities that are reasonably expected to be used as security or a
source of payment for the debt service on the municipal securities, and
investment income from the investment or reinvestment of such
funds.\407\ If, however, such separate accounts supporting variable
annuity contracts offered to or held by municipal entities do include
``proceeds of municipal securities,'' advice with respect to such
accounts would not be eligible for the exemption in Rule 15Ba1-
1(d)(3)(vii) and such activity could be municipal advisory activity
triggering the registration requirement.
---------------------------------------------------------------------------

    \406\ See Rule 15Ba1-1(d)(3)(vii).
    \407\ See supra Section III.A.1.b.viii. (discussing the
exemption pursuant to Rule 15Ba1-1(d)(3)(vii), and the terms
``investment strategies'' and ``proceeds of municipal securities'').
---------------------------------------------------------------------------

x. Solicitation of a Municipal Entity or Obligated Person
    The definition of municipal advisor in Exchange Act Section
15B(e)(4) includes a person that undertakes a solicitation of a
municipal entity or obligated person on behalf of specified
persons.\408\ Exchange Act Section 15B(e)(9) provides that the term
``solicitation of a municipal entity or obligated person''

means ``a direct or indirect communication with a municipal entity or
obligated person made by a person, for direct or indirect compensation,
on behalf of a broker, dealer, municipal securities dealer, municipal
advisor, or investment adviser (as defined in section 202 of the
Investment Advisers Act of 1940 [15 U.S.C. 80b-2]) that does not
control, is not controlled by, or is not under common control with the
person undertaking such solicitation for the purpose of obtaining or
retaining an engagement by a municipal entity or obligated person of a
broker, dealer, municipal securities dealer, or municipal advisor for
or in connection with municipal financial products, the issuance of
municipal securities, or of an investment adviser to provide investment
advisory services to or on behalf of a municipal entity.'' \409\
---------------------------------------------------------------------------

    \408\ See 15 U.S.C. 78o-4(e)(4)(A)(ii). The Commission notes
that the definition of municipal advisor under Section 15B(e)(4)(A)
means, in part, a person that ``undertakes a solicitation of a
municipal entity.'' Also, Section 15B(a)(1)(B), which establishes
the registration requirement, specifically refers to solicitations
of obligated persons. Notwithstanding the omission of the term
``obligated person'' in the definition of municipal advisor, the
Commission interprets the definition of municipal advisor to include
a person who engages in the solicitation of an obligated person
acting in the capacity of an obligated person for the reasons
discussed above. See supra note 138 and accompanying text.
    See also supra note 178 (citing Chapman and Cutler Letter and
discussing that an obligated person does not become a municipal
entity by virtue of issuing securities with respect to which it is
an obligated person).
    \409\ 15 U.S.C. 78o-4(e)(9).
    The Commission notes that Rule 15Ba1-1(n) (which, as adopted,
provides that the term ``solicitation of a municipal entity or
obligated person'' has the same meaning as Section 15B(e)(9) of the
Exchange Act, with certain exemptions) is only applicable with
respect to whether or not a person meets the definition of municipal
advisor and therefore will be required to register with the
Commission (unless an exemption or exclusion applies). The
Commission is not otherwise altering its interpretation of
``solicitation'' as used in other contexts.
    As the Commission has explained, the Commission generally views
solicitation, in the context of broker-dealers, as including any
affirmative effort intended to induce transactional business. See
Registration Requirements for Foreign Broker-Dealers, Securities
Exchange Act Release No. 27017 (July 11, 1989), 54 FR 30013, 30017-
18 (July 18, 1989) (explaining that solicitation includes, among
other things, calls encouraging use of a party to effect
transactions).
---------------------------------------------------------------------------

    In connection with the statutory definition, the Commission
discussed in the Proposal its interpretation of ``solicitation of a
municipal entity or obligated person'' and stated in the Proposal that,
unless an exclusion applies, any third-party solicitor that seeks
business on behalf of a broker, dealer, municipal securities dealer,
municipal advisor, or investment adviser from a municipal entity must
register as a municipal advisor.\410\ The Commission noted that the
determination of whether a solicitation of a municipal entity requires
registration is not based on the number, or size, of investments that
are solicited.\411\ The Commission also specifically stated that the
exclusion from the definition of municipal advisor for a broker-dealer
serving as an underwriter would not apply to a broker-dealer acting as
a placement agent for a private equity fund that solicits a municipal
entity or obligated person to invest in the fund.\412\
---------------------------------------------------------------------------

    \410\ See Proposal, 76 FR 831. Thus, as stated in the Proposal,
a third-party solicitor seeking business on behalf of an investment
adviser from a municipal pension fund or LGIP would be required to
register as a municipal advisor.
    In addition, depending on the facts and circumstances, the
third-party solicitor may also need to register as a broker-dealer
pursuant to Section 15(a) of the Exchange Act. See 15 U.S.C.
78o(a)(1). See also supra note 409 (discussing solicitation in the
context of broker-dealer regulation).
    \411\ See Proposal, 76 FR 831. As discussed in the Proposal, a
solicitation of a single investment of any amount from a municipal
entity would require the person soliciting the municipal entity to
register as a municipal advisor.
    \412\ See id., at 832, note 108 and accompanying text.
    The Commission also noted that including such activities within
the scope of municipal advisory activities is consistent with the
Exchange Act. See id. (citing Exchange Act Sections 15B(e)(4)(A) and
(B) (including placement agents and solicitors that undertake a
solicitation of a municipal entity in the definition of municipal
advisor); S. Rep. No. 176 at 148, 111th Cong., 2d. Sess. 148 (2010)
(noting that Section 975 would not prohibit solicitation of a
municipal entity, but would subject solicitors to the registration
requirement and MSRB regulation); and letter from Senator
Christopher J. Dodd, U.S. Senate Committee on Banking, Housing and
Urban Affairs, to Elizabeth M. Murphy, Secretary, Commission, dated
February 2, 2010).
---------------------------------------------------------------------------

    The Commission received approximately 14 comment letters regarding
the definition of ``solicitation of a municipal entity or obligated
person.'' As discussed in more detail below, a number of commenters
requested further clarification regarding the statutory definition of,
and the Commission's proposed interpretations of, that term. The
Commission has carefully considered issues raised by commenters on its
proposed interpretation and is adopting a rule \413\ to define
``solicitation of a municipal entity or obligated person.'' The
Commission's interpretation of ``solicitation of a municipal entity or
obligated person'' in Rule 15Ba1-1(n) is substantially the same as its
proposed interpretation, and includes certain clarifications discussed
below designed to address commenters' concerns.\414\ In addition, the
Commission notes that, both in its proposed interpretation and adopted
rule, a broker, dealer, municipal securities dealer, municipal advisor,
or investment adviser, soliciting on its own behalf, as explained below
\415\--or an affiliate of a broker, dealer, municipal securities
dealer, municipal advisor, or investment adviser soliciting on behalf
of such entity--would not fall within the definition of ``solicitation
of a municipal entity or obligated person.'' Accordingly, such person
would not need to register as a municipal advisor.
---------------------------------------------------------------------------

    \413\ See Rule 15Ba1-1(n).
    \414\ See id. See notes 419-420 and 446-447, and accompanying
text (discussing Rule 15Ba1-1(n)).
    \415\ See text accompanying infra note 418.
---------------------------------------------------------------------------

Mailings, Advertisements, and Other General Information
    Commenters stated that the Commission should explicitly exclude
certain activities from the definition of solicitation of a municipal
entity or obligated person. For example, one commenter recommended that
``generic `mass mailing' solicitations, or institutional advertising''
should not be considered solicitation under the proposed rules,
especially if such mass mailings are not targeted to a small group of
particular municipal entities or obligated persons.\416\ This commenter
noted that the same argument would apply with respect to newspaper or
periodical ads, brochures, TV, radio, or Internet ads.\417\
---------------------------------------------------------------------------

    \416\ See Kutak Rock Letter.
    \417\ See id.
---------------------------------------------------------------------------

    The Commission agrees with commenters that advertisements \418\ or
solicitations do not trigger an obligation for a third-party to
register as a municipal advisor, provided such activity is undertaken
by a broker, dealer, municipal securities dealer, municipal advisor, or
investment adviser on behalf of itself as opposed to on behalf of a
third party. Accordingly, the Commission is adopting Rule 15Ba1-1(n)
with a clarification to address advertising and the scope of the rule
with respect to solicitation of obligated persons.\419\ Specifically,
Rule 15Ba1-1(n), as adopted, clarifies that ``solicitation of a
municipal entity or obligated person'' does not include ``advertising
by a broker, dealer, municipal securities dealer, municipal advisor, or
investment adviser.'' \420\
---------------------------------------------------------------------------

    \418\ See, e.g., FINRA Rule 2210(a)(5) (defining a ``retail
communication'' as meaning ``any written (including electronic)
communication that is distributed or made available to more than 25
retail investors within any 30 calendar-day period'').
    \419\ See Rule 15Ba1-1(n).
    \420\ Id.
    The Commission notes, however, that while such communications
would not trigger the requirement to register as a municipal adviser
under the solicitation prong of the definition of ``municipal
adviser,'' depending on the facts and circumstances, including the
content of such communications, such activity may be considered to
be advice for purposes of the registration requirement. See supra
Section III.A.1.b.i. (discussing the advice standard in general).
---------------------------------------------------------------------------

Assistance With Requests for Proposals
    It is a relatively common industry practice for municipal entities
to request that a financial advisor, bond counsel, or other market
professional assist in the review of requests for proposals (``RFP'')
for underwriter, financial advisory, or

investment advisory services.\421\ 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 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.\422\ Such person could, however, be engaging in
other municipal advisory activities with respect to assistance in the
selection process.\423\
---------------------------------------------------------------------------

