adviser withdrawals comprise, on average, approximately 6.4% of the
total number of registered investment advisers. 1,000 (all Form MA
applicants) x 6.4% = 64 Form MA withdrawals per year. See id.
    \1529\ 60 (estimated number of persons withdrawing from Form MA
registration each year) x 0.5 hours (average estimated time to
complete Form MA-W) = 30 hours per year. See id.
---------------------------------------------------------------------------

    The Commission received no comment letters that specifically
addressed the Form MA-W hourly burden estimates. Although the
Commission has made modifications to Form MA-W since the Proposal,
because those changes are minor,\1530\ the Commission is retaining its
hourly burden estimates for Form MA-W as originally proposed.
---------------------------------------------------------------------------

    \1530\ See supra Section III.A.4.
---------------------------------------------------------------------------

    The Commission has reviewed Form MA-T data as of December 31, 2012,
and estimates that approximately 22 municipal advisors filed a
withdrawal on Form MA-T in 2011 and approximately 24 municipal advisors
filed a withdrawal on Form MA-T in 2012. Based on experience with
withdrawals on Form MA-T, the Commission now estimates that the average
number of withdrawals from Form MA registration per year will be

30,\1531\ and that the total annual burden will be approximately 15
hours.\1532\
---------------------------------------------------------------------------

    \1531\ This estimate represents an average of the number of
withdrawals on Form MA-T in 2011 (22) and 2012 (24) rounded to the
nearest higher multiple of ten.
    \1532\ 30 (estimated number of persons withdrawing from Form MA
registration per year) x 0.5 hours (average estimated time to
complete Form MA-W) = 15 hours per year.
---------------------------------------------------------------------------

    The collection of information made pursuant to Form MA-W is
mandatory and generally will not be confidential and will be made
publicly available. Some information, such as social security numbers,
will be kept confidential subject to applicable law.
5. Non-Resident Municipal Advisors
    In the Proposal, the Commission estimated that there would be
approximately 20 Form MA-NR filers: 16 non-resident general partners or
non-resident managing agents \1533\ and three non-resident municipal
advisory firms.\1534\ In the Proposal, the Commission noted that the
average time necessary to complete Form ADV-NR, which is similar to
Form MA-NR, is approximately one hour.\1535\ The Commission estimated
that, because of the additional time required to find and designate an
agent, the process to complete Form MA-NR would take longer than Form
ADV-NR, or approximately 1.5 hours on average.\1536\ Thus, the
Commission estimated that the total initial burden to complete Form MA-
NR would be approximately 30 hours.\1537\
---------------------------------------------------------------------------

    \1533\ 1,000 (all Form MA applicants) x 1.64% (percentage of
Form ADV-NR filings to total number of investment adviser
applicants) = 16 Form MA-NR filers that are non-resident general
partners or non-resident managing agents. See Proposal, 76 FR 869-
70.
    \1534\ 1,000 (all Form MA applicants) x (2 / 800) (proportion of
non-U.S.-based Form MA-T registrants compared to all Form MA-T
registrants) = 2.5 Form MA-NR filers that are non-resident municipal
advisors. See id. at 870.
    \1535\ See id. at 869.
    \1536\ See id. The burden associated with this process would
primarily involve the designation and authorization of a United
States person as an agent for service of process.
    \1537\ 20 (persons expected to file Form MA-NR for the first
time) x 1.5 hours (average estimated time to complete Form MA-NR) =
30 hours. See id. at 870.
---------------------------------------------------------------------------

    In addition, the Commission estimated that the additional burden to
provide an opinion of counsel would add approximately three hours and
$900 in outside legal costs per respondent.\1538\ To obtain this
estimate, the Commission relied on its burden estimates for Form 20-F,
a form submitted by certain foreign private issuers, which has a
similar opinion of counsel requirement to Rule 15Ba1-6(d).\1539\ The
Commission estimated that the total initial burden to provide an
opinion of counsel would be approximately 9 hours \1540\ and that the
total initial cost for all non-resident municipal advisory firms to
hire outside counsel as part of providing an opinion of counsel would
be approximately $2,700.\1541\ Thus, the Commission estimated that the
total initial burden to complete Form MA-NR and provide an opinion of
counsel would be 39 hours.
---------------------------------------------------------------------------

    \1538\ See id. The $900 figure is based on an hourly cost
estimate of $400 on average for an outside attorney, which is based
on Commission conversations with law firms that regularly assist
regulated financial firms with compliance matters. See Investment
Advisers Act Release No. 3222 (June 22, 2011), 76 FR 39646 (July 6,
2011). Based on previous burden estimates, the Commission estimated
that outside counsel will take, on average, 2.25 hours to assist in
preparation of the opinion of counsel, for an average cost of $900
per respondent.
    \1539\ See Proposal, 76 FR 870.
    \1540\ 3 (non-resident municipal advisory firms expected to
provide an opinion of counsel) x 3.0 hours (average estimated time
to provide an opinion of counsel) = 9 hours. See id.
    \1541\ 3 (non-resident municipal advisory firms expected to
provide opinion of counsel) x $900 (average estimated cost to hire
outside counsel for providing an opinion of counsel) = $2,700. See
id.
---------------------------------------------------------------------------

    The Commission received no comment letters that specifically
addressed the Form MA-NR hourly burden estimates. Although the
Commission has made modifications to Form MA-NR since the Proposal,
because most of the changes are clarifications not requiring additional
information, on balance, the Commission does not believe the additional
information requirements will impose significant additional burdens on
municipal advisors,\1542\ and is retaining its hourly burden estimates
to complete Form MA-NR as originally proposed.\1543\ Given the revised
estimate of Form MA applicants as described above, the Commission now
estimates that two non-resident municipal advisory firms will need to
complete Form MA-NR.\1544\ In addition, the Commission estimates that
those non-resident municipal advisory firms will need to furnish Form
MA-NR for 15 non-resident general partners and non-resident managing
agents.\1545\
---------------------------------------------------------------------------

    \1542\ See supra Section III.A.6.
    \1543\ See supra note 1536 and accompanying text.
    \1544\ 910 (all Form MA applicants) x (2 / 900) (proportion of
non-U.S.-based Form MA-T registrants compared to all Form MA-T
registrants) = 2.02 Form MA-NR filers that are non-resident
municipal advisors.
    \1545\ 910 (all Form MA applicants) x 1.64% (percentage of Form
ADV-NR filings to total number of investment adviser applicants) =
14.92 Form MA-NR filers that are non-resident general partners or
non-resident managing agents.
---------------------------------------------------------------------------

    The final rules and forms will also require each non-resident
municipal advisory firm to file Form MA-NR for each non-resident
natural person associated with the municipal advisor who engages in
municipal advisory activities on behalf of the municipal advisor. The
Commission estimates that the number of such non-resident natural
persons will be the same as the number of non-resident general partners
or non-resident managing agents, or 15.\1546\ Thus, the total number of
Form MA-NR filers will be approximately 32, and the total initial
burden to complete Form MA-NR will be approximately 48 hours.\1547\
---------------------------------------------------------------------------

    \1546\ See supra note 1545 and accompanying text. The Proposal
did not include the number of Form MA-I filers in estimating the
burden associated with Form MA-NR.
    \1547\ 32 (persons expected to file Form MA-NR for the first
time) x 1.5 hours (average estimated time to complete Form MA-NR) =
48 hours.
---------------------------------------------------------------------------

    The Commission also estimates that the total initial burden to
provide an opinion of counsel will be approximately 6 hours.\1548\
Thus, the Commission estimates that the total initial burden to
complete the estimated number of Form MA-NR submissions and provide an
opinion of counsel will be 54 hours.\1549\ In addition, the Commission
now estimates that the total initial cost for all non-resident
municipal advisory firms to hire outside counsel as part of providing
an opinion of counsel will be approximately $1,800.\1550\
---------------------------------------------------------------------------

    \1548\ 2 (non-resident municipal advisory firms expected to
provide opinion of counsel) x 3.0 hours (average estimated time to
provide an opinion of counsel) = 6 hours.
    \1549\ 48 hours (total initial burden to complete of Form MA-NR)
+ 6 hours (total initial burden to provide an opinion of counsel) =
54 hours.
    \1550\ 2 (non-resident municipal advisory firms expected to
provide opinion of counsel) x $900 (average estimated cost to hire
outside counsel to provide an opinion of counsel) = $1,800.
---------------------------------------------------------------------------

    In the Proposal, the Commission also estimated the ongoing annual
number of new Form MA-NR filers that are non-resident general partners
or non-resident managing agents. Relying on investment adviser
registration data, the Commission estimated that only one municipal
advisor respondent per year would have a non-resident general partner
or non-resident managing agent that would be required to complete a new
Form MA-NR.\1551\ This estimate included the ongoing annual number of
new Form MA-NR filers that are non-resident municipal advisors since
the small initial number of non-resident municipal advisors suggested
that, at most, there would be only one new non-resident municipal
advisor every several years. Thus, the Commission estimated that the
total burden per year to

complete Form MA-NR would be approximately two hours.\1552\ For the
purposes of the analysis, the Commission assumed that the one new non-
resident municipal advisor per year would not be a natural person and
would thus be required to provide opinion of counsel. The Commission
estimated that the total burden per year to provide opinion of counsel
would be approximately three hours\1553\ and that the ongoing annual
cost for non-resident municipal advisors to hire outside counsel as
part of providing opinion of counsel would be approximately $900.\1554\
---------------------------------------------------------------------------

    \1551\ 1,000 (all Form MA applicants) x 0.09% (average annual
percentage filings of Form ADV-NR) = 0.9 Form MA-NR filers per year;
this number was rounded up to 1. See Proposal, 76 FR 870.
    \1552\ 1 (persons expected to file Form MA-NR each year) x 1.5
(average estimated time to complete Form MA-NR) = 1.5 hours per
year. See id.
    \1553\ 1 (municipal advisory firms expected to provide an
opinion of counsel) x 3.0 (average estimated time to provide opinion
of counsel) = 3.0 hours per year. See id.
    \1554\ 1 (persons expected to file Form MA-NR each year) x $900
(average estimated cost to hire outside counsel to provide opinion
of counsel) = $900. See id.
---------------------------------------------------------------------------

    The Commission continues to estimate that only one municipal
advisor respondent per year will have a non-resident general partner,
non-resident managing agent, or associated person that would be
required to complete a new Form MA-NR.\1555\ Thus, as in the Proposal,
the Commission estimates that the total burden per year to complete a
new Form MA-NR will be approximately two hours; \1556\ the total burden
per year to provide opinion of counsel will be approximately three
hours; \1557\ and the ongoing annual cost for non-resident municipal
advisors to hire outside counsel as part of providing opinion of
counsel will be approximately $900.\1558\
---------------------------------------------------------------------------

    \1555\ 910 (all Form MA applicants) x 0.09% (average annual
percentage filings of Form ADV-NR) = 0.82 Form MA-NR filers per
year; as in the initial estimate, this number is rounded up to 1.
    \1556\ 1 (persons expected to file Form MA-NR each year) x 1.5
(average estimated time to complete Form MA-NR) = 1.5 hours per
year.
    \1557\ 1 (municipal advisory firms expected to provide an
opinion of counsel) x 3.0 (average estimated time to provide opinion
of counsel) = 3.0 hours per year.
    \1558\ See supra notes 1552-1554.
---------------------------------------------------------------------------

    The Commission notes that filers may incur recurring burdens
associated with Form MA-NR, such as costs incurred to monitor and
maintain the information required by the form. For the purposes of this
analysis, these recurring burdens are included in the estimates noted
above. Rule 15Ba1-6 also will require that municipal advisors update
the information on Form MA-NR if it becomes inaccurate. Similarly,
these burdens are accounted for in the above estimates.
    In summary, the Commission now estimates that the total initial
burden for Form MA-NR will be approximately 54 hours; \1559\ the total
ongoing annual burden to complete a new Form MA-NR will be
approximately two hours; \1560\ the total initial cost for all non-
resident municipal advisory firms to hire outside counsel as part of
providing an opinion of counsel will be approximately $1,800; \1561\
and the ongoing annual cost for non-resident municipal advisors to hire
outside counsel as part of providing opinion of counsel will be
approximately $900.\1562\
---------------------------------------------------------------------------

