[Federal Register Volume 85, Number 80 (Friday, April 24, 2020)]
[Notices]
[Pages 23088-23092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08696]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88694; File No. SR-MSRB-2020-01]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change To Provide Dealers and Municipal Advisors Additional Time To
Comply With Certain Obligations for a Temporary Period of Time and
Temporarily Suspend Late Fees on Payments Owed to the MSRB
April 20, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 13, 2020 the Municipal Securities
Rulemaking Board (``MSRB'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the MSRB. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB filed with the Commission a proposed rule change to
provide dealers and municipal advisors additional time to comply with
certain obligations for a temporary period of time and temporarily
suspend late fees on payments owed to the MSRB (the ``proposed rule
change''). The MSRB has designated the proposed rule change as
constituting a ``non-controversial'' rule change under paragraph (f)(6)
of Rule 19b-4 under the Act,\3\ which renders the proposal effective
upon receipt of this filing by the Commission.
---------------------------------------------------------------------------
\3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the MSRB's
website at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2020-Filings.aspx, at the MSRB's principal office, and at the Commission's
Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the MSRB included statements
concerning the purpose of and basis for the proposed rule change and
discussed any
[[Page 23089]]
comments it received on the proposed rule change. The text of these
statements may be examined at the places specified in Item IV below.
The MSRB has prepared summaries, set forth in Sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The MSRB is closely monitoring the impact of the coronavirus
disease (COVID-19) pandemic on municipal market participants, including
brokers, dealers, municipal securities dealers (``dealers''), municipal
advisors, issuers and investors. The MSRB recognizes that dealers and
municipal advisors (collectively, ``regulated entities'') are
experiencing operational challenges with a vast number of individuals
working from home, coupled with unprecedented conditions in the
municipal market due to the COVID-19 pandemic.\4\ In an effort to
provide regulated entities an opportunity to better manage and allocate
resources during these exigent circumstances, the MSRB is proposing to
(i) suspend late fees owed for the period of March 1, 2020 through July
31, 2020; (ii) modify the date by which compliance obligations must be
completed under certain MSRB rules for a temporary period; and (iii)
extend the compliance date of rule changes that have yet to be
implemented.\5\
---------------------------------------------------------------------------
\4\ Wall Street Journal: How the Muni Market Became the
Epicenter of the Liquidity Crisis (April 2, 2020) https://www.wsj.com/articles/how-the-muni-market-became-the-epicenter-of-the-liquidity-crisis-11585823404
\5\ See 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
The MSRB will continue monitoring the impact of the COVID-19
pandemic and work in close coordination with other financial regulators
and governmental authorities.
Temporary Suspension of Late Fees
The MSRB assesses late fees under MSRB Rule A-11, on assessments
for municipal advisor professionals, and MSRB Rule A-12, on
registration. The MSRB is proposing to suspend the assessment of such
late fees on overdue balances that may be owed to the MSRB for a
temporary period. Specifically, the proposed rule change would
temporarily suspend, for the period of March 1, 2020 through July 31,
2020, the late fees assessed under:
MSRB Rule A-11(b), for the annual municipal advisor
professional fees owed by each municipal advisor pursuant to Rule A-
11(a) for each person associated with the municipal advisor who is
qualified as a municipal advisor representative pursuant to Rule A-
11(a);
MSRB Rule A-12(d), for the:
Initial registration fee owed by each dealer and municipal
advisor pursuant to Rule A-12(b);
Annual registration fee owed by each dealer and municipal
advisor pursuant to Rule A-12(c);
Any underwriting assessments owed by each dealer, pursuant
to MSRB Rule A-13(a), for municipal securities purchased from an issuer
by or through a dealer as part of a primary offering; \6\
---------------------------------------------------------------------------
\6\ Rule A-13, on underwriting and transaction assessments for
brokers, dealers, and municipal securities dealers, section A-13(a)
provides that the underwriting assessment does not apply to a
primary offering of securities if all such securities in the primary
offering are commercial paper as defined in MSRB Rule G-32(d) or
constitute municipal fund securities. An underwriting assessment for
a primary offering of municipal fund securities is addressed under
Rule A-13(b).
---------------------------------------------------------------------------
Any underwriting assessment for a primary offering of
municipal fund securities owed, pursuant to Rule A-13(b), by each
underwriter of a primary offering of a plan, as the terms
``underwriter'' and ``plan'' are defined under Rule G-45(d)(xiv) and
Rule G-45(d)(ix), respectively;
Any transaction assessment owed by each dealer for certain
inter-dealer municipal securities sales pursuant to Rule A-13(d)(i);
and
Any technology assessment owed by each dealer for certain
sales to customers pursuant to Rule A-13(d)(ii).
Late fees are generally assessed during the last week of the month
on outstanding balances subject to late fees per applicable Rule at
that point in time. In this instance, beginning on August 1, 2020,
outstanding balances will be subject to late fees as specified by MSRB
Rule A-11(b) and MSRB Rule A-12(d), respectively. During the last week
of August, outstanding balances subject to late fees under those Rules
will be assessed such fees in accordance with those Rules. Late fees
will not be assessed retroactively for the period of March 1, 2020
through July 31, 2020.