    \421\ For example, 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. See infra note 705 and
accompanying text.
    \422\ See Rule 15Ba1-1(n) (defining solicitation of a municipal
entity or obligated person).
    \423\ See infra note 556 and accompanying text. See also infra
Section III.A.1.c.ii. (discussing generally responses to RFPs and
municipal advisor registration). Moreover, such activity may
constitute investment advice under the Investment Advisers Act. See,
e.g., SEC v. Bolla, 401 F.Supp.2d 43 (D.D.C. 2005), aff'd in
relevant part, SEC v. Washington Investment Network, 475 F.3d 392
(D.C. Cir. 2007) (person selecting investment advisers for clients
meets the Investment Advisers Act's definition of ``investment
adviser'').
---------------------------------------------------------------------------

Endorsement of Financial Products and Services by Associations
    The Commission received approximately nine comment letters from
various associations that endorse third parties offering products and
services to the associations' members (``endorsement
arrangements'').\424\ According to commenters, in these endorsement
arrangements, the third parties, which typically include investment
advisers, broker-dealers, and mutual fund companies, compensate the
associations or their for-profit subsidiaries through a royalty
arrangement or through a marketing or sponsorship fee, depending on the
association's level of involvement in providing information to its
members.\425\ The commenters expressed concern that the associations'
compensated endorsement of investment advisory, municipal advisory, or
broker-dealer businesses to their members, some of whom are municipal
entities, could potentially be interpreted as solicitation of a
municipal entity or obligated person.\426\ Many of these commenters
believed that the Proposal did not provide sufficient guidance about
the statutory definition of ``solicitation.'' The statutory definition
of solicitation includes ``direct or indirect communication with a
municipal entity or obligated person,'' thus creating uncertainty
regarding the possible inclusion of such endorsements.\427\ One
commenter noted that investment advisory, municipal advisory, or
broker-dealer businesses that are endorsed by associations are not
directed specifically at municipal entities, but rather are prepared
and circulated without regard to whether the audience may include
municipal entities.\428\
---------------------------------------------------------------------------

    \424\ See, e.g., letters from James D. Campbell, CAE, Executive
Director, Virginia Association of Counties, dated June 22, 2011
(``Virginia Association of Counties Letter''); Jeff Spartz,
Executive Director, Association of Minnesota Counties, dated June
24, 2011 (``Association of Minnesota Counties Letter''); Robert Hay,
Jr., Manager, Public Policy, ASAE Center for Association Leadership,
dated July 8, 2011 (``ASAE Center for Association Leadership
Letter''); Steven R. Michaud, President, Maine Hospital Association,
dated July 14, 2011 (``Maine Hospital Association Letter''); Anthony
Burke, President and CEO, AHA Solutions, Inc., dated July 18, 2011
(``AHA Solutions Letter''); Paul McIntosh, Executive Director,
California State Association of Counties, dated July 29, 2011
(``California State Association of Counties Letter'').
    \425\ See, e.g., ASAE Center for Association Leadership Letter.
    \426\ See ASAE Center for Association Leadership Letter and
Maine Hospital Association Letter.
    \427\ See ASAE Center for Association Leadership Letter; Maine
Hospital Association Letter; AHA Solutions Letter.
    \428\ See ASAE Center for Association Leadership Letter.
---------------------------------------------------------------------------

    Two commenters recommended that the definition of solicitation
exempt ``advertisement, endorsement, sponsorship, and similar services
offered by persons who are not municipal advisors, brokers, dealers,
municipal securities dealers, or similar persons engaged in the
financial advisory service industry.'' \429\ One stated that compliance
with the registration rules would create a significant administrative
burden and would not create any material public benefits.\430\ The
other commenter requested that the Commission clarify the meaning of
``indirect communication'' within the definition of solicitation.\431\
Similarly, other commenters stated that the Commission should exempt
national and state associations representing state and local
governments from municipal advisor registration.\432\ These commenters
argued that their staffs do not directly contact public employees or
offer advice to public agencies or public employees.\433\
---------------------------------------------------------------------------

    \429\ See Maine Hospital Association Letter; AHA Solutions
Letter.
    \430\ See Maine Hospital Association Letter.
    \431\ See AHA Solutions Letter.
    \432\ See Virginia Association of Counties Letter and California
State Association of Counties Letter.
    \433\ See Virginia Association of Counties Letter and California
State Association of Counties Letter.
    These commenters stated that they do not directly or indirectly
engage in the offer or sale of particular products or services to
government employees, do not make any product or investment
recommendations to existing or prospective clients, give any
investment advice on their own behalf or on behalf of any third
party supplier, or accept any clients on behalf of any third party
supplier. These commenters also stated that the cost of registration
and compliance, along with unknown consequences of state required
registration due to the rules promulgated by the Commission, would
unfairly disadvantage associations representing public agencies.
    One of the commenters stated that such associations should
receive an exemption in order to offer their membership access to
value-added education and services through publicly solicited
contracts. The commenter noted that associations representing non-
governmental organizations are not required to register under the
proposed rule and yet are able to endorse programs for their
memberships that meet their standards of approval. See Virginia
Association of Counties Letter.
---------------------------------------------------------------------------

    At this time, the Commission is not providing a general exemption
for national and state associations that engage in endorsement
arrangements. An organization that receives compensation for endorsing
a broker, dealer, municipal securities dealer, municipal advisor, or
investment adviser is soliciting a municipal entity or obligated person
within the meaning of the statute. However, the Commission notes that
its interpretation in Rule 15Ba1-1(n) with respect to excluding
advertising from ``solicitation of a municipal entity or obligated
person'' may apply to some of these associations. For example, if an
association's ``endorsement'' qualifies as ``advertising'' by a broker,
dealer, municipal securities dealer, municipal advisor, or investment
adviser, pursuant to Rule 15Ba1-1(n), it would not be required to
register as a municipal advisor. Such a determination, however, would
be based on the particular facts and circumstances.
    The Commission does not believe at this time that it is appropriate
to provide a blanket exemption to associations that are not able to
take advantage of Rule 15Ba1-1(n), because these associations are being
directly or indirectly compensated for recommending a broker, dealer,
municipal advisor, or investment adviser to municipal entities or
obligated persons. In addition, these associations may, in certain
cases, be compensated in direct relation to the number of municipal
entities that engage the endorsed product or service provider.

Uncompensated Recommendations
    Some commenters stated that the Exchange Act and the Proposal are
unclear about when uncompensated recommendations might be deemed to be
solicitations for purposes of the rule.\434\ Several commenters stated
that uncompensated recommendations should not be considered to be
solicitations because the statutory text only refers to ``direct or
indirect compensation.'' \435\ One commenter stated further that, if
uncompensated recommendations are interpreted to be solicitations, it
``will chill significantly the provision of information to municipal
entities. . . .'' \436\ Other commenters suggested that the
solicitation prong should not apply if the municipal entity or
obligated person requests an introduction.\437\
---------------------------------------------------------------------------

    \434\ See, e.g., letters from Joy A. Howard, Principal, WM
Financial Strategies, dated February 21, 2011 (``Joy Howard WM
Financial Strategies Letter''); John Dotson, Vice President and
General Counsel, Chevron Energy Solutions, dated February 22, 2011
(``Chevron Letter''); Amy Natterson Kroll and W. Hardy Calcott,
Bingham McCutchen LLP, on behalf of the National Association of
Energy Service Companies, dated February 22, 2011 (``NAESCO
Letter''); State of Indiana Letter.
    \435\ See Chevron Letter; NAESCO Letter.
    \436\ See NAESCO Letter.
    \437\ See, e.g., letter from Deron S. Kintner, Executive
Director, Indianapolis Local Public Improvement Bond Bank, dated
February 22, 2011 (``Indianapolis Local Public Improvement Bond Bank
Letter'') (stating that a person who solicits advice from
individuals should be free to solicit advice and recommendations
without having to either engage those individuals and compensate
them or subject them to fiduciary duties).
---------------------------------------------------------------------------

    The Commission notes that an introduction is not necessarily a
solicitation. Moreover, whether an introduction is a solicitation does
not depend on whether a municipal entity or obligated person requests
an introduction or the introduction is provided without request.
Rather, for purposes of Rule 15Ba1-1(n), the solicitation determination
is based on whether the person providing the introduction receives
direct or indirect compensation for providing the introduction.\438\
For example, a person could respond to a request from a municipal
entity with a particular recommendation and then subsequently receive
payment from the recommended entity. In this example, the solicitation
would trigger the registration requirement.
---------------------------------------------------------------------------

    \438\ See Rule 15Ba1-1(n) and 15 U.S.C. 78o-4(e)(9) (which
defines ``solicitation of a municipal entity or obligated person''
as ``a direct or indirect communication with a municipal entity or
obligated person made by a person, for direct or indirect
compensation'' made on behalf of certain specified entities).
---------------------------------------------------------------------------

    The statutory definition of ``solicitation of a municipal entity or
obligated person'' provides that the solicitation must be performed for
``direct or indirect compensation.'' \439\ Thus, persons that are not
compensated for soliciting a municipal entity or obligated person would
not be required to register as municipal advisors. The Commission
notes, however, that Commission staff has broadly construed the term
``direct or indirect compensation'' in other contexts.\440\ In
addition, as noted in the Proposal, other regulatory agencies have
interpreted indirect compensation to include non-monetary
compensation.\441\
---------------------------------------------------------------------------