    \1559\ See supra note 1549 and accompanying text.
    \1560\ See supra note 1552 and accompanying text.
    \1561\ See supra note 1550 and accompanying text.
    \1562\ See supra note 1554 and accompanying text.
---------------------------------------------------------------------------

    The collection of information made pursuant to Form MA-NR is
mandatory and will not be confidential and will be made publicly
available.
6. Outside Counsel
    In the Proposal, the Commission stated its belief that some
municipal advisory firms would seek outside counsel to help them comply
with the requirements of the proposed rules, if adopted, and to
complete Form MA.\1563\ The Commission also stated its belief that it
would be unlikely that natural person municipal advisors would obtain
or consult with counsel for purposes of completing Form MA-I.\1564\ For
PRA purposes, the Commission assumed that all 1,000 municipal advisory
firms registering on Form MA would, on average, consult with outside
counsel for one hour to help them comply with the requirements.\1565\
The Commission estimated that the total cost for all municipal advisory
firms to hire outside counsel to review their compliance with the
requirements of the proposed rules and forms would be approximately
$400,000.\1566\ Given the revised estimate of Form MA applicants as
described above, the Commission now estimates that such cost will be
approximately $364,000.\1567\ In addition, firms that seek to register
as municipal advisors in each year after the first will likely hire
outside counsel to review their compliance with the requirements of the
proposed rules and forms. As discussed above, the Commission estimates
that approximately 100 new municipal advisory firms will register on
Form MA each year.\1568\ Accordingly, the Commission estimates that the
ongoing cost for all municipal advisory firms to hire outside counsel
to review their compliance with the requirements of the proposed rules
and forms would be approximately $40,000.\1569\
---------------------------------------------------------------------------

    \1563\ See Proposal, 76 FR 871.
    \1564\ See id.
    \1565\ See id.
    \1566\ 1,000 (estimated number of municipal advisory firms that
would hire outside counsel) x 1 hour (average estimated time spent
by outside counsel to help a municipal advisory firm comply with the
rule) x $400 (hourly rate for an outside attorney) = $400,000. The
hourly cost estimate of $400 on average for an attorney is based on
Commission conversations with law firms that regularly assist
regulated financial firms with compliance matters. See id.
    \1567\ 910 (estimated number of municipal advisory firms that
would hire outside counsel) x 1 hour (average estimated time spent
by outside counsel to help a municipal advisory firm comply with the
rule) x $400 (hourly rate for an outside attorney) = $364,000. The
hourly cost estimate of $400 on average for an attorney is based on
Commission conversations with law firms that regularly assist
regulated financial firms with compliance matters. See supra note
1538 (calculating the hourly rate for an outside attorney).
    \1568\ See supra note 1470 and accompanying text.
    \1569\ 100 (estimated number of new municipal advisory firms
that would hire outside counsel each year) x 1 hour (average
estimated time spent by outside counsel to help a municipal advisory
firm comply with the rule) x $400 (hourly rate for an outside
attorney) = $40,000. See supra note 1538 (calculating the hourly
rate for an outside attorney).
---------------------------------------------------------------------------

    As discussed above, the Commission received many comments that
opined generally that municipal advisor registration under the proposed
rules would be overly burdensome and would impose significant costs
that would prove detrimental, especially to smaller ``community banks''
and local and state municipalities.\1570\ Among these comments, many
noted that local governments would need to hire counsel with expertise
in dealing with the Commission to ensure that these officials are
properly trained and advised in the intricacies of securities
law.\1571\
---------------------------------------------------------------------------

    \1570\ See, e.g., Form Letter A.
    \1571\ See, e.g., City of St. Petersburg, Florida Letter; City
of Yuma, Arizona Letter; Texas Municipal League Letter; Spiroff &
Gosselar Letter.
---------------------------------------------------------------------------

    As already discussed above, however, Rule 15Ba1-1(d)(3)(ii) now
provides an exemption from the definition of municipal advisor for 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 or obligated person to the
extent that such person is acting within the scope of such person's
official capacity, regardless of whether such person is an employee of
the municipal entity or obligated person.\1572\ Therefore, the concern
that local governments would need to hire counsel to assist local
government officials that are required to register as municipal
advisors, thus raising the annual burden, is no longer warranted.
---------------------------------------------------------------------------

    \1572\ See supra Section III.A.1.c.i.
---------------------------------------------------------------------------

    Another commenter argued that a natural person municipal advisor
that registers on Form MA-I would require the assistance of an attorney
well-versed

in the federal securities laws.\1573\ As discussed above, it is the
obligation of the municipal advisory firm applying for registration
with the Commission to complete Form MA-I for each natural person who
is a person associated with the municipal advisor and engages in
municipal advisory activities on its behalf. In addition, the
Commission notes that the information requested on Form MA-I is similar
to the information requested on FINRA's Form U4. The Commission
believes that Form MA-I, like Form U4, does not require applicants to
possess any specialized knowledge of federal securities laws or retain
the services of a securities lawyer. For municipal advisory firms that
are not sole proprietors, the Commission does not anticipate that such
associated persons will require outside counsel to assist in the
completion of Form MA-I. With regard to municipal advisory firms that
are sole proprietors, the Commission anticipates that the estimate
above regarding firms that would consult with outside counsel to assist
in completing Form MA would also include the time required to complete
Form MA-I.
---------------------------------------------------------------------------

    \1573\ See College Savings Plans of Maryland Letter.
---------------------------------------------------------------------------

    One commenter argued that in many cases the Commission's estimate
of $400 per hour for outside counsel is too low because applicants
would generally seek to retain more experienced counsel when faced with
the new registration requirements.\1574\ The commenter also stated its
belief that, for a financial institution that provides a variety of
services to municipal clients, outside legal fees could easily exceed
$25,000.\1575\ However, this commenter did not provide specific figures
by which to recalculate the Commission's estimates.
---------------------------------------------------------------------------

    \1574\ See Financial Services Roundtable Letter.
    \1575\ Id.
---------------------------------------------------------------------------

    The Commission recognizes that, for such larger financial
institutions offering diversified services, the outside legal fees will
likely exceed the $400-per-hour estimate. However, the Commission
calculated the estimate as an average cost across all municipal
advisory firms, and many smaller firms require far less assistance from
outside counsel or, in some cases, none at all. The $400 hourly rate
for outside legal counsel, based on Commission staff conversations with
law firms that regularly assist regulated financial firms with
compliance matters, represents an average from a diverse group of
industry sources, reflecting different geographical regions and
seniority levels. The Commission notes that, depending on such
variables, some outside counsel will charge more than $400 per hour,
but many others will charge less. The Commission, therefore, continues
to believe that its average hourly cost estimates for all municipal
advisory firms to hire outside counsel are accurate and retains them as
originally proposed.
7. Consent to Service of Process From Certain Associated Persons
    If Form MA-I is being filed by a municipal advisory firm with
respect to a natural person engaged in municipal advisory activities on
its behalf, the authorized representative of the municipal advisory
firm who signs the Execution Page of Form MA-I must attest that the
municipal advisory firm has obtained and retained written consent from
the individual that service of any civil action brought by, or notice
of any proceeding before, the Commission or any SRO in connection with
the individual's municipal advisory activities may be given by
registered or certified mail to the individual's address given in Item
1 of Form MA-I. If Form MA-I is being filed by a natural person
municipal advisor who is a sole proprietor, by signing the Execution
Page of Form MA-I, he or she must consent that service of any civil
action brought by, or notice of any proceeding before, the Commission
or any SRO in connection with the sole proprietor's municipal advisory
activities may be given by registered or certified mail to the sole
proprietor's address given in Item 1 of Form MA-I.
    The Commission estimates that each municipal advisory firm, other
than sole proprietors, seeking to register with the Commission
following adoption of the final rules and forms will need to obtain and
retain \1576\ a written consent to service of process from each natural
person engaged in municipal advisory activities on its behalf.\1577\
The Commission does not have the information necessary to provide a
reasonable estimate regarding the number of sole proprietors that will
register with the Commission as municipal advisors because this data is
not currently available to the Commission and the Commission is unaware
of any such data being publicly available. Accordingly, the Commission
estimates that all municipal advisory firms seeking to register with
the Commission (i.e., 910 applicants) will need to obtain written
consents to service of process.\1578\ The Commission estimates that
each municipal advisory firm would need approximately 1 hour to draft a
template document to use in obtaining the written consents to service
of process, amounting to an initial, one-time burden of approximately
910 hours.\1579\ In addition, as discussed above, the Commission
estimates that, during the first year, municipal advisors will need to
complete a Form MA-I for approximately 11,250 individuals.\1580\ The
Commission estimates that, once drafted, each applicant would need
approximately 6 minutes, or 0.10 hours, to obtain a written consent to
service of process from each natural person engaged in municipal
advisory activities on its behalf, amounting to an initial, one-time
burden of approximately 1,125 hours.\1581\ Accordingly, the Commission
estimates that the total initial, one-time burden for all municipal
advisory firms to obtain written consents to service of process from
each natural person engaged in municipal advisory activities on their
behalf will be approximately 2,035 hours.\1582\
---------------------------------------------------------------------------

    \1576\ Rule 15Ba1-8(a)(8) will require each municipal advisory
firm to retain written consents to service of process from each
natural person who is a person associated with the municipal advisor
and engages in municipal advisory activities solely on behalf of
such registered municipal advisor.
    \1577\ Because sole proprietors will consent to service of
process by signing the Execution Page of Form MA-I, sole proprietors
will not need to obtain a separate consent to service of process.
The requirement related to sole proprietors is already accounted for
in the Commission's estimated burden to complete Form MA-I. See
supra Section VII.D.1.b.
    \1578\ As discussed above, the Commission estimates that 910
municipal advisory firms, including sole proprietors, will register
under the permanent registration regime. See supra note 1446 and
accompanying text.
    \1579\ 910 (estimated number of applicants for municipal advisor
registration during the first year) x 1.0 hours (estimated time
required to draft a template to use in obtaining the written
consents to service of process) = 910 hours.
    \1580\ See supra note 1448 and accompanying text.
    \1581\ 11,250 (estimated number of natural persons engaged in
municipal advisory activities on behalf of a municipal advisory firm
during the first year) x 0.10 hours (estimated time required to
obtain the written consents to service of process) = 1,125 hours.
    \1582\ 910 hours (estimated one-time burden for all municipal
advisory firms to draft a template to use in obtaining the written
consents to service of process) + 1,125 hours (estimated one-time
burden for all municipal advisory firms to obtain the written
consents to service of process) = 2,035 hours.
---------------------------------------------------------------------------

    In addition, firms that seek to register as municipal advisors in
each year after the first will need to obtain a written consent to
service of process from each natural person engaged in municipal
advisory activities on their behalf. As discussed above, the Commission
estimates that approximately 100 new municipal advisory firms will
register on Form MA each year.\1583\ Accordingly, the Commission
estimates that the total ongoing annual burden for

firms that will newly register as municipal advisors each year to draft
a template document to use in obtaining the written consents to service
of process will be approximately 100 hours.\1584\ In addition, as
discussed above, the Commission estimates that municipal advisors will
need to submit a new Form MA-I for approximately 950 individuals
annually.\1585\ Accordingly, the Commission estimates that the total
ongoing annual burden for firms to obtain written consents to service
of process from these persons will be approximately 95 hours.\1586\ The
Commission estimates that the total ongoing burden for all municipal
advisory firms to obtain written consents to service of process from
each natural person engaged in municipal advisory activities on their
behalf in each year after the first will be approximately 195
hours.\1587\
---------------------------------------------------------------------------

    \1583\ See supra note 1470 and accompanying text.
    \1584\ 100 (estimated number of new Form MA applicants per year)
x 1.0 hours (estimated time required to draft a template to use in
obtaining the written consents to service of process) = 100 hours.
    \1585\ See supra note 1472 and accompanying text.
    \1586\ 950 (estimated number of new Form MA-I filings per year)
x 0.10 hours (estimated time required to obtain the written consents
to service of process) = 95 hours.
    \1587\ 100 hours (estimated ongoing annual burden for all firms
that will newly register as municipal advisors to draft a template
to use in obtaining the written consents to service of process) + 95
hours (estimated ongoing annual burden for municipal advisory firms
to obtain written consents to service of process) = 195 hours.
---------------------------------------------------------------------------

