[Federal Register Volume 75, Number 249 (Wednesday, December 29, 2010)]
[Notices]
[Pages 82119-82120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32732]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63599; File No. SR-MSRB-2010-16]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Order Granting Approval of Amendments to Rule G-5, on
Disciplinary Actions by Appropriate Regulatory Agencies, Remedial
Notices by Registered Securities Associations; and Rule G-17, on
Conduct of Municipal Securities Activities
December 22, 2010.
I. Introduction
On November 1, 2010, the Municipal Securities Rulemaking Board
(``MSRB''), filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change which consists of amendments to
Rule G-5, on disciplinary actions by appropriate regulatory agencies,
and Rule G-17, the Board's basic fair practice rule, to apply the rules
to municipal advisors. The proposed rule change was published for
comment in the Federal Register on November 18, 2010.\3\ The Commission
received one comment letter about the proposed rule change which
supported the proposed rule change.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 63309 (November 12,
2010), 75 FR 70756 (the ``Commission's Notice'').
\4\ See letter from the National Association of Independent
Public Finance Advisors, dated December 9, 2010.
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This order approves the proposed rule change.
II. Description of the Proposed Rule Change
Rule G-5 currently provides that brokers, dealers, and municipal
securities dealers (``dealers'') may not engage in municipal securities
activities in contravention of restrictions imposed on them by the
Commission, a registered securities association, or another appropriate
regulatory agency. The purpose of the portion of the proposed rule
change consisting of amendments to Rule G-5 are a) to remove a
reference to an outdated National Association of Securities Dealers
(``NASD'') \5\ rule and b) to provide that municipal advisors and their
associated persons may not engage in the municipal advisory activities
described in Section 15B(e)(4)(A)(i) and (ii) of the Act in
contravention of restrictions imposed upon them by the Commission.
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\5\ In 2007, the NASD merged with the New York Stock Exchange's
regulation committee to form the Financial Industry Regulatory
Authority, or FINRA. See Securities Exchange Act Release No. 56145
(July 26, 2007), 72 FR 42169 (August 1, 2007).
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Rule G-17 currently provides that, in the conduct of its municipal
securities activities, each dealer shall deal fairly with all persons
and shall not engage in any deceptive, dishonest, or unfair practice.
The purpose of the portion of the proposed rule change consisting of
amendments to Rule G-17 is to apply the MSRB's core fair dealing rule
to municipal advisors in the same manner that it currently applies to
dealers.
A more complete description of the proposal is contained in the
Commission's Notice.
The proposed rule change shall be effective upon Commission
approval.
III. Discussion and Commission Findings
The Commission has carefully considered the proposed rule change
and finds that the proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to the MSRB \6\ and, in particular, the
requirements of Section 15B(b)(2) of the Exchange Act \7\ and the rules
and regulations thereunder. Section 15B(b)(2)(C) of the Exchange Act
requires, among other things, that the MSRB's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in municipal securities and municipal financial products, to remove
impediments to and perfect the mechanism of a free and open market in
municipal securities and municipal financial products, and, in general,
to protect investors, municipal entities, obligated persons and the
public interest.\8\ Section 15B(b)(2)(L) of the Exchange Act requires,
among other things, that the rules of the MSRB 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
[[Page 82120]]
persons, provided that there is robust protection of investors against
fraud.\9\
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\6\ In approving this proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition and capital formation. 15 U.S.C. 78c(f).
\7\ 15 U.S.C. 78o-4(b)(2).
\8\ 15 U.S.C. 78o-4(b)(2)(C).
\9\ 15 U.S.C. 78o-4(b)(2)(L).
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The Commission believes that the proposed rule change is consistent
with Section 15B(b)(2) of the Exchange Act, because it provides that:
(i) municipal advisors shall deal fairly with all persons and not
engage in any deceptive, dishonest, or unfair practice and (ii)
municipal advisors and their associated persons shall not conduct
municipal advisory activities in contravention of restrictions imposed
upon them by the Commission. Such restrictions are, amongst other
things, consistent with Section 15B(b)(2)(C) of the Exchange Act
because they are designed to prevent fraudulent and manipulative acts
and practices and to promote just and equitable principles of trade.
The Commission further believes that the proposed rule change is
consistent with Section 15B(b)(2)(L) of the Exchange Act because the
proposed rule change does not impose a regulatory burden on small
municipal advisors that is not necessary or appropriate in the public
interest and the proposed rule change is necessary for the robust
protection of investors against fraud as well as the protection of
municipal entities and obligated persons. Many municipal advisors play
a key role in the structuring of offerings of municipal securities and
the preparation of offering documents used to market those securities
to investors. In some cases, they advise on the appropriateness of
municipal financial products, including municipal derivatives, entered
into by municipal entities, the effectiveness of which may have a
substantial impact on the finances of those municipal entities. In
other cases, they solicit municipal entities and obligated persons for
investment advisory business with respect to funds held by or on behalf
of such municipal entity or obligated person which, if not conducted
according to the highest standards, may have a substantial effect on
the finances of the municipal entities and obligated persons that
control those funds. Investors, therefore, have a substantial interest
in municipal advisors conducting their municipal advisory activities
fairly, not engaging in fraudulent conduct, and not engaging in
municipal advisory activities contrary to disciplinary actions imposed
by the Commission.
The proposal will become effective upon Commission approval.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\10\ that the proposed rule change (SR-MSRB-2010-16), be,
and it hereby is, approved.
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\10\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32732 Filed 12-28-10; 8:45 am]
BILLING CODE 8011-01-P