    \439\ See 15 U.S.C. 78o-4(e)(9).
    \440\ For example, under the Investment Advisers Act, Commission
staff has taken the position that compensation generally includes
the receipt of any economic benefit, whether in the form of an
advisory fee, some other fee relating to services rendered, a
commission, or some combination of the foregoing. See Applicability
of the Investment Advisers Act to Financial Planners, Pension
Consultants, and Other Persons Who Provide Investment Advisory
Services as a Component of Other Financial Services, Investment
Advisers Act Release No. 1092 (October 8, 1987).
    \441\ See Proposal, 76 FR 832, note 113.
---------------------------------------------------------------------------

Solicitation of Obligated Persons
    Exchange Act Section 15B(e)(9) provides, in part, that the term
``solicitation of a municipal entity or obligated person'' is ``for the
purpose of obtaining or retaining an engagement . . . of a broker,
dealer, municipal securities dealer, or municipal advisor for or in
connection with municipal financial products . . . .'' \442\ One
commenter asked the Commission to clarify that the meaning of
``municipal financial products'' with respect to the ``solicitation of
an obligated person'' includes municipal derivatives, guaranteed
investment contracts, and investment strategies of the municipal entity
only, and not of the obligated person.\443\ The commenter stated that
obligated persons may include large entities with numerous and varied
funds and investments, many of which may have nothing to do with the
transactions pursuant to which they have become obligated persons.\444\
In addition, the commenter stated that if the municipal advisor
definition includes persons who advise obligated persons or solicit
obligated persons with respect to the funds, securities, or investment
strategies of the obligated person, ``the reach of the registration
requirement would expand in potentially unpredictable ways.'' \445\
---------------------------------------------------------------------------

    \442\ 15 U.S.C. 78o-4(e)(9).
    \443\ See ABA Letter.
    \444\ See id.
    \445\ Id.
---------------------------------------------------------------------------

    The Commission agrees with the comment that solicitation with
respect to an obligated person applies only when an obligated person is
acting in its capacity as an obligated person.\446\ The Commission is,
therefore, adopting Rule 15Ba1-1(n), which clarifies that, in the case
of solicitation of an obligated person, the definition of
``solicitation of a municipal entity or obligated person'' does not
include solicitation of an obligated person ``if such obligated person
is not acting in the capacity of an obligated person or the
solicitation of the obligated person is not in connection with the
issuance of municipal securities or with respect to municipal financial
products.'' \447\
---------------------------------------------------------------------------

    \446\ The Commission also discusses above when a person is an
``obligated person.'' See supra Section III.A.1.b.iii.
    \447\ See Rule 15Ba1-1(n). The solicitation could require the
solicitor to register with the Commission as a broker-dealer. See
generally Securities Exchange Act Release No. 27017 (July 11, 1989),
54 FR 30013 (July 18, 1989) (discussing solicitation).
---------------------------------------------------------------------------

    As discussed above, with respect to the definition of obligated
person, the Commission believes that the municipal advisor registration
regime should apply in the same manner to advisors of obligated persons
as to advisors of municipal entities.\448\ The Commission further notes
that, because they are committed by contract or other arrangement to
support the payment of all or part of the obligations on municipal
securities, obligated persons serve the same role as municipal entities
with regard to municipal securities.\449\ Therefore, pursuant to the
Commission's clarification in Rule 15Ba1-1(n), a person soliciting an
obligated person with respect to the issuance of municipal securities
or municipal financial products will not meet the definition of
municipal advisor as a result of such activity unless the obligated
person is acting in its capacity as such.\450\
---------------------------------------------------------------------------

    \448\ See supra note 227 and accompanying text.
    \449\ See supra Section III.A.1.b.iii.
    \450\ See id.
---------------------------------------------------------------------------

    One commenter asked when a person should know whether he or she is
soliciting an obligated person. Specifically, with respect to the
application of the proposed rules to persons who undertake a
solicitation of an obligated person, the commenter stated that a person
should be considered to have engaged in such activities only when it
has actual knowledge that it is (a) soliciting an obligated person,
acting in its capacity as an obligated person, and (b) engaging in
solicitation with respect to the issuance of municipal securities or
proceeds of municipal securities.\451\ Further, this commenter stated
that a person must be rendering services with

respect to the types of activities or instruments that make a person a
municipal advisor.\452\ Lastly, the commenter suggested that a person
need not affirmatively inquire as to the potential obligated person's
status or the funds' status.\453\
---------------------------------------------------------------------------

    \451\ See SIFMA Letter I.
    \452\ See id.
    \453\ See id.
---------------------------------------------------------------------------

    The Commission believes that the commenter's suggestion, if
adopted, would allow the municipal advisor registration regime to be
too easily circumvented. An advisor could always argue that it did not
have ``actual knowledge'' that it was soliciting an obligated person
and therefore is not subject to regulation. The Commission instead
believes that a person that is soliciting an obligated person should
make a reasonable inquiry to a person in a position to know as to
whether it is soliciting for services related to the issuance of
municipal securities or municipal financial products, and whether the
person being solicited is an obligated person. For example, a person
may rely on the written representation of the obligated person, unless
such person has information that would cause a reasonable person to
question the accuracy of the representation.\454\ In such a case, a
person could not ignore the information and would need to make further
reasonable inquiry to verify the accuracy of the representation.\455\
---------------------------------------------------------------------------

    \454\ See Rule 15Ba1-1(m). Also, a person would only be a
municipal advisor as a result of soliciting an obligated person when
such obligated person is acting in the capacity of an obligated
person. See supra note 446 and accompanying text.
    \455\ See also supra Section III.A.1.b.viii. at note 363 and
accompanying text (discussing the requirement to know when advice
relates to the proceeds of municipal securities).
---------------------------------------------------------------------------

Other Exclusions and Exemptions From the Definition of ``Solicitation
of a Municipal Entity or Obligated Person''
    Some commenters stated that the Commission should explicitly
exclude certain entities from the solicitation definition altogether.
For example, several commenters stated that placement agents for pooled
investment vehicles should not be considered solicitors.\456\ Another
commenter recommended that an investment adviser's employees who
solicit municipal entities as part of their regular responsibilities
should not be considered solicitors.\457\ The Commission has carefully
considered issues raised by commenters and has determined not to
provide specific exemptions from the definition of ``solicitation of a
municipal entity or obligated person.'' \458\
---------------------------------------------------------------------------

    \456\ See, e.g., SIFMA Letter I (stating that Section 975 of the
Dodd-Frank Act does not define ``solicitation'' to include
solicitation of a municipal entity or obligated person by a
placement agent for a pooled investment vehicle, such as a private
equity fund, hedge fund, LGIP, or mutual fund, all of which involve
the sale of securities by registered broker-dealers); ICI Letter
(stating that a ``placement agent soliciting a municipal entity to
invest in a pooled investment vehicle acts on behalf of the pooled
investment vehicle only, not on behalf of the adviser to the vehicle
nor on behalf of any of the other four enumerated categories of
persons contained in the definition'').
    \457\ See letter from Monique S. Botkin, Assistant General
Counsel, Investment Adviser Association, dated February 22, 2011
(``IAA Letter'') (stating that ``[i]t would be illogical and
contravene the statutory intent of the Dodd-Frank Act for such an
exclusion to apply to an affiliate of an investment adviser and its
employees soliciting on behalf of its affiliated adviser, but not
for the same analysis to apply to an investment adviser and its own
employees soliciting on their employer's behalf'').
    \458\ See infra note 465 and accompanying text.
---------------------------------------------------------------------------

    Section 15B(e)(4)(A) of the Exchange Act states that the definition
of municipal advisor includes a person that undertakes a solicitation
of a municipal entity.\459\ Section 15B(e)(4)(B) of the Exchange Act
states that the definition of municipal advisor includes a number of
listed types of market participants (specifically financial advisors,
guaranteed investment contract brokers, third-party marketers,
placement agents, solicitors, finders, and swap advisors) if such
persons otherwise meet the definition of a municipal advisor under
Exchange Act Section 15B(e)(4)(A). In relevant part, Exchange Act
Section 15B(e)(4)(A)(ii) provides that a municipal advisor includes a
person that, on behalf of certain types of third-parties, undertakes a
solicitation of a municipal entity to engage such parties to perform
certain specified activities.\460\ In the case of placement agents, the
Commission agrees with commenters that a placement agent for a pooled
investment vehicle that is not a municipal entity (e.g., a hedge fund
or mutual fund) and that ``solicits'' a municipal entity to invest in
the fund does not, with respect to such activity, meet the statutory
definition of the term ``solicitation of a municipal entity or
obligated person'' in Exchange Act Section 15B(e)(9). Such a placement
agent does not meet the statutory definition of the term because it is
not soliciting on behalf of a third-party broker, dealer, municipal
securities dealer, municipal advisor, or investment adviser to obtain
or retain an engagement by a municipal entity or obligated person of
such third-party broker, dealer, municipal securities dealer, municipal
advisor, or investment adviser. Whether the placement agent otherwise
meets the definition of ``municipal advisor'' with respect to any
activity related to or in connection with its ``solicitation'' activity
(that does not, as discussed above, meet the statutory definition of
solicitation in Exchange Act Section 15B(e)(9)) would depend on the
facts and circumstances.\461\ By contrast, a placement agent that
undertakes a solicitation of a municipal entity for the purpose of
obtaining an engagement by the municipal entity of an unaffiliated
investment adviser to provide investment advisory services to the
municipal entity is a municipal advisor because it is soliciting on
behalf of an unaffiliated adviser to provide investment advisory
services.\462\ The Commission also agrees with commenters that
employees of a broker, dealer, municipal securities dealer, municipal
advisor, or investment adviser that solicit municipal entities as part
of their regular duties on behalf of their employer or an affiliate of
such employer are not municipal advisors, if they are acting within the
scope of their employment. Specifically, as provided in Exchange Act
Section 15B(e)(9), the term ``solicitation of a municipal entity or
obligated person'' means, in part, ``a direct or indirect communication
with a municipal entity or obligated person made by a person . . . 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 . . . .'' \463\ As such, the term applies
only to third-party solicitors, and not to an entity acting on its own
behalf or on behalf of its affiliate. Employees acting in their
capacity as such on behalf of their

employer are acting as the agent of their employer and, consequently,
are not third-party solicitors that fall within the definition of
municipal advisor as a result of their solicitation activity.
---------------------------------------------------------------------------