8. Maintenance of Books and Records
    The Commission proposed that all municipal advisory firms would be
required, pursuant to proposed Rule 15Ba1-7, to maintain books and
records relating to their municipal advisory activities. These books
and records requirements were generally based on Exchange Act Rules
17a-3 and 17a-4 and Investment Advisers Act Rule 204-2, which set forth
books and records requirements with respect to broker-dealers and
investment advisers, respectively.\1588\
---------------------------------------------------------------------------

    \1588\ See 17 CFR 240.17a-3 and 17a-4, and 17 CFR 275.204-2. See
also Proposal, 76 FR 871.
---------------------------------------------------------------------------

    In the Proposal, the Commission estimated that the average annual
burden for a municipal advisory firm to comply with the proposed
recordkeeping requirements would be similar to that of an investment
adviser, or 181 hours.\1589\ The Commission noted that the proposed
recordkeeping requirements would likely impose initial burdens on
respondents in connection with necessary updates to their recordkeeping
systems, such as systems development or modifications.\1590\ For the
purposes of the Commission's analysis, these initial burdens were
included in the estimate of 181 burden hours per respondent per year.
Thus, the Commission estimated the total compliance burden would be
approximately 181,000 hours per year.\1591\
---------------------------------------------------------------------------

    \1589\ See Proposal, 76 FR 871.
    \1590\ Id.
    \1591\ 1,000 (estimated number of municipal advisors) x 181
hours (estimated time spent by municipal advisors to ensure annual
compliance with the books and records requirement) = 181,000 hours.
Id.
---------------------------------------------------------------------------

    The Commission has made two substantive modifications to the
recordkeeping requirements since the Proposal. As discussed above, Rule
15Ba1-8(a)(2) will require municipal advisors to maintain general
ledgers, a requirement that was inadvertently left out of proposed Rule
15Ba1-7.\1592\ In addition, as discussed above, Rule 15Ba1-8(a)(8) will
require each municipal advisory firm to retain written consents to
service of process from each natural person who is a person associated
with the municipal advisor and engages in municipal advisory activities
solely on behalf of such municipal advisor.\1593\ In light of these
changes, the Commission now estimates that the average annual burden
for a municipal advisory firm to comply with the recordkeeping
requirements will be approximately 182 hours. Given the revised
estimates of the number of Form MA applicants, the Commission now
estimates that the total compliance burden will be approximately
165,620 hours per year.\1594\
---------------------------------------------------------------------------

    \1592\ See supra notes 1359-1360 and accompanying text.
    \1593\ See Proposal, 76 FR 871.
    \1594\ 910 (estimated number of municipal advisors) x 182 hours
(estimated time spent by municipal advisors to ensure annual
compliance with the books and records requirement) = 165,620 hours.
---------------------------------------------------------------------------

    The Commission received two comment letters that specifically
addressed the annual books and records burden estimate. One commenter
noted that, although the Commission estimated an annual burden of 181
hours for a municipal advisory firm, the estimate was not broken down
further to an individual municipal advisor, such as a retirement board
trustee.\1595\ The Commission notes that, as proposed, the
recordkeeping requirement would have applied only to municipal advisory
firms and sole proprietors.\1596\ For this reason, the Commission
estimated the books and records burden for municipal advisory firms and
sole proprietors only, and the estimate was not intended to reflect any
recordkeeping burden for any other persons. Similarly, Rule 15Ba1-8(a),
as adopted, states that the books and records requirement applies to
``[e]very person registered or required to be registered under section
15B of the Act.'' \1597\ Because natural person municipal advisors,
other than sole proprietors, are not required to register with the
Commission under the final rules,\1598\ the books and records
requirement does not apply to natural person municipal advisors that
are not sole proprietors.
---------------------------------------------------------------------------

    \1595\ See Pennsylvania Public School Employees' Retirement
Board Letter.
    \1596\ See Proposed Rule 15Ba1-7.
    \1597\ See Rule 15Ba1-8(a).
    \1598\ Rule 15Ba1-3, as adopted, exempts from the registration
requirement a natural person municipal advisor who is an associated
person of an advisor that is registered with the Commission pursuant
to Section 15B(a)(2) of the Exchange Act (15 U.S.C. 78o-4(a)(2)) and
the rules and regulations thereunder, and engages in municipal
advisory activities solely on behalf of a registered municipal
advisor.
---------------------------------------------------------------------------

    Another commenter asserted that the Commission's estimate was
``optimistic,'' and that, although the estimated burden represents
nearly ten percent of a full-time person's time, the number of hours
did not include the cost of storage, and the actual burden would likely
be higher.\1599\
---------------------------------------------------------------------------

    \1599\ See UFS Bancorp Letter.
---------------------------------------------------------------------------

    The Commission recognizes that, for larger municipal advisory
firms, the annual burden estimate of 182 hours may be low. The
Commission anticipates that, for the purposes of calculating the
applicable PRA burden, the annual burden for larger municipal advisory
firms that offer a variety of services to municipal entities and have
significantly greater volumes of books and records to maintain will be
offset in the average by the significantly lower annual burden for
smaller firms. As the Commission stated in the Proposal,\1600\ given
the relatively smaller size of municipal advisory firms compared to
investment advisory firms and the fewer books and records requirements
imposed by Rule 15Ba1-8, in the Commission's view, the annual hourly
burden for smaller municipal advisory firms will likely be lower than
182 hours.
---------------------------------------------------------------------------

    \1600\ See Proposal, 76 FR 871. The Commission also addresses
the burden for smaller municipal advisory firms in the Final
Regulatory Flexibility Analysis below. See infra Section IX.
---------------------------------------------------------------------------

    The Commission also believes that variations in the current records
storage systems of respondents make it difficult for the Commission to
estimate separately the cost of storage for a typical respondent. To
the extent that the additional records required by the recordkeeping
requirements can be stored and produced for inspection by

electronic means, the additional costs should not be substantial. The
Commission also reiterates that the books and records estimate, as
originally proposed, included storage costs and any needed technology
refinements or upgrades.\1601\ Accordingly, the Commission believes
that the 182-hour figure, as an average annual hourly burden across all
firms regardless of their size is an appropriate estimate.
---------------------------------------------------------------------------

    \1601\ See Proposal, 76 FR 871.
---------------------------------------------------------------------------

    This collection of information is mandatory. The Commission staff
will use the mandatory collection of information for maintenance of
books and records in its examinations and oversight program, and the
information will be kept confidential subject to applicable law.
9. Exemption When a Municipal Entity or Obligated Person Is Represented
by an Independent Registered Municipal Advisor
    The Commission believes that underwriters in negotiated deals,
because of the services they provide and the nature of negotiated
deals,\1602\ are the persons most likely to rely on the exemption
available to persons engaging in municipal advisory activities where a
municipal entity or obligated person is otherwise represented by an
independent registered municipal advisor. The Commission believes other
persons will be less likely to rely on this exemption because the
nature of the services they provide may not require a municipal entity
or obligated person to engage an independent registered municipal
advisor. The determination of whether to rely on this exemption will
depend on the facts and circumstances of a particular deal and the
parties involved in that deal, as well as the type of entity seeking to
rely on the exemption. It is possible that not many persons will seek
to rely on the exemption because another exclusion or exemption from
the definition of municipal advisor is available. Although the
Commission is providing this exemption, any efforts to rely on the
exemption in Rule 15Ba1-1(d)(3)(vi) are purely voluntary.
---------------------------------------------------------------------------

    \1602\ See supra note 604 and accompanying text (describing
typical services provided by an underwriter in a negotiated deal)
and note 614 (stating the definition of ``negotiated sale'').
---------------------------------------------------------------------------

    According to available market data for 2012, approximately 204
underwriters participated in negotiated deals of municipal securities
in 2012.\1603\ The Commission estimates that 210 persons will seek to
rely on this exemption.\1604\
---------------------------------------------------------------------------

    \1603\ According to data obtained from Thomson Reuters' SDC
Platinum database, in 2012, 156 lead underwriters participated in
negotiated deals. Including all underwriters that participated in
negotiated deals in 2012, that number increases to 204.
    \1604\ This estimate rounds to the nearest higher multiple of
ten the number of underwriters that participated in negotiated deals
of municipal securities. The Commission believes this estimate,
which likely overestimates the number of underwriters who are likely
to seek to rely on this exemption, is inclusive of other persons who
may seek to rely on this exemption.
---------------------------------------------------------------------------

    A person seeking to rely on the exemption pursuant to Rule 15Ba1-
1(d)(3)(vi) must obtain a written representation from the municipal
entity or obligated person that it will not rely on the advice of the
person seeking to rely on the exemption, and that it will rely on the
advice of an independent registered municipal advisor. The Commission
estimates that each person seeking to rely on this exemption would need
approximately 1 hour to draft a template document to use in obtaining
the written representation, amounting to an initial, one-time burden of
210 hours.\1605\
---------------------------------------------------------------------------

    \1605\ 210 (estimated number of persons who will seek to rely on
the exemption) x 1.0 hours (estimated time required to draft the
written representation) = 210 hours.
---------------------------------------------------------------------------

    There will also be an ongoing burden each time a person seeks to
rely on this exemption. The Commission estimates that, on average,
there are approximately 8,770 negotiated deals involving an underwriter
each year.\1606\ The Commission estimates that a person seeking to rely
on this exemption would need approximately 15 minutes, or 0.25 hours,
to obtain a written representation from a municipal entity or obligated
person, amounting to an annual burden of approximately 2,193
hours.\1607\
---------------------------------------------------------------------------

    \1606\ This estimate represents an average of the number of
negotiated deals each year from 2009 through 2012 relying upon data
obtained from Thomson Reuters' SDC Platinum database.
    \1607\ 8,770 (estimated number of negotiated deals per year) x
0.25 hours (estimated time required to obtain the written
representation) = 2,192.5 hours.
---------------------------------------------------------------------------

    In addition, the person seeking to rely on this exemption must make
certain disclosures to the municipal entity or obligated person, and
provide a copy of such disclosures to the municipal entity's or
obligated person's independent registered municipal advisor. With
respect to a municipal entity, such person must disclose in writing
that, by obtaining the representation discussed above from the
municipal entity, such person is not a municipal advisor and is not
subject to the fiduciary duty set forth in Section 15B(c)(1) of the
Exchange Act with respect to municipal financial products or the
issuance of municipal securities.\1608\ With respect to an obligated
person, such person must disclose in writing that, by obtaining the
representation discussed above from the obligated person, such person
is not a municipal advisor with respect to the municipal financial
product or issuance of municipal securities.\1609\ The Commission
estimates that each person seeking to rely on this exemption would need
approximately 1 hour to draft the required disclosure, amounting to an
initial, one-time burden of approximately 210 hours.\1610\ The
Commission believes that once these disclosures have been drafted, such
language would become part of the standard municipal advice
documentation and, accordingly, there would be no further ongoing
associated burden.
---------------------------------------------------------------------------

    \1608\ See Rule 15Ba1-1(d)(3)(vi)(C)(1).
    \1609\ See Rule 15Ba1-1(d)(3)(vi)(C)(2). Each such disclosure
must be made at a time and in a manner reasonably designed to allow
the municipal entity or obligated person to assess the material
incentives and conflicts of interest that such person may have in
connection with the municipal advisory activities. See Rule 15Ba1-
1(d)(3)(vi)(C)(3).
    \1610\ 210 (estimated number of persons who will seek to rely on
the exemption) x 1.0 hours (estimated time required to draft the
required disclosure) = 210 hours.
---------------------------------------------------------------------------

    In summary, the Commission estimates that the initial burden
related to the exemption when a municipal entity or obligated person is
represented by an independent registered municipal advisor will be
2,613 hours.\1611\ In addition, the Commission estimates that the
ongoing burden will be 2,193 hours.\1612\
---------------------------------------------------------------------------

    \1611\ 210 hours (estimated time to draft a template document to
use in obtaining the written representation) + 2,193 hours
(estimated time to obtain a written representation from a municipal
entity or obligated person) + 210 hours (estimated time to draft the
required disclosure) = 2,613 hours.
    \1612\ See supra note 1607 and accompanying text.
---------------------------------------------------------------------------