    \459\ See Exchange Act Section 15B(e)(9). See also Rule 15Ba1-
1(n).
    \460\ See supra note 409 and accompanying text (setting forth
the definition of ``solicitation of a municipal entity or obligated
person'').
    \461\ See infra notes 625-629 and accompanying text (discussing
when a placement agent may be a municipal advisor and when it may,
or may not, qualify for the exclusion for underwriters).
    \462\ With respect to solicitations on behalf of investment
advisers, the relevant portion of the definition of a ``solicitation
of a municipal entity or obligated person'' in Exchange Act Section
15B(e) limits the scope of covered solicitations to those involving
solicitations for the purpose of obtaining or retaining an
engagement by a municipal entity or by an obligated person ``of an
investment adviser to provide investment advisory services to or on
behalf of a municipal entity.'' See also S. Rep. No. 111-176 at 148
(2010) (``Rather than effectively prohibiting such third-party
solicitation for investment advisory services, this section would
provide that activities of a municipal advisor, broker, dealer, or
municipal securities dealer to solicit a municipal entity to engage
an unrelated investment adviser to provide investment advisory
services to a municipal entity . . . would be subject to regulation
by the MSRB.'')
    \463\ 15 U.S.C. 78o-4(e)(9).
---------------------------------------------------------------------------

    Pursuant to Rule 15Ba1-1(d)(3)(viii) and consistent with the
exemption from the definition of municipal advisor under Rule 15Ba1-
1(d)(3)(vii) for a person that provides 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,\464\ the Commission is
exempting from the definition of municipal advisor under Rule 15Ba1-
1(d)(1) any person that undertakes a ``solicitation of a municipal
entity or obligated person'' (as defined in Rule 15Ba1-1(n) (17 CFR
240.15Ba1-1(n)) for the purpose of obtaining or retaining an engagement
by a municipal entity or by an obligated person of a broker, dealer,
municipal securities dealer, or municipal advisor for or in connection
with municipal financial products that are investment strategies, to
the extent that such investment strategies are not plans or programs
for the investment of the proceeds of municipal securities or the
recommendation of and brokerage of municipal escrow investments.\465\
As with respect to the exemption in Rule 15Ba1-1(d)(3)(vii), the
Commission believes that the exemption in Rule 15Ba1-1(d)(3)(viii) is
consistent with the public interest, the protection of investors, and
the purposes of Section 15B of the Exchange Act, because the exemption
tailors protection of municipal entities to those activities related to
the investment of the proceeds of municipal securities and related
escrow investments.\466\
---------------------------------------------------------------------------

    \464\ See supra Section III.A.1.b.viii.
    \465\ See Rule 15Ba1-1(d)(3)(viii).
    \466\ See note 328 and accompanying text.
---------------------------------------------------------------------------

Marketing of Insurance Contracts
    One commenter stated that solicitation should not include the
marketing of insurance contracts by broker-dealers to retirement plans
established by municipal entities.\467\ The Commission agrees that the
marketing of insurance contracts by broker-dealers is not solicitation
for purposes of the municipal advisor definition if it is not performed
on behalf of a third-party broker, dealer, investment adviser,
municipal securities dealer, or municipal advisor. As described above,
the definition of ``solicitation of a municipal entity or obligated
person'' only applies to third-party solicitations on behalf of these
specific kinds of entities.\468\
---------------------------------------------------------------------------

    \467\ See Committee of Annuity Insurers Letter I.
    \468\ See supra note 463 and accompanying text. See also Rule
15Ba1-1(n).
---------------------------------------------------------------------------

c. Exclusions and Exemptions From the Definition of ``Municipal
Advisor''
    In addition to the exemption described above for persons providing
advice or soliciting engagements with respect to certain financial
products, the Commission discusses below its interpretations of certain
statutory exclusions, as well as specific activities-based exemptions
it is granting from the definition of ``municipal advisor.'' \469\
Also, the Commission discusses below exemptions of general
applicability to the extent a person is responding to an RFP or a
request for qualifications (``RFQ'') or to the extent a municipal
entity or obligated person is otherwise represented by a registered
municipal advisor, subject to certain conditions.
---------------------------------------------------------------------------

    \469\ For the exclusions and exemptions that were discussed in
the Proposal and that the Commission is adopting today, the
Commission has made minor, non-substantive changes to provide
greater clarity and consistency throughout the rules related to
exclusions and exemptions.
---------------------------------------------------------------------------

i. Public Officials and Employees of Municipal Entities and Obligated
Persons
    Exchange Act Section 15B(e)(4)(A) provides that the term
``municipal advisor'' excludes employees of a municipal entity.\470\ As
noted in the Proposal, one commenter suggested that the Commission
clarify that this exclusion would include any person serving as an
appointed or elected member of the governing body of a municipal
entity, such as a board member, county commissioner or city
councilman.\471\ This commenter stated that, because these persons are
not technically ``employees'' of the municipal entity (but rather
``unpaid volunteers''), they would not fall within the exclusion from
the definition of municipal advisor for ``employees of a municipal
entity.'' \472\
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    \470\ 15 U.S.C. 78o-4(e)(4)(A).
    \471\ See Proposal, 76 FR 834, n.140 and accompanying text
(citing letter from John P. Wagner, Kutak Rock LLP, to Elizabeth M.
Murphy, Secretary, Commission, dated September 28, 2010).
    \472\ See id. See also 15 U.S.C. 78o-4(e)(4)(A).
---------------------------------------------------------------------------

    The Commission stated in the Proposal that the exclusion from the
definition of municipal advisor for ``employees of a municipal entity''
should include any person serving as an elected member of the municipal
entity's governing body to the extent that the person is acting within
the scope of his or her role as an elected member. The Commission also
stated that ``employees of a municipal entity'' should include a
governing body's appointed members to the extent such appointed members
are ex officio members by virtue of holding an elective office.\473\
The Commission stated its concern that appointed members are not
directly accountable for their performance to the citizens of the
municipal entity.\474\
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    \473\ This would include persons appointed to fill the remainder
of the term for an elective office.
    \474\ See Proposal, 76 FR 834.
---------------------------------------------------------------------------

    In the Proposal, the Commission requested comment on: (1) Whether
there are any persons who engage in uncompensated municipal advisory
activities, or municipal advisory activities for indirect compensation,
that the Commission should exclude from the definition of municipal
advisor; (2) whether ``employees of a municipal entity'' should include
elected members of a governing body of a municipal entity, and
appointed members of a municipal entity's governing body to the extent
such appointed members are ex officio members of the governing body by
virtue of holding an elective office, is appropriate; and (3) whether
there are other persons associated with a municipal entity who might
not be ``employees'' of a municipal entity but that the Commission
should exclude from the definition of municipal advisor.\475\
---------------------------------------------------------------------------

    \475\ See Proposal, 76 FR 837.
---------------------------------------------------------------------------

    The Commission received over 600 comment letters on its
interpretation of ``employee of a municipal entity.'' Commenters
represented a wide array of individuals and entities, including
representatives of: city and state governments; \476\ city and state
retirement systems; \477\ state university

systems; \478\ state housing, development, and port authorities; \479\
city transit authorities; \480\ special districts (such as healthcare,
water, sanitation, and other districts); \481\ public utility boards
and associations; \482\ airports, and airport authorities and
commissions; \483\ and individual volunteer or appointed board
members.\484\
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    \476\ See, e.g., letter from Stevan Gorcester, Association of
Washington Cities, dated February 22, 2011; letter from William G.
Dressel, Jr., Executive Director, New Jersey League of
Municipalities, dated January 27, 2011; letter from Ken Miller,
Oklahoma State Treasurer, dated February 7, 2011; letter from Steve
Ritter, Assistant Finance Director, City of Huntsville, Texas, dated
January 10, 2011; letter from Jim D. Dunaway, City Manager, City of
Taylor, Texas, dated January 13, 2011; letter from Jacqueline M.
Kovilaritch, Assistant City Attorney, City of St. Petersburg,
Florida, dated January 19, 2011 (``City of St. Petersburg Letter'');
letter from Judith Hetherly, Mayor, City of Lampasas, Texas, dated
January 20, 2011; letter from Gary Herbert, Governor, State of Utah,
Salt Lake City, Utah, dated February 17, 2011; and National
Association of State Treasurers Letter.
    \477\ See, e.g., Utah Retirement Systems Letter; letter from R.
Dean Kenderdine, Executive Director and Secretary to the Board,
Maryland State Retirement and Pension System, dated February 17,
2011; letter from Ann Fuelberg, Executive Director, Employees
Retirement System of Texas, dated February 18, 2011; letter from
Anthony B. Ross, Chairperson and Stephen C. Edmonds, Executive
Director, City of Austin Employees Retirement System, dated February
18, 2011; and Alaska Retirement Management Board Letter.
    \478\ See, e.g., letter from Frank T. Brogan, Chancellor, State
University System of Florida, dated February 21, 2011; letter from
Calvin J. Anthony, Chairman, Oklahoma State University/Agricultural
and Mechanical Colleges Board of Regents, dated January 7, 2011
(``Oklahoma State University/Agricultural and Mechanical Colleges
Board of Regents Letter''); letter from Francisco G. Cigarroa, M.D.,
Chancellor, The University of Texas System, dated February 7, 2011;
letter from Michael D. McKinney, Chancellor, The Texas A&M
University System and Kent Hance, Chancellor, Texas Tech University
System, dated February 14, 2011; letter from Richard D. Legon,
President, Association of Governing Boards of Universities and
Colleges, dated February 15, 2011; letter from Dr. Brian McCall,
Chancellor of the Texas State University System, dated February 17,
2011; and letter from Peter J. Taylor, Executive Vice President--
Chief Financial Officer, The Regents of the University of
California, dated February 18, 2011 (``UCLA Regents Letter'').
    \479\ See, e.g., letter from Rebecca L. Peace, Chief Counsel,
Pennsylvania Housing Finance Agency, Jayne B. Blake, Chief Counsel,
Pennsylvania Infrastructure Investment Authority, Stephen M. Drizos,
Executive Director, Pennsylvania Economic Development Financing
Authority, Carol A. Longwell, Deputy Chief Counsel, Pennsylvania
Economic Development Financing Authority, and Doreen A. McCall,
Chief Counsel, Pennsylvania Turnpike Commission, dated February 15,
2011 (``Pennsylvania Housing Finance Agency Letter''); and letter
from Tracy V. Drake, Chairman, Ohio Council of Port Authorities and
CEO, Columbiana County Port Authority, dated February 4, 2011.
    \480\ See, e.g., letter from Carol B. Keefe, General Counsel,
Washington Metropolitan Area Transit Authority, Washington, District
of Columbia, dated February 14, 2011; and letter from David
Levinger, Chief Financial Officer, Dallas Area Rapid Transit, dated
February 22, 2011.
    \481\ See, e.g., letter from John ``Chip'' Taylor, Executive
Director, Colorado Counties Inc., Sam Mamet, Executive Director,
Colorado Municipal League, and Ann Terry, Executive Director,
Special District Association of Colorado, dated January 26, 2011;
letter from Kathleen Durham, Chairman, South Broward Hospital
District, dated February 8, 2011; letter from James F. Heekin,
Counsel, Citrus County Hospital Board, Southeast Volusia Hospital
District, West Orange Healthcare District, February 14, 2011; letter
from Walt Sears, Jr., General Manager, Northeast Texas Municipal
Water District, dated January 24, 2011; and letter from Robert M.
Ball, A. A. E., Executive Director, Lee County Port Authority, dated
February 18, 2011; and letter from Edward G. Henifin, General
Manager and Steven G. deMik, Director of Finance, Hampton Roads
Sanitation District, dated February 22, 2011.
    \482\ See, e.g., letter from David Modisette, California
Municipal Utilities Association, dated February 22, 2011; letter
from John S. Bruciak, Brownsville Public Utilities Board, dated
February 18, 2011; letter from David H. Wright, City of Riverside,
dated February 23, 2011; and letter from Susan N. Kelly, Senior Vice
President of Policy Analysis and General Counsel and Diane Moody,
Director, Statistical Analysis, American Public Power Association,
dated February 22, 2011 (``American Public Power Association
Letter'').
    \483\ See, e.g., letter from Jeffery P. Fegan, Chief Executive
Officer, Dallas/Fort Worth International Airport, dated January14,
2011, letter from Phillip N. Brown, A.A.E., Executive Director,
Greater Orlando Aviation Authority, dated February 8, 2011; letter
from Emily Neuberger, Senior Vice President & General Counsel, Wayne
County Airport Authority, Michigan, dated February 14, 2011 (``Wayne
County Airport Authority Letter''); letter from Elaine Roberts,
President & CEO, Columbus Regional Airport Authority, dated February
16, 2011; letter from Thomas W. Anderson, General Counsel,
Metropolitan Airports Commission, dated February 17, 2011; and
letter from Breton K. Lobner, General Counsel, San Diego County
Regional Airport Authority, dated February 22, 2011.
    \484\ See, e.g., letter from Richard R. Vosburg, Chartered
Financial Analyst, Germantown, Tennessee, dated January 24, 2011
(``Vosburg Letter''); and letter from William Dalton, dated February
28, 2011 (``Dalton Letter'').
---------------------------------------------------------------------------

    The comments dealt predominantly with the Commission's proposed
view that ``employees of a municipal entity'' should include elected
members of a municipal entity's governing body, and appointed members,
to the extent such appointed members are ex officio members of the
governing body by virtue of holding an elective office. Many commenters
asserted that the Commission's proposed interpretation of municipal
advisor is overly broad or overreaching and should exclude all members
of a municipal entity's governing board.
    The majority of commenters stated, in particular, that appointed
board members should not be treated differently from elected board
members or officials and disagreed with the Commission's statement that
appointed board members are not directly accountable. Many of the
commenters asserted that state and local laws applicable to officials
of a municipal entity do not distinguish between appointed or elected
members and that all members are subject to the same legal obligations,
including fiduciary duties, codes of conduct, open meeting laws, and
conflicts of interest and ethics laws.\485\ For example, commenters
asserted that appointed officials of municipal non-profit corporations,
trusts, and pension funds have a duty to act in the interests of the
corporation, trust, or the fund.\486\ Many commenters also asserted
that appointed board members are accountable to the elected officials
that appointed them or for whom they work.\487\ Many also noted that
appointed board members may be removed for cause \488\ and are subject
to civil suit.\489\ Others observed that appointed board members are
more accountable than elected officials.\490\
---------------------------------------------------------------------------

    \485\ See, e.g., Darrell Buchbinder, The Port Authority of New
York and New Jersey, dated February 18, 2011; National Association
of State Treasurers Letter; Letter from Martin R. Hopper, General
Manager, M-S-R Public Power Agency, dated February 18, 2011 (``M-S-
R-Power Agency Letter''); letter from Meredith J. Jones, NYCEDC,
dated February 18, 2011 (``NYCEDC Letter''); and UCLA Regents
Letter; letter from Laura King, Minnesota State Colleges and
Universities, dated February 22, 2011.
    Many of these commenters also explained that certain municipal
entity governing boards are established or operating pursuant to
state or local statute. See id. See also letter from JoAnn E. Levin,
Chief Solicitor, City of Baltimore, dated February 3, 2011; and
letter from Mark Page, Director of Management and Budget, The City
of New York, dated February 22, 2011 (``NYC Management and Budget
Letter'').
    \486\ See, e.g., letter from Acting Governor Earl Ray Tomblin,
Chairman of the Board; Glen B. Gainer, Auditor of the State of West
Virginia and Roger Hunter, Chairman of the Investment Committee, and
Guy Bucci, Chairman of the Legal Committee, West Virginia Investment
Management Board, dated February 22, 2011; and letter from Joanne
Handy, President and CEO, Aging Services of California, dated
February 22, 2011; letter from Charles R. Noll, President,
Pennsylvania Local Government Investment Trust, dated February 18,
2011 (``Pennsylvania Local Government Investment Trust Letter'');
letter from Keith Bozarth, Executive Director, State of Wisconsin
Investment Board, dated February 22, 2011; and letter from Peter H.
Mixon, California Public Employees' Retirement System, dated
February 22, 2011 (``CALPERS Letter'').
    \487\ See, e.g., letter from John Murphy, Executive Director,
National Association of Local Housing Finance Agencies, dated
January 27, 2011; NYC Management and Budget Letter; and letter from
Bob A. Newmark, Housing Finance Authority, dated February 11, 2011.
    \488\ See, e.g., letter from Gottlieb Fisher PLLC, on behalf of
the Boards of Trustees for King County Rural Library District, Fort
Vancouver Intercounty Rural Library District, Pierce County Rural
Library District LaConner Rural Partial-County Library District,
Sno-Isle Intercounty Rural Library District, Spokane County Rural
Library District, Walla Walla County Rural Library District, and
Whitman County Rural Library District, dated February 11, 2011
(``Gottlieb Fisher Letter''); letter from Linda Beaver, Nebraska
Educational Finance Authority, dated February 16, 2011 (``Nebraska
Educational Finance Authority Letter''); Alaska Retirement
Management Board Letter; Robert W. Barnes, Idaho Falls Redevelopment
Agency, dated February 18, 2011; and letter from Jeffrey W. Letwin,
Esq., Partner, Schnader Harrison Segal Lewis LLP, Pittsburgh,
Pennsylvania, dated February 8, 2011.
    \489\ See, e.g., letter from Jeffrey W. Letwin, Esq., Partner,
Schnader Harrison Segal Lewis LLP, Pittsburgh, Pennsylvania, dated
February 8, 2011; letter from Gary Kimball, President, Specialized
Public Finance, Inc., dated February 22, 2011 (``Specialized Public
Finance Letter''); letter from Gary Parsons, General Manager, Texas
Municipal Power Agency, dated February 22, 2011 (``Texas Municipal
Power Agency Letter''); and letter from John W. Rubottom, General
Counsel, Lower Colorado River Authority, dated February 15, 2011.
    \490\ See, e.g., letter from Bill Lockyer, Treasurer, State of
California, dated February 22, 2011 (``California State Treasurer's
Office Letter''); Texas Municipal Power Agency Letter; letter from
John D. Clark, III, Executive Director/CEO, Indianapolis Airport
Authority, dated February 22, 2011; and letter from Victor
Vandergriff, Chairman, North Texas Tollway Authority, dated February
11, 2011.
---------------------------------------------------------------------------