    The Commission staff will use the collection of information under
the exemption for independent registered municipal advisors in its
examinations and oversight program to ensure that unregistered
municipal advisors are properly exempt from registration. Any
information reviewed by the Commission will be kept confidential
subject to applicable law. In addition, the collection of information
will allow municipal entities and obligated persons to understand
whether a person is acting as a municipal advisor, and will allow
persons relying on the exemption to demonstrate that registration with
the Commission as municipal advisors was not required.
10. Municipal Escrow Investments
    Rule 15Ba1-1(h) defines ``municipal escrow investments'' to mean
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. As discussed
above,\1613\ in determining whether or not funds to be invested or
reinvested constitute municipal escrow investments, a person may rely
on representations in writing made by a knowledgeable official of a
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.\1614\
---------------------------------------------------------------------------

    \1613\ See supra notes 383-384 and accompanying text.
    \1614\ See Rule 15Ba1-1(h)(2).
---------------------------------------------------------------------------

    The Commission believes that state-registered investment advisers
with municipal entity clients are the persons most likely to rely on
Rule 15Ba1-1(h)(2) for reasonable reliance on representations related
to municipal escrow investments. The Commission notes that no entity is
required to utilize Rule 15Ba1-1(h)(2) and that any efforts to do so
are voluntary.
    The Commission estimates that approximately 700 persons may seek to
rely on the exception for reasonable reliance on representations
related to municipal escrow investments.\1615\ The Commission estimates
that each person seeking to rely on this exception would need
approximately 1 hour to draft a template document to use in obtaining
the written representation, amounting to an initial, one-time burden of
approximately 700 hours.\1616\
---------------------------------------------------------------------------

    \1615\ To calculate this estimate, the Commission staff examined
data regarding investment advisers with assets under management
under $100 million as of May 3, 2010. Section 410 of the Dodd-Frank
Act reallocated primary responsibility for oversight of investment
advisers by delegating generally to the states responsibility over
certain investment advisers with assets under management between $25
million and $100 million (``mid-sized advisers''). The Commission
does not maintain aggregate data regarding state-registered
investment advisers, including mid-sized advisers registered with
one or more state securities authorities, and is not aware of any
publicly available data regarding state-registered investment
advisers that could be used to calculate this estimate. As described
in the paragraph below, however, the Commission does have such data
as of May 3, 2010, which was prior to the passage of the Dodd-Frank
Act (and the time those advisers were required to switch to state
registration). Given the relatively short period of time that has
elapsed since 2010 and the Commission's belief that, for purposes of
this analysis, the nature of the investment advisory industry has
not changed significantly since that time, the Commission is relying
on data from 2010 to calculate these estimates.
    According to registration information from the Investment
Adviser Registration Depository (``IARD'') as of May 3, 2010,
responses to Item 5.F(2)(c) of Part 1 of Form ADV indicate that
there were 5,550 investment advisers with less than $100 million in
assets under management registered with the Commission. According to
responses to Item 5.D(9) of Part 1 of Form ADV, 211 of those
investment advisers (or approximately 4%) (211 / 5,550 = 0.038) had
clients that were ``state or municipal government entities.''
    As of January 1, 2013, there were 17,259 state-registered
investment advisers. Using the same percentage of investment
advisers with clients that were state or municipal government
entities, the Commission staff estimates that approximately 700
state-registered investment advisers have clients that are state or
municipal government entities. 17,259 (number of state-registered
investment advisers as of January 1, 2013) x 0.04 (estimated
percentage of state-registered investment advisers with state or
municipal government entity clients) = 690.36. This estimate rounds
to the nearest higher multiple of ten the number of state-registered
investment advisers that have clients that are state or municipal
government entities. The Commission believes this estimate, which
likely overestimates the number of state-registered investment
advisers who are likely to seek to rely on this exception, is
inclusive of other persons who may seek to rely on this exception.
    \1616\ 700 (estimated number of persons who will seek to rely on
the exception) x 1.0 hours (estimated time required to draft the
written representation) = 700 hours.
---------------------------------------------------------------------------

    In addition, the Commission estimates that, once drafted, a person
seeking to rely on this exception would need approximately 15 minutes,
or 0.25 hours, to obtain a written representation from its client. The
Commission estimates that persons that will seek to rely on this
exception have approximately 8,620 clients that are municipal
entities.\1617\ Thus, the Commission estimates that the burden to
obtain the written representation will be 2,155 hours.\1618\
---------------------------------------------------------------------------

    \1617\ According to responses to Item 5.D(9) of Part 1 of Form
ADV, as of May 3, 2010, the 211 investment advisers identified above
(see supra note 1615) had approximately 2,770 state or municipal
government entity clients. The Commission staff used the midpoint of
each range to estimate the number of such clients. The Commission
does not have exact data from 2010 on the number of clients of
investment advisers that are state or municipal government entities
because Form ADV responses are in the format of a range (e.g., 26-
100 clients). In addition, the Commission does not have the
information necessary to provide another point estimate.
    The Commission staff, extrapolating from the ratio of the
estimated number of state or municipal government entity clients in
May 2010 to the number investment advisers with less than $100
million in assets under management registered with the Commission as
of May 2010, estimates that, currently, state-registered investment
advisers have approximately 8,620 clients that are state or
municipal government entities. (2,770 (approximate number of state
or municipal government entity clients of investment advisers having
less than $100 million in assets under management that were
registered with the Commission as of May 3, 2010) / 5,550 (number of
investment advisers with less than $100 million in assets under
management that were registered with the Commission as of May 3,
2010)) x 17,259 (number of state-registered investment advisers as
of January 1, 2013) = 8,613.95. This estimate rounds to the nearest
higher multiple of ten the number of clients of state-registered
investment advisers that are state or municipal government entities.
The Commission believes this estimate, which likely overestimates
the number of clients from which state-registered investment
advisers would obtain written representations in reliance on this
exception, is inclusive of the clients of other persons who may seek
to rely on this exception.
    \1618\ 8,620 (estimated number of clients from which written
representation will be obtained) x 0.25 hours (estimated time
required to obtain the written representation) = 2,155 hours.
---------------------------------------------------------------------------

    Accordingly, the Commission estimates that the total initial burden
for all persons to rely on the exception for reasonable reliance on
representations related to municipal escrow investments will be 2,855
hours.\1619\ Because the person seeking to rely on this exception only
needs to obtain the written representation one time, the Commission
does not believe that there will be an ongoing burden.
---------------------------------------------------------------------------

    \1619\ 700 hours (estimated time to draft a template document to
use in obtaining the written representation) + 2,155 hours
(estimated time required to obtain the written representations from
clients) = 2,855 hours.
---------------------------------------------------------------------------

    The Commission staff will use the collection of information under
Rule 15Ba1-1(h)(2) in its examinations and oversight program to
determine whether a person engaging in municipal advisory activities
has failed to register with the Commission. Any information reviewed by
the Commission will be kept confidential subject to applicable law. In
addition, the collection of information will allow persons relying on
Rule 15Ba1-1(h)(2) to demonstrate that registration with the Commission
as municipal advisors was not required.
11. Proceeds of Municipal Securities
    The definition of ``proceeds of municipal securities'' includes a
qualification similar to Rule 15Ba1-1(h)(2) pertaining to municipal
escrow investments. Namely, in determining whether or not funds to be
invested constitute proceeds of municipal securities, a person may rely
on representations in writing made by a knowledgeable official of a
municipal entity or obligated person whose funds are to be invested
regarding the nature of such funds, provided that the person seeking to
rely on such representations has a reasonable basis for such
reliance.\1620\
---------------------------------------------------------------------------

    \1620\ See Rule 15Ba1-1(m)(3). See also supra notes 363-365 and
accompanying text.
---------------------------------------------------------------------------

    The Commission believes state-registered investment advisers with
clients that are municipal entities or certain pooled investment
vehicles in which municipal entities invest are the persons most likely
to rely on Rule 15Ba1-1(m)(3) for reasonable reliance on
representations related to proceeds of municipal securities. The
Commission notes that no entity is required to utilize Rule 15Ba1-
1(m)(3) and that any efforts to do so are voluntary.
    The Commission estimates that approximately 880 persons may seek to

rely on the exception for reasonable reliance on representations
related to proceeds of municipal securities.\1621\ The Commission
estimates that each person seeking to rely on this exception would need
approximately 1 hour to draft a template document to use in obtaining
the written representation, amounting to an initial, one-time burden of
approximately 880 hours.\1622\
---------------------------------------------------------------------------

    \1621\ As discussed above, as of May 3, 2010, of the 5,550
investment advisers with less than $100 million in assets under
management registered with the Commission, 211 (or 4%) had clients
that were state or municipal government entities. See supra note
1615. So as not to double-count those investment advisers that had
clients that were state or municipal government entities, the
Commission staff identified 5,339 investment advisers with less than
$100 million in assets under management that did not respond that
they had clients that were state or municipal government entities
(5,550 - 211 = 5,339). Of those, responses to Item 5.D(6) of Part 1
of Form ADV indicate that 713 investment advisers with less than
$100 million in assets under management that did not respond that
they had clients that were state or municipal government entities
responded that they had some clients that were pooled investment
vehicles (other than registered investment companies). If the
Commission estimates that the same percentage of investment advisers
advise pooled investment vehicles (other than registered investment
companies) with municipal entity investors as investment advisers
that advise state or municipal government entities (i.e., 4%), 29 of
these investment advisers would be advisers to pooled investment
vehicles (other than registered investment companies) with municipal
entity investors (713 x 4% = 28.52). Accordingly, the Commission
estimates that approximately 1% of the 5,550 investment advisers
with less than $100 million in assets under management registered
with the Commission as of May 3, 2010, had clients that were pooled
investment vehicles (other than registered investment companies)
with municipal entity investors (29 / 5,550 = 0.0052). As of January
1, 2013, there were 17,259 state-registered investment advisers.
Using the same percentage, the Commission staff estimates that
approximately 180 state-registered investment advisers have clients
that are pooled investment vehicles (other than registered
investment companies) with municipal entity investors. 17,259
(number of state-registered investment advisers as of January 1,
2013) x 1% (estimated percentage of state-registered investment
advisers with clients that are pooled investment vehicles (other
than registered investment companies) with municipal entity
investors) = 172.59.
    In addition, as discussed above, the Commission staff estimates
that 700 state-registered investment advisers have clients that are
state or municipal government entities. See supra note 1615.
Therefore, the Commission staff estimates that 880 state-registered
investment advisers have clients that are state or municipal
government entities or that are pooled investment vehicles (other
than registered investment companies) with municipal entity
investors. 700 (estimated number of state-registered investment
advisers with clients that are state or municipal government
entities) + 180 (estimated number of state-registered investment
advisers with clients that are pooled investment vehicles (other
than registered investment companies) with municipal entity
investors) = 880. This estimate rounds to the nearest higher
multiple of ten the estimated number of state-registered investment
advisers that have clients that are state or municipal government
entities and the estimated number of state-registered investment
advisers that have clients that are pooled investment vehicles
(other than registered investment companies) with municipal entity
investors. The Commission believes this estimate, which likely
overestimates the number of state-registered investment advisers who
are likely to seek to rely on this exception, is inclusive of other
persons who may seek to rely on this exception.
    \1622\ 880 (estimated number of persons who will seek to rely on
the exception) x 1.0 hours (estimated time required to draft the
written representation) = 880 hours.
---------------------------------------------------------------------------

    In addition, the Commission estimates that, once drafted, a person
seeking to rely on this exception would need approximately 15 minutes,
or 0.25 hours, to obtain a written representation from its client. The
Commission estimates that persons that will seek to rely on this
exception have approximately 25,420 clients that are state or municipal
government entities or that are pooled investment vehicles (other than
registered investment companies) with municipal entity investors.\1623\
Thus, the Commission estimates that the burden to obtain the written
representation will be 6,355 hours.\1624\
---------------------------------------------------------------------------