    Additionally, many commenters asserted that board members are the
decision and policy makers who receive advice from third parties who
are paid for providing services and that board members themselves are
not

``advisors.'' \491\ Many commenters asserted that members of governing
boards are the intended beneficiaries of the proposed regulation.\492\
Further, some commenters asserted that the Proposal would usurp state
laws governing duties and responsibilities of appointed board members
of municipal entities.\493\ Many commenters also stated that, in its
current form, the Proposal would deter much needed citizen volunteers
from serving on governing boards of municipal entities or would chill
the deliberative process of such boards. These commenters reasoned that
volunteers would fear that their participation in votes on, or
discussions of, financial matters will be deemed ``advice'' that would
subject them to registration.\494\
---------------------------------------------------------------------------

    \491\ See, e.g., letter from Michael D. Nosler, General Counsel
and Assistant Attorney General, Colorado State University System,
dated February 21, 2011; letter from Barbara J. Thompson, Executive
Director, National Council of State Housing Agencies, dated February
22, 2011; letter from Luther Strange, Attorney General, State of
Alabama, dated February 22, 2011; CALPERS Letter; letter from Ronnie
G. Jung, Executive Director, Teacher Retirement System of Texas,
dated February 22, 2011; Stephanie L. Hamlett, Executive Director,
Virginia Resources Authority, dated February 22, 2011; and Dalton
Letter.
    \492\ See, e.g., letter from David R. Fine, City Attorney,
Denver, dated February 9, 2011 (``Denver Letter''); letter from
James F. Zay, Chairman, Du Page Water Commission, dated February 11,
2011; letter from Angela I. Carmon, City Attorney, City of Winston-
Salem, North Carolina, dated February 14, 2011; letter from David J.
Kincaid, City Manager, City of Safford, Arizona, dated February 14,
2011 (``City of Safford Letter''); and letter from Donald Dicklich,
County Auditor-Treasurer, Duluth, Minnesota, dated February 16,
2011.
    \493\ See, e.g., letter from Steven J. Baumgardt, Finance
Director, City of Tolleson, Arizona, dated March 3, 2011 (``City of
Tolleson Letter''); letter from Joe Pizzillo, Vice Mayor, City of
Goodyear, Arizona, dated February 14, 2011 (``City of Goodyear
Letter''); letter from Patricia Branya, Director, Miami-Dade County,
dated February 14, 2011; and letter from Elwood G. ``Woody'' Farber,
President, New Mexico Educational Assistance Foundation, dated
February 15, 2011. One commenter questioned whether, if an appointed
member of a governing body is deemed a municipal advisor, the
federal fiduciary obligations to the municipal entity override state
and local law provisions for exculpation, indemnification, and other
protections of board members. See NABL Letter.
    \494\ See, e.g., City of Tolleson Letter; City of Goodyear
Letter; letter from Richard D. Legon, President, Association of
Governing Boards of Universities and Colleges, dated February 15,
2011; letter from Edward G. Henifin, General Manager and Steven G.
deMik, Director of Finance, Hampton Roads Sanitation District, dated
February 22, 2011; letter from Scott Jordan, Executive Office for
Administration and Finance, dated February 22, 2011; letter from
Granger Vinall, Chairman of the Board of Directors and Kevin J.
Burns, Chief Executive Officer, UA Healthcare, Inc., dated February
22, 2011; and letter from Ronald H. Paydo, President, Medina County
Port Authority, dated February 18, 2011.
---------------------------------------------------------------------------

    Commenters also stated that the Proposal is unclear with respect to
whether: (1) Appointed, rather than elected, officials (such as city
controllers, managers, and commissioners) would be ``employees;'' \495\
(2) the employee of one municipal entity (such as an employee of a
municipal entity that is the sponsor of a pension plan) would be
covered by the exclusion when serving as an appointed member of the
board of another municipal entity (such as on the board of the
sponsored pension plan) or otherwise performing services for other
related municipal entities; \496\ and (3) board members that were
``elected,'' but were not elected by the citizens of the municipal
entity, would be considered ``employees of a municipal entity.'' \497\
Some commenters stated that designees of board members should also be
covered by the exclusion.\498\ One commenter suggested that ``employees
and board members of a municipal entity should be excluded [from the
definition of municipal advisor] to the extent they provide advice to
an obligated person (and acting in the purview of their duties).''
\499\
---------------------------------------------------------------------------

    \495\ See, e.g., Cynthia M. Davenport, Attorney at Law, Flynn &
Davenport, LLC, Troy, Missouri, dated January 18, 2011; City of St.
Petersburg Letter; Denver Letter; and City of Safford Letter.
    \496\ See, e.g., letter from Michael Hairston, EFRC, dated
February 22, 2011; NYC Management and Budget Letter; M-S-R-Power
Agency Letter (explaining that the M-S-R Public Power Agency uses
the services of employees of its member municipal entities to sit on
standing committees of the agency and to fulfill the duties of
offices of the agency; and commenting that employees of its members
that are seconded to the agency should have the same exemption when
they perform services for the agency as when the employees are
acting within the scope of their employment responsibilities
providing services for the benefit of the member entity); letter
from Hawkins Delafield & Wood LLP, dated February 16, 2011
(commenting that ``an employee of municipal entity A who provides
services to, but is not an employee of, municipal entity B, should
be exempt under Section 15B(e)(4)(A) if both entities operate for
the benefit of the same governmental unit, whether at the state,
county, or municipal level''); letter from Susan Combs, Texas
Comptroller of Public Accounts, dated February 22, 2011 (describing
that employees of Texas's Office of the Comptroller may provide
advice to other municipal entities within the state in connection
with their duties to the Office of the Comptroller); and letter from
Amadeo Saenz, Texas Department of Transportation, dated February 22,
2011 (commenting that employees of the Texas Department of
Transportation that are appointed to the non-profit entity that
issues bonds on behalf of the Texas Transportation Commission should
be excluded because they are employees assuming a decision-making
responsibility based on the duties of their employment).
    One commenter also stated that the Proposal is unclear, in the
case of a non-profit entity formed for the benefit of a municipal
entity, whether employees of the municipal entity that sit on the
board of such non-profit would be excluded from the definition of
``municipal advisor'' as ``employees'' of the municipal entity. See,
e.g., letter from Angela I. Carmon, City Attorney on behalf of North
Carolina Municipal Leasing Corporation, dated February 22, 2011.
    The term ``municipal entity'' means, in part, ``any State,
political subdivision of a State, or corporate instrumentality.''
See Rule 15Ba1-1(g). The Commission notes that such employees would
be ``employees of a municipal entity,'' and therefore excluded from
the definition of municipal advisor, to the extent the non-profit
entity is itself a municipal entity (e.g., if the non-profit entity
is a corporate instrumentality of a State).
    \497\ See, e.g., Pennsylvania Local Government Investment Trust
Letter.
    \498\ See, e.g., NYC Management and Budget Letter; and letter
from Tim Kenny, Nebraska Investment Finance Authority, dated
February 22, 2011.
    \499\ Kutak Rock Letter. This commenter was concerned that
otherwise, the municipal entity and obligated person would not be
able to coordinate with respect to a financing for the obligated
person.
---------------------------------------------------------------------------

    Many commenters also stated that boards of municipal entities are
legally inseparable from the municipal entity.\500\ One commenter
stated that if the governing body of a municipal entity, as a whole, is
not a part of the ``municipal entity,'' then any third party soliciting
or providing advice to the governing body with respect to municipal
financial products or the issuance of municipal securities would not be
subject to the registration requirements.\501\
---------------------------------------------------------------------------

    \500\ See, e.g., Utah Retirement Systems Letter; Nebraska
Educational Finance Authority Letter; State of Indiana Letter; NABL
Letter; and letter from Gregory W. Smith, General Counsel/Chief
Operating Officer, Colorado Public Employees' Retirement
Association, dated February 22, 2011.
    \501\ See Utah Retirement Systems Letter.
---------------------------------------------------------------------------

    Additionally, some commenters asserted that the Proposal would
restrict municipal entities from soliciting advice from citizens, and
would subject to the registration requirements members of the general
public submitting written comments or giving oral statements to the
board of a municipal entity.\502\ Another commenter stated that the
Proposal would require registration of a former board member, if the
Chairman of the current board contacts that former board member with
questions about a prior issuance.\503\
---------------------------------------------------------------------------

    \502\ See, e.g., letter from Annise D. Parker, Mayor, City of
Houston, Texas, dated February 22, 2011; Squire Sanders & Dempsey
Letter.
    \503\ See Indianapolis Local Public Improvement Bond Bank
Letter.
---------------------------------------------------------------------------

    After considering the comments, the Commission has determined to
exempt from the definition of municipal advisor, pursuant to its
authority under Section 15B(a)(4), all members of a municipal entity's
governing body, its advisory boards and its committees, as well as
persons serving in a similar official capacity with respect to the
municipal entity, to the extent they are acting within the scope of
their official capacity, regardless of whether such members or
officials are employees of the municipal entity. Specifically, Rule
15Ba1-1(d)(3)(ii) exempts from the definition of municipal advisor
``[a]ny

person serving as a member of a governing body, an advisory board, or a
committee of, or acting in a similar official capacity with respect to,
or as an official of, a municipal entity or obligated person \504\ to
the extent that such person is acting within the scope of such person's
official capacity'' \505\ and ``any employee of a municipal entity or
obligated person to the extent that such person is acting within the
scope of such person's employment.'' \506\
---------------------------------------------------------------------------