    \1623\ According to responses to Item 5.D(6) of Part 1 of Form
ADV, as of May 3, 2010, 756 investment advisers registered with the
Commission having less than $100 million in assets under management
indicated that they had approximately 5,400 clients that were pooled
investment vehicles (other than registered investment companies)
with municipal entity investors. This estimate includes those
investment advisers that had clients that were state or municipal
government entities that were excluded from the estimate of the
number of investment advisers with clients that were pooled
investment vehicles (other than registered investment companies)
with municipal entity investors. See supra note 1621. The Commission
staff used the midpoint of each range to estimate the number of such
clients. The Commission does not have exact data from 2010 on the
number of clients of investment advisers because Form ADV responses
are in the format of a range (e.g., 26-100 clients). In addition,
the Commission does not have the information necessary to provide
another point estimate.
    The Commission staff, extrapolating from the ratio of the
estimated number of pooled investment vehicle (other than registered
investment company) clients with municipal entity investors in May
2010 to the number investment advisers with less than $100 million
in assets under management registered with the Commission as of May
2010, estimates that, currently, state-registered investment
advisers now have approximately 16,800 clients that are pooled
investment vehicles (other than registered investment companies)
with municipal entity investors. (5,400 (approximate number of
pooled investment vehicle (other than registered investment company)
clients with municipal entity investors of investment advisers
having less than $100 million in assets under management that were
registered with the Commission as of May 3, 2010) / 5,550 (number of
investment advisers with less than $100 million in assets under
management that were registered with the Commission as of May 3,
2010)) x 17,259 (number of state-registered investment advisers as
of January 1, 2013) = 16,792.54.
    In addition, as discussed above, the Commission staff estimates
that state-registered investment advisers now have approximately
8,620 clients that are state or municipal government entities. See
supra note 1617. Therefore, the Commission staff estimates that
state-registered investment advisers now have 25,420 clients that
are state or municipal government entities or that are pooled
investment vehicles (other than registered investment companies)
with municipal entity investors. 8,620 (estimated number of state or
municipal government entity clients of state-registered investment
advisers) + 16,800 (estimated number of clients of state-registered
investment advisers that are pooled investment vehicle (other than
registered investment company) clients with municipal entity
investors) = 25,420. This estimate rounds to the nearest higher
multiple of ten the number of clients of state-registered investment
advisers that are state or municipal government entities or pooled
investment vehicles (other than registered investment companies)
with municipal entity clients. The Commission believes this
estimate, which likely overestimates the number of clients from
which state-registered investment advisers would obtain written
representations in reliance on this exception, is inclusive of the
clients of other persons who may seek to rely on this exception.
    \1624\ 25,420 (estimated number of clients from which written
representation will be obtained) x 0.25 hours (estimated time
required to obtain the written representation) = 6,355 hours.
---------------------------------------------------------------------------

    Accordingly, the Commission estimates that the total initial burden
for all persons to rely on the exception for reasonable reliance on
representations related to proceeds of municipal securities will be
7,235 hours.\1625\ Because the person seeking to rely on this exception
only needs to obtain the written representation one time, the
Commission does not believe that there will be an ongoing burden.
---------------------------------------------------------------------------

    \1625\ 880 hours (estimated time to draft a template document to
use in obtaining the written representation) + 6,355 hours
(estimated time required to obtain the written representations from
clients) = 7,235 hours.
---------------------------------------------------------------------------

    The Commission staff will use the collection of information under
the qualification in the definition of proceeds of municipal securities
in its examinations and oversight program to determine whether a person
engaging in municipal advisory activities has failed to register with
the Commission. Any information reviewed by the Commission will be kept
confidential subject to applicable law. In addition, the collection of
information will allow persons relying on the exception for reasonable
reliance on representations related to proceeds of municipal securities
to demonstrate that registration with the Commission as municipal
advisors was not required.

------------------------------------------------------------------------
                                           Total hourly burden estimate
 Nature of information collection burden -------------------------------
                                              Initial         Ongoing
------------------------------------------------------------------------
Form MA: Application for Municipal                 3,185             350
 Advisor Registration...................
Form MA-I: Information Regarding Natural          33,750           2,850
 Persons Who Engage in Municipal
 Advisory Activities....................
Form MA-W: Notice of Withdrawal from                   0              15
 Registration as a Municipal Advisor....
Rule 15Ba1-5: Amendments to Form MA and                0          12,053
 Form MA-I..............................
Form MA-NR: Designation of U.S. Agent                 54               5
 for Service of Process for Non-
 Residents..............................
Consent to Service of Process for                  2,035             195
 Certain Associated Persons.............
Rule 15Ba1-8: Books and Records to be                  0         165,620
 Made and Maintained by Municipal
 Advisors...............................
Rule 15Ba1-1(d)(3)(vi): Exemption When a           2,613           2,193
 Municipal Entity or Obligated Person is
 Represented by an Independent
 Registered Municipal Advisor...........
Rule 15Ba1-1(h)(2): Exception to                   2,855               0
 Definition of Municipal Escrow
 Investments............................
Rule 15Ba1-1(m)(3): Exception to                   7,235               0
 Definition of Proceeds of Municipal
 Securities.............................
                                         -------------------------------
    Total Burden........................          51,727         183,281
------------------------------------------------------------------------

12. Total Burden
    In the Proposal, the Commission estimated that the total initial
one-time burden for all respondents would be approximately 71,939
hours,\1626\ while the total ongoing annual burden for all respondents
would be approximately 212,135 hours.\1627\ The total initial outside
cost for all respondents would be $402,700,\1628\ while the total
ongoing outside cost for all respondents would be $900 per year.\1629\
---------------------------------------------------------------------------

    \1626\ 6,500 hours (initial burden for Form MA applicants) +
65,400 hours (initial burden to complete Form MA-I) + 39 hours
(initial burden for Form MA-NR filers) = 71,939 hours. See Proposal,
76 FR 871.
    \1627\ 650 hours (annual burden for new Form MA applicants) +
5,400 hours (annual burden to complete new Form MA-I) + 3,000 hours
(annual burden for Form MA amendments) + 20,700 hours (annual burden
for Form MA-I amendments) + 30 hours (annual burden for Form MA
withdrawal) + 1,350 hours (annual burden for Form MA-I withdrawal) +
5 hours (annual burden for Form MA-NR filers) + 181,000 hours
(annual burden for books and records requirement) = 212,135 hours.
See id.
    \1628\ $2,700 (estimated initial cost to hire outside counsel
for providing opinion of counsel) + $400,000 (initial cost for
review by outside counsel) = $402,700. See id. at 872.
    \1629\ $900 = estimated ongoing cost to hire outside counsel for
providing opinion of counsel. See id.
---------------------------------------------------------------------------

    The Commission now estimates that, under the final rules and forms,
the total initial burden for all respondents will be approximately
51,727 hours,\1630\ while the total ongoing annual burden for all
respondents will be approximately 183,281 hours.\1631\ The total
initial outside cost for all respondents will be $365,800,\1632\ while
the total ongoing outside cost for all respondents will be $40,900 per
year.\1633\
---------------------------------------------------------------------------

    \1630\ 36,935 hours (estimated initial burden for Form MA and
MA-I) + 54 hours (estimated initial burden for Form MA-NR filers) +
2,035 hours (estimated initial burden for all municipal advisory
firms to obtain written consents to service of process from each
natural person engaged in municipal advisory activities on their
behalf) + 2,613 hours (estimated initial burden for exemption when a
municipal entity or obligated person is represented by an
independent registered municipal advisor) + 2,855 (estimated initial
burden for exception for reasonable reliance on representations
related to municipal escrow investments) + 7,235 (estimated initial
burden for exception for reasonable reliance on representations
related to proceeds of municipal securities) = 51,727 hours.
    \1631\ 3,200 hours (estimated annual burden for new Form MA and
Form MA-I) + 12,053 hours (estimated annual burden for Form MA and
Form MA-I amendments) + 15 hours (estimated annual burden for Form
MA withdrawal) + 5 hours (estimated annual burden for Form MA-NR
filers) + 165,620 hours (estimated annual burden for books and
records requirement) + 195 hours (estimated ongoing burden for all
municipal advisory firms to obtain written consents to service of
process from each natural person engaged in municipal advisory
activities on their behalf) + 2,193 (estimated annual burden for
exemption when a municipal entity or obligated person is represented
by an independent registered municipal advisor) = 183,281 hours.
    \1632\ $1,800 (estimated initial cost to hire outside counsel
for providing opinion of counsel) + $364,000 (estimated initial cost
for review by outside counsel) = $365,800.
    \1633\ $900 (estimated ongoing cost to hire outside counsel for
providing opinion of counsel) + $40,000 (estimated ongoing cost for
all municipal advisory firms to hire outside counsel to review their
compliance with the requirements of the proposed rules and forms) =
$40,900.
---------------------------------------------------------------------------

VIII. Economic Analysis

A. Overview

    The Commission is sensitive to the costs and benefits of its rules.
When engaging in rulemaking that requires the Commission to consider or
determine whether an action is necessary or appropriate in the public
interest, Section 3(f) of the Exchange Act requires the Commission to
consider, in addition to the protection of investors, whether the
action will promote efficiency, competition, and capital
formation.\1634\ In addition, Section 23(a)(2) of the Exchange Act
requires the Commission to consider the effects on competition of any
rules the Commission adopts under the Exchange Act and prohibits the
Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act.\1635\
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    \1634\ 15 U.S.C. 78c(f).
    \1635\ 15 U.S.C. 78w(a)(2).
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    In the Proposal, the Commission solicited comment on the costs and
benefits of the proposed rule, including the proposed definition of
``municipal advisor'' and related terms; exclusions and exemptions of
certain persons from the definition of municipal advisor; registration
forms; and recordkeeping requirements.\1636\ The Commission also
requested comment on the competitive or anticompetitive effects, as
well as efficiency and capital formation effects, of the proposed rules
and forms on any market participants.\1637\ The Commission further
encouraged commenters to provide specific data and analysis in support
of their views.\1638\
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    \1636\ See Proposal, 76 FR 862-863, 878. An economic analysis
was included in the proposing release. See id. at 872-78.
    \1637\ See id. at 878.
    \1638\ See id. at 863.
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    The Commission received approximately 38 letters that addressed the
Commission's estimates of the costs and benefits of the proposed
rule.\1639\

Several commenters opined generally that municipal advisor registration
as proposed would be overly burdensome and would impose costs that
would be detrimental to the commenters. Further, some commenters
criticized the Proposal's economic analysis generally, stating that the
expected costs of the permanent registration regime were greatly
underestimated.\1640\ Other commenters asserted that the economic
analysis was ``superficial'' in that it related ``almost entirely to
filling out paperwork and hardly scratches the surface of the true
regulatory burden'' \1641\ and that the cost-benefit analysis was
flawed because it only addressed the labor costs directly associated
with registration and recordkeeping.\1642\ One commenter stated that
the Commission did not appear to consider adequately the costs of the
proposed rules, particularly implementation costs and costs incurred by
municipal entities and obligated persons as a result of increases in
the price of advisory services.\1643\
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    \1639\ See, e.g., City of St. Petersburg Letter; Dan A. Gray,
President, Industrial Development Authority, City of Yuma, AZ;
Vosburg Letter; Bill Longley, Texas Municipal League, Austin, TX;
Rick Platt, President and CEO, Heath-Newark-Licking County Port
Authority, Heath, OH; Nancy K. Kopp, State Treasurer and Board
Chair, College Savings Plans of Maryland; Wayne County Airport
Authority Letter; Larry E. Naake, Executive Director, National
Association of Counties, Washington, DC; Laurie D. Grabow, Executive
Vice President/CFO, Old Point National Bank (``Old Point Bank
Letter''); National Association of Health & Educational Facilities
Finance Authorities Letter; Ranson Financial Consultants Letter;
Union Bank Letter; Texas Bankers Association Letter; Harlan Spiroff,
Spiroff & Gosselar, Ltd.; Joy Howard WM Financial Strategies Letter;
California State Treasurer's Office Letter; NAIPFA Letter;
Specialized Public Finance Letter; State of Texas Letter;
Pennsylvania Public School Employees' Retirement Board Letter;
Ismael Guerrero, Housing Authority of the City and County of Denver;
Jean Marie Buckley, President, Tamalpais Advisors, Inc. (``Tamalpais
Advisors Letter''); SIFMA Letter I; ACLI Letter; MSRB Letter I;
Public FA Letter; Financial Services Roundtable Letter; BMO Capital
Markets Letter; Susan Gaffney, Government Finance Officers
Association; Fieldman Rolapp Letter; UFS Bancorp Letter; John
Sullivan (``John Sullivan Letter''); Bradley Payne Letter; William
J. Caraway, President, Chancellor Financial Associates (``Chancellor
Financial Associates Letter''); Committee of Annuity Insurers Letter
I; NAESCO Letter; Solar Energy Industries Association Letter;
Cristeena Naser, Senior Counsel, Center for Securities, Trust &
Investment, American Bankers Association (``American Bankers
Association Letter II'').
    \1640\ See, e.g., American Counsel of Life Insurers Letter
(stating that ``the Commission has significantly underestimated the
complexity and costs associated with the proposed rule''); BMO
Capital Markets Letter (stating that ``the costs analysis is not
even remotely close to reality''); Bradley Payne Letter (stating
that ``cost estimates published in the proposed regulations are wild
guesses and were obviously generated by analysts who know absolutely
nothing about my business'').
    \1641\ See Mintz Levin Letter; and State of California Letter.
    \1642\ See letter from Terry E. Singer, Executive Director,
National Association of Energy Service Companies, dated September
26, 2011 (``NAESCO Letter II'').
    \1643\ See SIFMA Letter I. In addition, the Commission's Office
of Inspector General prepared a report analyzing the economic
analysis of several rule proposals and suggested that the Commission
could have provided additional quantitative analyses to derive
certain qualitative predictions in connection with the Proposal. See
Office of Inspector General, Commission, Report of Review of
Economic Analyses Performed by the Securities and Exchange
Commission in Connection with Dodd-Frank Act Rulemakings, June 13,
2011, available at http://www.sec-oig.gov/Reports/AuditsInspections/2011/Report_6_13_11.pdf.
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    The Commission does not agree that the economic analysis in the
Proposal was ``superficial'' or that it focused solely on the
registration and recordkeeping burdens. In developing the proposed
rules and forms, the Commission considered the costs and benefits of
requiring persons to register as municipal advisors, including the
costs-benefit tradeoffs implicated in interpreting the definition of
``municipal advisor'' and related terms, interpreting the statutory
exclusions, and proposing additional exemptions from the definition of
municipal advisor. As stated in the Proposal, in addition to the
direct, out-of-pocket costs estimated for PRA purposes, the Commission
considered the economic costs of the proposed permanent registration
regime.\1644\ The Commission also stated its belief that few, if any,
of the costs would be passed on to municipal entities or obligated
persons in the form of higher fees.\1645\
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    \1644\ See Proposal, 76 FR 876. See also supra note 1643 and
accompanying text (discussing comments related to increased prices
for municipal entities and obligated persons).
    \1645\ See id.
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    Similarly, in light of the purposes of the Dodd-Frank Act to
regulate persons that engage in municipal advisory activities and data
currently available to the Commission, in determining the appropriate
scope of the final rules and forms the Commission considered the types
of persons that should be regulated as municipal advisors under Section
15B of the Exchange Act. The Commission has sought to tailor these
rules so as not to impose unnecessary or inappropriate costs and
burdens on municipal advisors. As discussed throughout this release,
partly in response to comments, the Commission has modified the rules
to minimize compliance burdens where consistent with investor
protection. In addition, as discussed below, where commenters
identified costs the Commission did not consider, the Commission has
revised its economic analysis of the final rules to take these costs
into account.
    As discussed above in Section II.A.2.b, prior to the enactment of
the Dodd-Frank Act, municipal advisors were largely unregulated as to
their municipal advisory activities. Section 975 of the Dodd-Frank Act
amended the Exchange Act to establish a federal regulatory regime that
requires municipal advisors to register with the Commission,\1646\
grants the MSRB regulatory authority over municipal advisors,\1647\ and
imposes, among other things, a fiduciary duty on municipal advisors
when advising municipal entities.\1648\ The Commission recognizes that
while the final rules, which define municipal advisor and related terms
as well as prescribe the exclusions and exemptions therefrom, are
integral in determining which persons will be subject to the regulatory
requirements established by Section 975 of the Dodd-Frank Act, the
definitions, exclusions, and exemptions do not themselves establish the
scope or nature of those substantive requirements or their related
costs and benefits. For example, although a municipal advisor is
subject to a fiduciary duty when advising a municipal entity
client,\1649\ the Commission is not interpreting the scope or nature of
such duty in this rulemaking. Instead, the Commission notes that the
Exchange Act provides that the MSRB shall prescribe means reasonably
designed to prevent acts, practices, and courses of business as are not
consistent with a municipal advisor's fiduciary duty to its
clients.\1650\
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    \1646\ See Section 975(a)(1)(B) of the Dodd-Frank Act; 15 U.S.C.
78o-4(a)(1)(B).
    \1647\ See 15 U.S.C. 78o-4(b).
    \1648\ See 15 U.S.C. 78o-4(c)(1).
    \1649\ See 15 U.S.C. 78o-4(c)(1).
    \1650\ See 15 U.S.C. 78o-4(b)(2)(L)(i).
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    The Commission anticipates that any additional rules that the
Commission adopts to implement the substantive requirements under
Section 15B of the Exchange Act will be subject to their own economic
analysis. In addition, the Commission has direct oversight authority
over the MSRB, including the ability to approve or disapprove the
MSRB's rules.\1651\
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    \1651\ Section 19(b) of the Exchange Act requires an SRO to file
with the Commission any proposed rule change, and provides that a
proposed rule change may not take effect unless it is approved by
the Commission or becomes immediately effective upon filing pursuant
to Section 19(b)(3)(A) of the Exchange Act. See 15 U.S.C. 78s(b).
Section 3 of the Exchange Act defines the term ``self-regulatory
organization'' to include the MSRB. See 15 U.S.C. 78c(a)(26).
Section 15B(b)(2)(C) of the Exchange Act requires, among other
things, that the rules of the MSRB not be designed to impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act. See 15 U.S.C. 78o-4(b)(2)(C). In
addition, with respect to municipal advisors, MSRB rules shall not
impose a regulatory burden on small municipal advisors that is not
necessary or appropriate in the public interest and for the
protection of investors, municipal entities, and obligated persons,
provided that there is robust protection of investors against fraud.
See 15 U.S.C. 78o-4(b)(2)(L)(iv).
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    In adopting the final rules and forms, the Commission has
considered the costs and benefits that accrue from subjecting municipal
advisors and municipal advisory activities to the regulatory regime
created by Section 975 of the Dodd-Frank Act. The Commission refers to
those costs and benefits as ``programmatic'' costs and benefits.\1652\
The programmatic costs

and benefits have informed the Commission's decisions and actions in
defining municipal advisor and related terms, its interpretations of
the statutory exclusions, and its decision to provide further
exemptions from the definition of municipal advisor as described
throughout the release. The Commission has also considered the costs
that persons will incur to assess whether registration as a municipal
advisor is required (i.e., ``assessment'' costs), as well as the costs
and benefits that will accrue from the requirement that municipal
advisors register with the Commission (i.e., ``registration'' costs and
benefits) and maintain the books and records as required by Rule 15Ba1-
8 (i.e., ``recordkeeping'' costs and benefits).
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    \1652\ The Commission expects that the costs and benefits
resulting from the municipal advisory regulatory regime will likely
accrue primarily at the programmatic level. See infra Sections
VIII.C.1 and VIII.D.2. To the extent appropriate given the purposes
of Section 975 of the Dodd-Frank Act to regulate persons that engage
in municipal advisory activities and data currently available to the
Commission, the Commission has sought to mitigate the costs entities
will incur in connection with the registration and recordkeeping
requirements.
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    In the discussion below, the Commission begins by identifying its
motivation for adopting the rules and forms and the baseline against
which the Commission considers both the costs and benefits, as well as
the effects on efficiency, competition, and capital formation, of the
final rules and forms. Next, the Commission discusses broad economic
considerations that stem from the final rules and forms, including the
assessment costs. The Commission then discusses the potential
programmatic, registration, and recordkeeping costs and benefits that
the final rules and forms implicate, as well as the effects of the
final rules and forms on efficiency, competition, and capital
formation. The discussion focuses on the Commission's reasons for
adopting the rules and forms, the affected parties, and the costs and
benefits of the rules and forms compared to the baseline (i.e., the
temporary registration regime and the requirements imposed by the Dodd-
Frank Act) and to alternative courses of action the Commission has
considered.

B. Motivation for Rules and Forms

    The rules and forms adopted today are designed to enhance the
Commission's oversight of municipal advisors.\1653\ The Commission
believes the information provided pursuant to the final rules and forms
may aid municipal entities and obligated persons in choosing municipal
advisors that help municipal entities and obligated persons engage in
issuances of municipal securities as well as investments in municipal
financial products. The motivation for the rules and forms, which are
discussed throughout this release, are summarized below.
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    \1653\ See supra notes 101-103 and accompanying text. According
to a Senate Report related to the Dodd-Frank Act, ``[t]he $3
trillion municipal securities market is subject to less supervision
than corporate securities markets, and market participants generally
have less information upon which to base investment decisions.
During the [financial] crisis, a number of municipalities suffered
losses from complex derivatives products that were marketed by
unregulated financial intermediaries.'' See S. Rep. No. 111-176, at
38 (2010). Accordingly, in response to the financial crisis that
began in 2008, the Dodd-Frank Act amended the Exchange Act to
require ``a range of municipal financial advisors to register with
the [Commission] and comply with regulations issued by the [MSRB].''
See id.
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    First, the rules are designed to provide guidance related to the
definition of municipal advisor and exclusions therefrom, as well as to
provide exemptions from the municipal advisor regulatory regime. The
statutory definition of municipal advisors is broad and includes
persons that have not previously been considered municipal financial
advisors.\1654\ There are also relevant exclusions from the definition
of municipal advisor that limit the scope of persons included in the
municipal advisor regulatory regime. The statute, however, leaves
undefined or ambiguous certain terms that are critical for market
participants to discern who is or is not a municipal advisor.
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    \1654\ See supra text accompanying notes 129-131.
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    Second, the final rules and forms establish a permanent mechanism
for municipal advisors to register with the Commission. Effective
October 1, 2010, the Dodd-Frank Act requires the establishment of a
registration regime for municipal advisors.\1655\ As discussed above,
the Commission adopted a temporary registration regime to allow
municipal advisors to satisfy temporarily the statutory registration
requirement by submitting certain information electronically through
the Commission's public Web site on Form MA-T.\1656\ However, as that
registration regime was intended to be temporary, the Commission is now
establishing a permanent registration regime.
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    \1655\ See Section 975(i) of the Dodd-Frank Act.
    \1656\ See supra notes 107-110 and accompanying text.
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    Third, the final rules and forms will expand the amount of publicly
available information about municipal advisors, including conflicts of
interest and disciplinary history. Because municipal advisors had been
largely unregulated as to their municipal advisory activities prior to
the Dodd-Frank Act,\1657\ apart from information gathered through Form
MA-T, there is little publicly and centrally available information
about municipal advisors. In addition, although the information
submitted on Form MA-T is publicly available on the Commission's Web
site, the final rules and forms will require municipal advisors to
disclose a greater amount of information, including conflicts of
interest and more information pertaining to disciplinary history.\1658\
In addition, the final rules and forms will increase the ability of
municipal entities and obligated persons to become more fully informed
about municipal advisors in a more efficient manner, and thereby, at a
lower cost.\1659\
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    \1657\ See supra notes 93-96 and accompanying text.
    \1658\ See infra Section VIII.D.1.a.
    \1659\ Investors could also benefit to the extent they consider
whether a municipal advisor was involved in negotiating a municipal
bond offering.
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    Fourth, the permanent registration regime is designed to enhance
the ability of securities regulators to oversee municipal advisors,
which could increase the willingness of market participants,
specifically municipal entities and obligated persons, to utilize
municipal advisors. The Commission staff will review applications for
registration and by order grant registration or the Commission will
institute proceedings to determine whether registration should be
denied.\1660\ Requiring municipal advisors to register with the
Commission under the permanent registration regime will allow the
Commission to collect additional information about municipal advisors
that can be used to facilitate examination and enforcement efforts. The
Commission believes that its authority to examine and sanction
municipal advisors for false and misleading statements submitted by
municipal advisors on Form MA or Form MA-I under the permanent
registration regime, including the additional information on Form MA
that is not required on Form MA-I, may result in increased reliability
of the information, which could increase the willingness of municipal
entities and obligated persons to utilize municipal advisors. Municipal
advisors, knowing that additional information about their disciplinary
histories must be disclosed pursuant to the final rules, may be further
incentivized to avoid engaging in misconduct.
---------------------------------------------------------------------------

    \1660\ See 78 U.S.C. 78o-4(a)(2).
---------------------------------------------------------------------------

    Finally, the permanent registration regime will require municipal
advisors to maintain books and records regarding their municipal
advisory activities. Recordkeeping requirements are a familiar and
important element of the Commission's approach to investment adviser
and broker-dealer regulation and

are designed to maintain the efficiency and effectiveness of the
Commission's examination program for regulated entities. Rule 15Ba1-8
will assist the Commission in evaluating a municipal advisor's
compliance with Section 15B of the Exchange Act, the rules and
regulations thereunder, and MSRB rules.