    \504\ Comments regarding the treatment of such governing persons
and employees of obligated persons, and how this exemption addresses
such comments, are separately discussed further below.
    \505\ Rule 15Ba1-1(d)(3)(ii)(A).
    \506\ Rule 15Ba1-1(d)(3)(ii)(B).
---------------------------------------------------------------------------

    The Commission agrees with commenters that like employees, a
municipal entity's officials, as well as members of a municipal
entity's governing body and other officials serving in a similar
capacity (including members of advisory boards and committees), whether
or not employed by a municipal entity, typically act on behalf of the
municipal entity. The Commission also believes that if a local
government official or appointed board member of a municipal entity, in
the scope of his or her duties to that municipal entity, provides
advice to another municipal entity, such advice would not require the
person to register as a municipal advisor because such person would be
acting within the scope of his or her duties to the municipal entity.
Rule 15Ba1-1(d)(3)(ii) also clarifies the Commission's interpretation
of the statutory exclusion from the definition of ``municipal advisor''
for employees of municipal entities by providing that such employees
are exempt ``to the extent that such person is acting within the scope
of such person's employment.'' \507\ Consequently, as described above
with respect to governing board members and officials, an employee of
one municipal entity that provides advice, within the scope of his or
her employment as such, to another municipal entity or obligated person
would be exempt from the definition of ``municipal advisor.''
---------------------------------------------------------------------------

    \507\ See Rule 15Ba1-1(d)(3)(ii).
---------------------------------------------------------------------------

    The exemption in Rule 15Ba1-1(d)(3)(ii) would extend to all
designees of public officials or members of a municipal entity's
governing body, to the extent such designation is made pursuant to
existing rules of the municipal entity for designating or delegating
authority. The Commission believes that under such scenario, the
designee would be serving ``in a similar official capacity'' \508\ as
the person for whom they are acting. Further, the Commission notes that
the exemption from registration includes members of advisory boards
\509\ and committees,\510\ acting within the scope of their capacity as
such \511\ because, as with respect to members of the governing body or
other government officials, when acting within the scope of their
official capacity such persons are acting on behalf of the municipal
entity.
---------------------------------------------------------------------------

    \508\ See id.
    \509\ Commenters provided some examples of advisory board
composition and activities. See, e.g., Combs Letter (describing that
the ``Comptroller's Investment Advisory Board,'' which advises the
state's trust company which in turn manages state funds, is unlike
an investment adviser in that it doesn't assist with the selection
of specific investments or investment professionals; that it
provides general guidance but has no control over what purchases and
sales are made with state funds; and that although the board members
have no fiduciary duty, they also have no decisionmaking power); and
letter from Gregg Abbott, State of Texas, dated February 22, 2011
(``State of Texas Letter'') (noting that distinguishing between
governing boards and advisory boards is unworkable as some advisory
boards are subcommittees of governing boards, some are made up of a
combination of governing board members and other citizen volunteers,
and some have no governing board members).
    \510\ Some municipal entity boards also have committees that may
or may not be comprised of members of the board. See, e.g., letter
from Jerome Cochrane, University of Pittsburgh, dated February 22,
2011 (certain committees of the boards of certain Pennsylvania State
universities include ``non-voting committee members, representing
members of the public, alumni, faculty, staff and student bodies'').
    \511\ The Commission notes that the exemption for advisory board
and committee members includes volunteer members of such boards and
committees.
---------------------------------------------------------------------------

    The Commission does not intend to impede the deliberative process
that municipal entities engage in with their citizens. Accordingly, the
registration requirement for municipal advisors does not apply to
persons who comment on municipal financial products or the issuance of
municipal securities by making use of public comment forums provided by
municipal entities or other public forums. Additionally, responding to
factual questions about a past issuance by a former board member would
not constitute municipal advisory activities, because providing such
information in response to questions under such circumstances is
factual and therefore does not constitute advice with respect to such
issuance.\512\
---------------------------------------------------------------------------

    \512\ See supra Section III.A.1.b.1. (discussing the advice
standard in general).
---------------------------------------------------------------------------

    The Commission agrees with commenters that individuals who engage
in deliberative and decision-making functions with respect to municipal
financial products or the issuance of municipal securities as part of
their duties as members of a governing body should not have to register
as municipal advisors. Such individuals represent the municipal entity
that is the intended recipient of the protections of the municipal
advisor registration regime, and the Commission does not consider such
deliberative and decision-making functions to be advice. Additionally,
board members and other officials (appointed and elected alike, as well
as their duly appointed designees) may be subject to state and local
law, including fiduciary duties and ethics laws, and the statutory
qualifications for such members' board positions may be significant to
the mission of the municipal entity. Accordingly, the Commission does
not believe that imposing an additional layer of regulation, including
the fiduciary duty imposed upon municipal advisors,\513\ would provide
a significant additional benefit. The Commission agrees with commenters
that whether a public official or other member of a governing body of a
municipal entity is appointed or elected is not the sole factor in
determining whether such individual is accountable to the municipal
entity he or she serves. Board members, officials, and employees would
be required to register, however, if they are engaged by other
municipal entities or obligated persons to provide services as
compensated advisors in addition to their normal duties as an employee,
official, or board member of the municipal entity.\514\
---------------------------------------------------------------------------

    \513\ Section 15B(c)(1) of the Exchange Act (as amended by the
Dodd-Frank Act) imposes a fiduciary duty on municipal advisors when
advising municipal entities. See Proposal, 76 FR 827, note 60 and
accompanying text.
    \514\ Compare with supra note 507 and accompanying text.
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    For the reasons described above, 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) to exempt any person serving as a member
of a governing body, an advisory board, or a committee of, or acting in
a similar official capacity with respect to, or as an official of, a
municipal entity to the extent that such person is acting within the
scope of such person's official capacity.\515\ Accordingly, such
persons are not required to register as municipal advisors.
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    \515\ See Rule 15Ba1-1(d)(3)(ii)(A).
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Employees and Officials of Obligated Persons
    Section 15B(e)(4) of the Exchange Act excludes from the definition
of municipal advisor persons who are employees of a municipal entity,
but does not extend such exclusion to employees of obligated persons.
In the