C. Economic Baseline

    The rules and forms adopted today establish a permanent
registration regime for municipal advisors. The temporary registration
regime, as described below,\1661\ serves as the economic baseline
against which the costs and benefits, as well as the impact on
efficiency, competition, and capital formation, of the final rules and
forms are measured. The discussion below includes a description of the
costs and benefits of the temporary registration regime (i.e., the
programmatic and registration costs and benefits) as well as
approximate numbers of municipal advisors that would be affected by the
final rules and forms adopted today.
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    \1661\ See infra notes 1662-1669 and accompanying text.
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    By enacting Section 975 of the Dodd-Frank Act, Congress created a
federal regulatory regime for municipal advisors that previously did
not exist. In determining the economic baseline, the Commission
recognizes that, effective October 1, 2010, any person that meets the
statutory definition of municipal advisor \1662\ is currently required
to register with the Commission, unless a statutory exclusion
applies.\1663\ As discussed above, the Commission adopted a temporary
registration regime to allow municipal advisors to satisfy temporarily
the statutory registration requirement by submitting certain
information, including disciplinary history of associated municipal
advisor professionals, electronically through the Commission's public
Web site on Form MA-T.\1664\ The Commission does not impose
registration or filing fees in connection with municipal advisor
registration, either under the temporary registration regime or the
permanent registration regime.
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    \1662\ Section 15B(e)(4) of the Exchange Act defines ``municipal
advisor'' as a person (who is not a municipal entity or an employee
of a municipal entity) that (i) provides advice to or on behalf of a
municipal entity or obligated person with respect to municipal
financial products or the issuance of municipal securities,
including advice with respect to the structure, timing, terms, and
other similar matters concerning such financial products or issues;
or (ii) undertakes a solicitation of a municipal entity. See 15
U.S.C. 78o-4(e)(4)(A). As discussed above, the statutory definition
of municipal advisor is broad and includes persons that
traditionally have not been considered to be municipal financial
advisors. See supra text accompanying notes 129-131. Specifically,
the definition of municipal advisor includes ``financial advisors,
guaranteed investment contract brokers, third-party marketers,
placement agents, solicitors, finders, and swap advisors'' that
engage in municipal advisory activities. See 15 U.S.C. 78o-
4(e)(4)(B).
    \1663\ See 15 U.S.C. 78o-4(a)(1)(B); 15 U.S.C. 78o-4(e)(4)(C).
    \1664\ See supra notes 107-110 and accompanying text. See also
Form MA-T, Glossary of Terms (defining ``associated municipal
advisory professional''). Today, in a separate release, the
Commission is extending the expiration date of the temporary
registration regime to December 31, 2014. See supra note 115 and
accompanying text.
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    In addition to registering with the Commission, every municipal
advisor is required to comply with the requirements imposed by Section
15B of the Exchange Act as well as rules established by the MSRB. For
example, Section 15B(a)(5) prohibits a municipal advisor from engaging
in any fraudulent, deceptive, or manipulative acts or practices when
providing advice to or on behalf of a municipal entity or obligated
person with respect to municipal financial products or the issuance of
municipal securities, or when undertaking a solicitation of a municipal
entity or obligated person.\1665\ A municipal advisor is also deemed to
have a fiduciary duty to its municipal entity clients.\1666\
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    \1665\ See 15 U.S.C. 78o-4(a)(5).
    \1666\ See 15 U.S.C. 78o-4(c)(1). Section 975 of the Dodd-Frank
Act did not define the contours of a municipal advisor's fiduciary
duty to its municipal entity clients. Pursuant to Section
15B(b)(2)(L)(i) of the Exchange Act, the MSRB is authorized to
prescribe means reasonably designed to prevent acts, practices, and
courses of business as are not consistent with a municipal advisor's
fiduciary duty to its clients. See 15 U.S.C. 78o-4(b)(2)(L)(i). As
discussed above, the Commission has direct oversight authority over
the MSRB, including the ability to approve or disapprove the MSRB's
rules. See supra note 1651 and accompanying text. For purposes of
this economic analysis, Congress's imposition of a fiduciary duty on
municipal advisors under Section 975 of the Dodd-Frank Act is part
of the baseline.
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    The Dodd-Frank Act also provided the MSRB with authority to propose
and adopt rules related to municipal advisors.\1667\ The MSRB has
already adopted some rules for municipal advisors.\1668\ For example,
MSRB Rule G-17 requires municipal advisors to deal fairly with all
persons and not engage in any deceptive, dishonest, or unfair practice.
In addition, prior to engaging in municipal advisory activities, a
municipal advisor must register with the MSRB and pay a $100 initial
fee and a $500 annual fee.\1669\
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    \1667\ See 15 U.S.C. 78o-4(b).
    \1668\ Although the MSRB has adopted some rules for municipal
advisors, the MSRB has yet to detail many of the requirements that
will apply to municipal advisors. For example, the MSRB has yet to
establish standards of training, experience, competence, and other
qualifications (see 15 U.S.C. 78o-4(b)(2)(A)); prescribe
recordkeeping requirements (see 15 U.S.C. 78o-4(b)(2)(G)); provide
continuing education requirements (see 15 U.S.C. 78o-
4(b)(2)(L)(ii)); or provide professional standards (see 15 U.S.C.
78o-4(b)(2)(L)(iii)).
    \1669\ See MSRB Rule A-12 and MSRB Rule A-14. Section
15B(b)(2)(J) of the Exchange Act permits the MSRB to require
municipal advisors to pay reasonable fees and charges. See 15 U.S.C.
78o-4(b)(2)(J). Other MSRB rules applicable to municipal advisors
include MSRB Rules G-5 (Disciplinary Actions by Appropriate
Regulatory Agencies; Remedial Notices by Registered Securities
Associations), G-40 (Electronic Mail Contacts), and A-15 (requiring
that a municipal advisor notify the MSRB if it ceases operations).
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1. Programmatic Costs and Benefits of the Temporary Registration Regime
    Subjecting municipal advisors to the requirements of the temporary
registration regime has a number of programmatic costs and benefits.
Municipal advisors may have incurred, and would continue to incur,
costs to comply with the standards and rules discussed above that are
currently applicable to municipal advisors by statute or MSRB
rules.\1670\ In addition, as discussed above, municipal advisors that
have registered with the MSRB have incurred fees assessed by the MSRB
and would continue to incur fees in each year registered with the
MSRB.\1671\
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    \1670\ See supra notes 1665-1669 and accompanying text.
    \1671\ See supra note 1669 and accompanying text.
---------------------------------------------------------------------------

    Municipal advisors may also have incurred, and would continue to
incur, costs in association with examinations by Commission staff.
Section 15B of the Exchange Act authorizes the Commission, or its
designee, to conduct periodic examinations of municipal advisors for
compliance with the Exchange Act, the rules and regulations thereunder,
and the rules of the MSRB.\1672\ Since the beginning of fiscal year
2012 through fiscal year 2013, OCIE completed 19 examinations of
municipal advisors. The time and cost involved in an examination varies
depending on the size of the municipal advisor; whether the municipal
advisor was also registered with the Commission as a broker-dealer and/
or investment adviser; and whether Commission staff identified
additional risks posed by the municipal advisor while onsite.\1673\
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    \1672\ See 15 U.S.C. 78o-4(b)(2)(E); 15 U.S.C. 78o-
4(c)(7)(A)(iii). See also supra note 1386 and accompanying text.
    \1673\ The onsite portion of an examination lasts approximately
three business days.
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    Municipal advisors, faced with the costs imposed by the temporary
registration regime, may have responded in a number of ways. Municipal
advisors that viewed the costs as too burdensome, or those with
extensive disciplinary histories, may have decided to discontinue
engaging in activities that

would require them to register as municipal advisors (hereinafter
referred to as ``exiting the market''). Other municipal advisors may
have determined to consolidate with other municipal advisory firms to
better manage the costs associated with the regulatory regime. Still
others may have passed the additional costs of being a registered
municipal advisor on to municipal entities and obligated persons in the
form of higher fees.\1674\ In addition, some persons that may have
otherwise newly entered the municipal advisor market may have decided
not to enter the market.
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    \1674\ The Commission recognized in the Proposal that the cost
of becoming subject to registration for the first time could lead
some municipal advisors that are not particularly active to leave
the business. See Proposal, 76 FR 876. The Commission received
several comment letters that asserted the costs of the regulatory
regime could cause municipal advisors to exit the market,
consolidate with other firms, or pass the costs incurred to comply
with the regime on to clients. See, e.g., Public FA Letter (``The
regulations imposed on small firms like ours could be time consuming
and costly enough to either put us out of business or cause small
firms to merge with larger firms or to create larger firms.'');
Fieldman Rolapp Letter (``Most firms, regardless of revenue amount,
are small businesses with insufficient margins to bear excessive
regulatory burden''); Ranson Financial Consultants Letter (``Our
options [in relation to compliance costs] may include joining
another firm or simply go out of business''); UFS Bancorp Letter
(``[T]he Proposed Rules will have economic costs. These will either
come out of the bottom lines of firms or be passed along to
municipal clients in the form of fee increases.'').
    The Commission is unable to estimate the number of persons who
may have decided not to enter the municipal advisor market because
such data is not currently available to the Commission or otherwise
publicly available. However, the Commission notes that, as discussed
above, approximately 205 municipal advisers filed an initial Form
MA-T in 2011 and approximately 115 filed an initial Form MA-T in
2012. See supra Section VII.C.
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    The Commission, however, is unable to estimate the number of
municipal advisors that may have exited the market or consolidated with
other municipal advisory firms as a result of the temporary
registration regime because Form MA-T does not require a municipal
advisor withdrawing from registration on Form MA-T to indicate the
reasons for the withdrawal.\1675\ Further, the Commission does not have
the information necessary to estimate how many municipal advisors may
have chosen to exit the market after the enactment of the Dodd-Frank
Act but prior to the commencement of the temporary registration regime
because such data is not currently available to the Commission or
otherwise publicly available. Similarly, the Commission is unable to
estimate the extent to which municipal advisors may have passed on to
their clients the costs incurred to comply with the temporary
registration regime because such data is not currently available to the
Commission or otherwise publicly available. Although commenters
asserted that such costs could be passed on to clients,\1676\
commenters did not provide specific figures in this regard, making it
difficult to evaluate these assertions.
---------------------------------------------------------------------------

    \1675\ As discussed above, approximately 22 municipal advisors
withdrew from registration on Form MA-T in 2011 and 24 withdrew from
registration in 2012. See supra Section VII.D.4.
    \1676\ See supra note 1674.
---------------------------------------------------------------------------

    Section 975 of the Dodd-Frank Act includes new investor
protections, including protections for municipal entities and obligated
persons when issuing, or investing the proceeds of, municipal
securities.\1677\ For example, municipal advisors are now subject to,
among other things, a fiduciary duty to any municipal entity clients
and are prohibited from engaging in any act, practice, or course of
business which is not consistent with that fiduciary duty.\1678\ These
investor protections may have incentivized municipal advisors not to
engage in misconduct. As discussed above, Section 15B provides the
Commission with explicit authority to oversee the activities of
municipal advisors, and since the beginning of fiscal year 2012 through
fiscal year 2013, OCIE completed 19 examinations of municipal
advisors.\1679\ Similarly, Section 15B enhances municipal entity and
obligated person protections by providing the Commission with explicit
authority to bring disciplinary actions against municipal advisors for
misconduct, including the ability to censure, place limitations on the
activities, functions, or operations, suspend for a period not
exceeding twelve months, or revoke the registration of any municipal
advisor.\1680\
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    \1677\ See supra note 1653 and accompanying text.
    \1678\ See 15 U.S.C. 78o-4(c)(1).
    \1679\ See supra notes 1672-1673 and accompanying text. The
onsite portion of an examination lasts approximately three business
days.
    \1680\ See 15 U.S.C. 78o-4(c)(2). The Commission also has the
authority to censure or place limitations on the activities or
functions of any person associated with a municipal advisor or to
suspend or bar any such person from being associated with a
municipal advisor. See 15 U.S.C. 78o-4(c)(4); Rule 15Bc4-1.
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2. Registration Costs and Benefits of the Temporary Registration Regime
    In the Temporary Registration Rule Release, the Commission
identified certain costs and benefits of the temporary registration
regime. Municipal advisors that have registered with the Commission on
Form MA-T have incurred costs to gather the information required to
complete the form and submit that information through the Commission's
Web site, as well as to amend Form MA-T as necessary. In the Temporary
Registration Rule Release, the Commission estimated that the total
labor cost for all municipal advisors to complete Form MA-T would be
approximately $735,000.\1681\ The Commission also estimated that the
total annual labor cost for all municipal advisors to amend Form MA-T
would be approximately $147,000.\1682\ In addition, the Commission
estimated that the total cost for all municipal advisors to hire
outside counsel to review their compliance with the requirements of
Rule 15Ba2-6T and Form MA-T would be approximately $400,000.\1683\
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    \1681\ See Temporary Registration Rule Release, 75 FR 54474
(calculating the estimated total labor cost for all municipal
advisors to complete Form MA-T). This estimate includes all of the
time necessary to research, evaluate, and gather all of the
information requested in Form MA-T and all of the time necessary to
complete and submit the form. See id. at 54473.
    \1682\ See id. at 54474 (calculating the estimated total labor
cost for all municipal advisors to amend Form MA-T).
    \1683\ See id. (calculating the estimated total cost for all
municipal advisors to hire outside counsel to review their
compliance with the requirements of Rule 15Ba2-6T and Form MA-T).
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    In the Temporary Registration Rule Release, the Commission
recognized the possibility that the cost of registering could be passed
on to municipal entities in the form of higher fees. However, the
Commission anticipated that any increase in municipal advisory fees
attributable to the temporary registration regime would be minimal
given the relatively small magnitude of these costs and the large
number of municipal entity issuers.\1684\
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    \1684\ See id.
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    Subjecting municipal advisors to the requirements of the temporary
registration regime may have had a number of benefits. The temporary
registration regime may have enabled municipal entities and obligated
persons to become better informed about a municipal advisor, including
disciplinary history of associated municipal advisor
professionals,\1685\ by accessing and reviewing the municipal advisor's
Form MA-T on the Commission's Web site. In addition, because
information submitted on Form MA-T is consolidated in a single online
location, municipal entities and obligated persons may have been able
to access this information more efficiently, and thereby, at a lower
cost.\1686\ In

addition, under the temporary registration regime, municipal advisors
are required to disclose disciplinary history on Form MA-T, which
disclosure may further deter municipal advisors from engaging in
misconduct. As discussed in the Proposal, the information currently
required by Form MA-T is not reviewed by the Commission or its staff
prior to registration, although the Commission retains full authority
to review such information and examine any registered municipal advisor
at any time.\1687\
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    \1685\ See id. at 54469. See also supra note 1664 and
accompanying text.
    \1686\ See Temporary Registration Rule Release, 75 FR 54474. The
Commission is unable to estimate the amount of time and money
municipal entities may have saved by reviewing Form MA-T rather than
engaging in an RFP process or searching other regulatory documents
because such data is not currently available to the Commission or
otherwise publicly available. The Commission believes that the
ability to access information, including disciplinary history, on
municipal advisors in a single location benefits municipal entities
and obligated persons by reducing the need to search for other
regulatory documents of those municipal advisors that are
registered, or have associated persons that are registered, in
another capacity. In addition, information submitted on Form MA-T
may be the only source of information about some municipal advisors.
    \1687\ See Proposal, 76 FR 860. See also infra note 1705 and
accompanying text.
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3. Municipal Advisor Market
    The discussion below includes approximate numbers of municipal
advisors that would be affected by the final rules and forms adopted
today. As discussed above, according to MA-T data as of December 31,
2012, there were approximately 1,110 Form MA-T registrants. Of these
Form MA-T registrants, as of December 31, 2012, approximately 901 were
also registered as municipal advisors with the MSRB, as they are
required to do prior to engaging in municipal advisory
activities.\1688\ For the reasons discussed below, the Commission
believes that the number of Form MA-T registrants may not be an
accurate representation of the number of municipal advisors and that
MSRB data represents a better basis on which to estimate the number of
municipal advisors active in the market.
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    \1688\ The Commission obtained this estimate by comparing the
list of MSRB registrants to the Commission's list of Form MA-T
registrants as of December 31, 2012.
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    The Commission believes that a number of persons, recognizing that
the Commission does not impose any fees for registration, may have
registered with the Commission as municipal advisors out of an initial
overabundance of caution.\1689\ Although some current Form MA-T
registrants may not have registered with the MSRB because of
uncertainty regarding the scope of the temporary registration regime,
others may have determined in the intervening time after October 1,
2010, that registration with the MSRB was not required because they
were not engaging in municipal advisory activities. The Commission
staff understands based on discussions with market participants that
these Form MA-T registrants may have retained Commission registration
because there are no associated fees to maintain such
registration.\1690\ Accordingly, based on the MSRB registration data,
the Commission now estimates that 910 municipal advisors are currently
active in the municipal advisor market.\1691\
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    \1689\ As discussed above, prior to engaging in municipal
advisory activities, a municipal advisor must register with the MSRB
and pay a $100 initial fee and a $500 annual fee. See supra note
1669 and accompanying text.
    \1690\ The Commission staff understands that some municipal
advisors may have maintained Form MA-T registration instead of
withdrawing to wait and see whether registration would be required
under the permanent registration regime, while others may not have
realized they could withdraw or may have determined not to withdraw
for other reasons.
    \1691\ This estimate rounds to the nearest higher multiple of
ten the number of municipal advisors that are registered with the
MSRB to engage in municipal advisory activities.
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    MSRB data and MA-T data also provide information regarding the
types of services provided by registered municipal advisors.\1692\
According to MSRB data,\1693\ as of December 31, 2012, 682 municipal
advisors identified themselves as financial advisors; 192 identified
themselves as guaranteed investment contract brokers or advisors; 272
identified themselves as placement agents; 159 identified themselves as
solicitors or finders; 246 identified themselves as swap or derivative
advisors; 135 identified themselves as third-party marketers; and 201
indicated they provide other services.\1694\ In addition, according to
MA-T data, as of December 31, 2012, 226 municipal advisors were also
registered with the Commission as broker-dealers; 39 were also
registered with the Commission as investment advisers; and 65 were
registered with the Commission as both broker-dealers and investment
advisers. As discussed above, Form MA-T requires municipal advisors to
disclose any disciplinary history of associated municipal advisor
professionals.\1695\ According to MA-T data, as of December 31, 2012,
169 registered municipal advisors had disclosed prior disciplinary
history.
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    \1692\ The three principal types of municipal advisors are: (1)
Financial advisors, including, but not limited to, brokers, dealers,
and municipal securities dealers already registered with the
Commission, that provide advice to municipal entities with respect
to their issuance of municipal securities and their use of municipal
financial products (``municipal financial advisors''); (2)
investment advisers that advise municipal entities on the investment
of public monies, including the proceeds of municipal securities
(``municipal investment advisers''); and (3) third-party marketers
and solicitors (``solicitors''). For purposes of this economic
analysis, the Commission uses these terms to describe these distinct
types of professionals separately, while using the term ``municipal
advisor'' to describe all municipal advisors generally. As discussed
above, for clarity, the Commission notes that financial advisors as
referred to herein also include swap advisors, including some that
are registered with the CFTC or the SEC in other capacities, that
provide advice to municipal entities on their use of municipal
financial products.
    \1693\ Although municipal advisors registering with the MSRB
identify the types of services they provide, the Commission staff
understands that the MSRB does not validate this information.
    \1694\ Some municipal advisors registered with the MSRB provide
more than one type of service. According to MA-T data, as of
December 31, 2012, 733 municipal advisors provided advice concerning
the issuance of municipal securities; 496 provided advice concerning
the investment of the proceeds of municipal securities; 322 provided
advice concerning guaranteed investment contracts; 365 provided the
recommendation and/or brokerage of municipal escrow investments; 365
provided advice concerning the use of municipal derivatives (e.g.,
swaps); 383 were third-party marketers, placement agents,
solicitors, or finders; 470 provided the preparation of feasibility
studies, tax or revenue projections, or similar products in
connection with offerings or potential offerings of municipal
securities; and 253 provided other services. The Commission staff
has not validated the information provided on Form MA-T.
    \1695\ See supra note 1664 and accompanying text.
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    The Commission and the MSRB do not capture data regarding the
concentration \1696\ of the municipal advisor market. The Commission
staff has evaluated data available in Thomson Reuters' SDC Platinum
database (``SDC Platinum Database'') \1697\ to analyze concentration.
To determine the number of issue offerings in 2012, the Commission
staff assumed that bonds issued on the same day by the same issuer were
part of the same issue.\1698\ Under this assumption, and removing any
deals for which SDC Platinum Database did not record a CUSIP, the
Commission staff found that, in 2012, there were 13,288 municipal bond
deals, of which approximately 8,237 used a financial advisor and 3,074
did not use a financial advisor. SDC Platinum Database was not able to
provide information regarding the use of a financial advisor for the
other 1,977 municipal bond deals. The 8,237 municipal bond deals that
used a financial advisor were advised by approximately 318 different
financial advisors, with the 50 most-active advisors advising
approximately 80% of

the advised deals, or approximately 74% by dollar volume issued of
advised deals.
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    \1696\ Concentration refers to how many municipal advisors
handle a significant percentage of municipal advisory business.
    \1697\ SDC Platinum is a database that tracks, among other
things, information on municipal bond issues, including new
municipal bond issues, municipal private placements, and municipal
reoffering issues, but not remarketing issues.
    \1698\ This excludes deals where SDC does not record a CUSIP or
an offering date.
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D. Analysis of Final Rules and Forms

    Below, the Commission addresses the costs and benefits of the final
rules and forms against the context of the economic baseline defined
above, both in terms of the specific changes from the baseline as well
as in terms of overall impact on the municipal advisor market. The
Commission also addresses the costs and benefits of the requirements
that municipal advisors register with the Commission and maintain the
books and records required by Rule 15Ba1-8. In considering these costs,
benefits, and impacts, the Commission addresses, among other things,
comments received, modifications made to the proposed rules and forms,
and reasonable alternatives, where applicable.
    At the outset, the Commission notes that, where possible, it has
attempted to quantify the costs, benefits, and effects on efficiency,
competition, and capital formation expected to result from adopting
these rules and forms. In many cases, however, the Commission is unable
to quantify the economic effects because it lacks the information
necessary to provide a reasonable estimate. For example, the Commission
does not have the information necessary to provide a reasonable
estimate of the willingness of municipal entities and obligated persons
to utilize municipal advisors and improvements in investor protection.
In general, secondary data regarding the municipal advisory market that
would assist the Commission in producing quantitative analyses are
largely unavailable, and, other than the academic papers cited in the
Proposal and this release, few studies on municipal securities have
attempted to undertake the efforts to collect such secondary data.
Additionally, the costs incurred by a municipal advisor to comply with
the final rules and forms generally will depend on its size and the
complexity of its business activities. Because the size and complexity
of municipal advisors vary significantly,\1699\ their costs to comply
with the final rules and forms could also vary significantly.
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    \1699\ See supra note 1694 and accompanying text.
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    The Commission received many comments on the proposed rules and
forms, and has incorporated many of the suggested alternatives into the
final rules and forms and rejected, after careful consideration, other
suggested alternatives, as fully discussed in Section III. The policy
choices made to accept or reject the alternatives suggested by the
commenters have been informed by the costs and benefit considerations.