Proposal, the Commission asked whether employees of obligated persons
should be excluded, to the extent they are providing advice to the
obligated person, acting in its capacity as an obligated person, in
connection with municipal financial products or the issuance of
municipal securities.\516\ In addition, the Commission asked whether
there are types of persons, other than employees of obligated persons,
who should be excluded from the definition of municipal advisor.\517\
In response, the Commission received several comments.
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    \516\ See Proposal, 76 FR 837.
    \517\ See id.
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    Some commenters stated that employees, officers, and directors of
obligated persons should be excluded from the definition of municipal
advisor when they provide advice to the obligated person with respect
to municipal financial products or the issuance of municipal
securities.\518\ More specifically, some commenters stated that board
members of obligated persons acting within the scope of their duties do
not give ``advice'' and that it is the obligation of board members to
communicate with fellow board members and staff.\519\ For example, one
commenter stated that municipal advisors typically have multiple
clients, hold themselves out as advisors, and generally do not exercise
decision making authority for the municipal entity or obligated
person.\520\ On the other hand, according to this commenter, directors
and employees of obligated persons act on behalf of and in the interest
of entities with which they are affiliated and do not hold themselves
out as advisors.\521\ They act for obligated persons in connection with
municipal offerings only as part of their responsibilities to the
obligated person.\522\ Other commenters stated that members of
governing boards of obligated persons are already subject to state and
federal laws, such as laws governing non-profit entities, conflict of
interest laws, ethics laws, and open meeting laws.\523\ Commenters also
made similar statements with respect to employees of obligated
persons.\524\ Further, some commenters stated that officers, directors,
and employees of obligated persons are no different from those of
municipal entities,\525\ and an obligated person can only act through
its board and employees.\526\ One commenter suggested, however, that
individual board members and employees should not be exempt from
registration if they are engaged to provide services for a nonprofit
organization as compensated advisors.\527\
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    \518\ See, e.g., NABL Letter; ABA Letter; letter from Duncan
Gallagher, EVP and Chief Financial Officer, Allina Health System,
dated February 22, 2011 (``Allina Health System Letter''; letter
from Jeffrey S. Bromme, Senior Vice President and Chief Legal
Officer and C. Robert Foltz, Associate Chief Legal Officer--
Treasury, Adventist Health System Sunbelt Healthcare Corporation,
dated February 11, 2011 (``Adventist Health System Letter'').
    \519\ See, e.g., letter from Charles A. Samuels, Mintz Levin
Cohn Ferris Glovsky & Popeo, P.C., on behalf of the National
Association of Health & Educational Facilities Finance Authorities,
dated February 17, 2011 (``National Association of Health &
Educational Facilities Finance Authorities Letter''). See also
Allina Health System Letter; Chapman and Cutler Letter; letter from
Latham & Watkins, dated February 22, 2011 (``Latham & Watkins
Letter''); and letter from David W. Lowden, Chair, the Committee on
Non-Profit Organizations, Association of the Bar of the City of New
York, dated February 14, 2011 (``New York City Bar Letter'').
    \520\ See Latham & Watkins Letter.
    \521\ See id.
    \522\ See id.
    \523\ See, e.g., Kutak Rock Letter; National Association of
Health & Educational Facilities Finance Authorities Letter; Latham &
Watkins Letter; letter from Susan Ellen Wagner, Executive Director,
Healthcare Trustees of New York State, dated February 16, 2011
(``Healthcare Trustees of New York State Letter''); William C.
Daroff, Vice President for Public Policy & Director of the
Washington Office, Jewish Federations of North America, dated
February 25, 2011 (``Jewish Federations of North America Letter'').
    \524\ See, e.g., National Association of Health & Educational
Facilities Finance Authorities Letter; Latham & Watkins Letter; New
York City Bar Letter; and letter from Corinne Johnson, Executive
Director, Colorado Health Facilities Authority, Cris White,
Executive Director, Colorado Housing and Finance Authority, Jo Ann
Soker, Executive Director, Colorado Educational and Cultural
Facilities Authority, dated February 18, 2011 (``Colorado Health
Facilities Letter'').
    \525\ See, e.g., South Lake County Hospital District Letter. See
also Latham & Watkins Letter.
    \526\ See, e.g., Squire Sanders & Dempsey Letter. See also
Latham & Watkins Letter; MSRB Letter.
    \527\ See New York City Bar Letter.
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    Several commenters stated that the MSRB Study,\528\ the legislative
history of the Dodd-Frank Act, and the Proposal indicate that the term
``municipal advisor'' is meant to capture professionals that offer
advisory services in a financial marketplace.\529\ One commenter stated
that for decades, in regulating the market for financial advice,
Congress and the Commission have expressly declined to regulate
internal advice provided by employee to employer.\530\ The commenter
stated that a departure from this established practice should not be
inferred, absent a clear indication from Congress, and nothing in the
language or history of the Dodd-Frank Act signals that Congress
intended to affect a fundamental shift in policy.\531\
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    \528\ In April 2009, the MSRB issued a study titled
``Unregulated Municipal Market Participants: A Case for Reform,'' in
which the MSRB advocated for the regulation of intermediaries in the
municipal securities market (such as swap advisors and financial
advisors). This study was referenced by the Commission in the
Proposal. See Proposal, 76 FR 825, n.8.
    \529\ See, e.g., letters from Michael B. Koffler and James K.
Hasson, Jr., Sutherland Asbill & Brennan LLP on behalf of
Universities, dated February 22, 2011 (``Universities Letter'');
Richard D. Legon, President, Association of Governing Boards of
Universities and Colleges, dated February 15, 2011 (``Association of
Governing Boards of Universities and Colleges Letter'') (stating
that board members and employees of obligated persons are not
discussed in the preamble and cost estimates of the Proposal). See
also letters from Molly Corbett Broad, President, American Council
on Education, dated February 22, 2011 (``American Council on
Education Letter''); Daniel G. Kirch, M.D., President and CEO,
Association of American Medical Colleges, dated February 16, 2011
(``Association of American Medical Colleges Letter'').
    \530\ See American Council on Education Letter (providing as an
example in support of their statement that existing registration
requirements, such as those under the Investment Advisers Act, cover
firms and persons in the business of providing advice, and that the
requirements do not regulate employment relationships). See also
Association of Governing Boards of Universities and Colleges Letter
(noting that Commission staff has taken the position, in the context
of a No-Action Letter under the Investment Advisers Act, that
internal relationships are unlike the commercial relationships
between an investment adviser and its clients that the Investment
Advisers Act was intended to regulate).
    \531\ See American Council on Education Letter.
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    Some commenters stated that the proposed rules would make it
difficult for obligated persons to recruit and retain board members and
employees,\532\ discourage officers and board members from engaging in
matters that are traditionally within their purview,\533\ and disrupt
the process of borrowing and operations of borrowers and issuers.\534\
Other commenters stated that the proposed rules could substantially
increase the cost of financing \535\ and could cause a potential
borrower to forego projects using the economic development options
offered by states and avoid the issuance of municipal bonds.\536\
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    \532\ See, e.g., letter from Richard L. Clarke, DHA, FHFMA,
President and CEO, Healthcare Financial Management Association,
dated February 22, 2011 (``Healthcare Financial Management
Association Letter''); Latham & Watkins Letter; and New York City
Bar Letter.
    \533\ See, e.g., Association of American Medical Colleges
Letter; and New York City Bar Letter.
    \534\ See, e.g., National Association of Health & Educational
Facilities Finance Authorities Letter.
    \535\ See, e.g., letter from Christopher B. Meister, Executive
Director, Illinois Finance Authority, dated February 22, 2011
(``Illinois Finance Authority Letter''). See also SIFMA Letter I.
    \536\ See, e.g., State of Indiana Letter; National Association
of State Treasurers Letter; and New York City Bar Letter.
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    As discussed above, one commenter suggested that ``employees and
board members of a municipal entity should be excluded from regulation
to the extent they provide advice to an obligated person (and acting in
the

purview of their duties).'' \537\ Likewise, employees and board members
of an obligated person should be excluded from regulation to the extent
they provide advice to a municipal entity.\538\ On the other hand,
another commenter stated that employees, officers, and directors of an
obligated person should be exempt to the extent they provide advice
solely to the obligated person and not to a municipal entity.\539\ One
other commenter stated that when an obligated person solicits conduit
issuers to issue bonds on behalf of the obligated person, such
solicitation should not require the obligated person or its board
members or employees to register as municipal advisors.\540\
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    \537\ See supra note 499 and accompanying text.
    \538\ See Kutak Rock Letter.
    \539\ See ABA Letter.
    \540\ See NABL Letter. See also letter from James E. Potvin,
Chair and Robert W. Giroux, Executive Director, Vermont Educational
and Health Buildings Financing Agency, dated February 22, 2011
(``Vermont Educational and Health Buildings Financing Agency
Letter''); and National Association of State Treasurers Letter;
letter from Paul Goldstein, Vice President of Finance, Treasury/
Accounting and Chief Financial Officer, Orlando Health, Inc., dated
February 18, 2011 (``Orlando Health Letter''). Some commenters
stated generally that obligated persons should not be required to
register as municipal advisors. See, e.g., Latham & Watkins Letter.
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    After considering the comments, the Commission agrees with
commenters that board members, officers, and employees of obligated
persons should be treated in the same manner as board members,
officers, and employees of municipal entities and is using its
statutory authority to provide an exemption for such persons that is
parallel to the exemption with respect to municipal entities described
above.\541\ The Commission believes that this exemption is appropriate,
because such individuals, when acting in the scope of their duty to the
obligated person, are accountable to the obligated person. Further,
board members, officers, and employees of obligated persons serve
similar functions as board members, officers, and employees of
municipal entities. Consequently, the Commission is exempting from the
definition of municipal advisor any employee of an obligated person
acting within the scope of such person's employment, as well as any
person serving as a member of a governing body, an advisory board, or a
committee of, or acting in a similar official capacity with respect to,
or as an official of, an obligated person to the extent they are acting
within the scope of their duties.\542\ The Commission believes that,
like municipal entities, obligated persons and persons who perform
decision-making functions for, or otherwise act on behalf of, obligated
persons, when fulfilling their duty to the obligated person, are also
the intended beneficiaries of the protections afforded by the municipal
advisor registration requirement. As with respect to municipal
entities, board members, officials, and employees of obligated persons
would be required to register, however, if they are engaged by other
municipal entities or obligated persons to provide services as
compensated advisors in addition to their normal duties as an employee,
official, or board member of the obligated person.\543\
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    \541\ See Rule 15Ba1-1(d)(3)(ii); and supra notes 504-505 and
accompanying text.
    \542\ See Rule 15Ba1-1(d)(3)(ii). See also notes 504 and 506 and
accompanying text.
    \543\ As described above, a local government official or
appointed board member of a municipal entity would not be required
to register as a municipal advisor if he or she provides advice, in
the scope of his or her duties to that municipal entity employer, to
another municipal entity. See supra notes and 496 and 507
accompanying text. In contrast, if such a person is engaged and
compensated outside the scope of such duties, he or she would not be
eligible for the exemption and would be required to register.
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    For the reasons described above, 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) to exempt any: (1) Person serving as a
member of a governing body, an advisory board, or a committee of, or
acting in a similar official capacity with respect to, or as an
official of, an obligated person to the extent that such person is
acting within the scope of such person's official capacity; and (2)
employee of an obligated person to the extent that such person is
acting within the scope of such person's employment.\544\ Accordingly,
such persons are not required to register as municipal advisors.
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    \544\ See Rule 15Ba1-1(d)(3)(ii).
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    With regard to the application of the rules to employees or
governing body members of an obligated person who solicit conduit
issuers to issue bonds on behalf of the obligated person, the
Commission notes that these persons are not acting as advisors.\545\
Instead, they act as principals seeking an issuance of municipal
securities by a municipal entity on behalf of the obligated person
pursuant to an arm's-length loan (or similar) agreement under which the
obligated person will be required to pay debt service and other costs
upon bond issuance. The Commission notes that these individuals would
not be required to register as municipal advisors, because they are not
advising a municipal entity with respect to the issuance of municipal
securities or soliciting a municipal entity on behalf of a broker,
dealer, municipal securities dealer, municipal advisor, or investment
adviser for the purpose of obtaining or retaining an engagement for
such person. However, an employee, governing board member or other
official of an obligated person could still be deemed to be engaged in
municipal advisory activities (which include solicitation activities)
if his or her recommendations cannot be properly characterized as
negotiations of the terms by which the obligated person is agreeing to
engage in the borrowing through the municipal entity.\546\
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    \545\ See supra note 540 and accompanying text.
    \546\ See supra Section III.A.b.i. (discussing the advice
standard in general) and Section III.A.b.x. (discussing solicitation
of a municipal entity or obligated person).
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    Regardless of an individual's title as a member of a governing
body, an employee, or other official (appointed or elected) of a
municipal entity or obligated person, the Commission notes that the
exemptions described above do not apply to the extent such individual