Extension of Time To Complete Certain Supervisory Functions
The MSRB is proposing to provide dealers additional time to
complete certain annual supervisory functions under MSRB Rule G-27, on
supervision. Specifically, the following supervisory obligations shall
be deemed to have been timely completed for calendar year 2020,
provided that such supervisory obligations are completed on or before
March 31, 2021:
An inspection of an office of municipal supervisory
jurisdiction, branch office or non-branch location pursuant to Rule G-
27(d)(i)(A), (B) and (C), as applicable, recognizing that, consistent
with Rule G-27 (g)(ii)(A)(7), a temporary location established in
response to the implementation of a business continuity plan is not
deemed an office for purposes of complying inspection obligations;
The annual compliance interview or meeting pursuant to
Rule G-27(b)(vii); and
The submission of a report from the designated
principal(s) to the firm's senior management detailing the review of
the firm's supervisory controls pursuant to Rule G-27(f)(i).
Similarly, the MSRB is also proposing to provide municipal advisors
until March 31, 2021 to complete the annual certification for calendar
year 2020 required pursuant to MSRB Rule G-44, on supervisory and
compliance obligations of municipal advisors. Pursuant to Rule G-44(d),
the chief executive officer(s) (or equivalent officer(s)) of a
municipal advisor must annually certify in writing that the municipal
advisor has in place processes to establish, maintain, review, test and
modify written compliance policies and written supervisory procedures
reasonably designed to achieve compliance with applicable rules.\7\
---------------------------------------------------------------------------
\7\ As provided in Rule G-44(d), this requirement shall not
apply to municipal advisors that are subject to a substantially
similar certification requirement of the Financial Industry
Regulatory Authority (FINRA) with respect to all applicable rules.
---------------------------------------------------------------------------
Extension of Previously Announced Compliance Dates
On January 31, 2020, the MSRB announced a compliance date of
November 30, 2020 for the amended and restated guidance regarding the
fair dealing obligations underwriters owe to issuers of municipal
securities under MSRB Rule G-17, on conduct of municipal securities and
municipal advisory activities (the ``Revised Interpretive Notice'').\8\
The MSRB is proposing to extend the compliance date until March 31,
2021; underwriting relationships commenced by dealers on or after the
revised compliance date will be subject to the Revised Interpretive
Notice.\9\
---------------------------------------------------------------------------
\8\ MSRB Notice 2020-03 (Jan 31, 2020) announcing the effective
date for the Revised Interpretive Notice, which the SEC had approved
on November 6, 2019. See Release No. 34-87478 (Nov. 6, 2019), 84 FR
61660 (Nov. 13, 2019) (File No. SR-MSRB-2019-10).
\9\ As stated in the Revised Interpretive Notice, an
underwriting relationship is deemed to commence at the time the
obligation to deliver the first disclosure is triggered (i.e., the
earliest stages of an underwriter's relationship with an issuer with
respect to an issue, such as in a response to a request for proposal
or in promotional materials provided to an issuer).
---------------------------------------------------------------------------
[[Page 23090]]
On December 20, 2019, the MSRB announced a compliance date of
November 30, 2020 for amendments to Form G-32.\10\ These amendments to
Form G-32 are designed to collect new data elements from underwriters
related to primary offerings of municipal securities through the MSRB's
Electronic Municipal Market Access Dataport system, the majority of
which is data underwriters are presently required to input into the
Depository Trust Company's New Issue Information Dissemination Service.
The MSRB is proposing to extend the compliance date until March 31,
2021.\11\
---------------------------------------------------------------------------
\10\ MSRB Notice 2019-21 (Dec 20, 2019) announcing the effective
date for amendments to Form G-32, which the SEC had approved on June
27, 2019. See Release No. 34-86219 (June 27, 2019), 84 FR 31961
(July 3, 2019) (File No. SR-MSRB-2019-07).
\11\ Consistent with its prior pronouncement, the MSRB will make
the amended Form G-32 available in advance of the revised compliance
date so that dealers can operationalize processes for compliance
with the amended form.
---------------------------------------------------------------------------
Extension of Time To Complete Certain Professional Qualification
Standards
FINRA, as appointed by the Commission, provides test administration
services to the MSRB for the delivery of MSRB-owned professional
qualification examinations.\12\ FINRA uses Prometric \13\ as its single
vendor for the delivery of the professional qualification examinations
that FINRA is charged with administering, including MSRB-owned
professional qualification examinations. In March 2020, Prometric
announced that, due to the COVID-19 pandemic, it was temporarily
closing all of its test center locations in the United States and
Canada through April 15, 2020.\14\ While, at this time, Prometric has
not announced a deviation from its planned resumption of operations
effective April 16, 2020, there is no certainty as to when Prometric
will resume operation of its testing centers. Moreover, there is no
certainty as to when individuals would be able to visit any open
testing centers due to stay-at-home orders that may be in place.
---------------------------------------------------------------------------
\12\ See, e.g., Release No. 34-75714 (Aug. 17, 2015)
(Designation of the Financial Industry Regulatory Authority to
Administer Professional Qualification Tests for Associated Persons
of Registered Municipal Advisors).
\13\ Prometric is a leading provider of technology-enabled
testing and assessment solutions to many of the world's most
recognized licensing and certification organizations, academic
institutions, and government agencies. See https://www.prometric.com.
\14\ See https://www.prometric.com/corona-virus-update.
---------------------------------------------------------------------------
For those reasons, the MSRB is proposing to provide additional time
to allow firms and individuals to fulfill certain professional
qualification standards established under MSRB Rule G-3, on
professional qualification requirements, consistent with MSRB Rule G-2,
on standards of professional qualification as follows:
The date by which an individual functioning in the
capacity as a principal before passing the applicable MSRB-owned
principal qualification examination pursuant to Rule G-3(b)(ii)(D),G-
3(b)(iv)(B)(4) and G-3(c)(ii)(D), as applicable, would be extended 120
days from the time the MSRB announces that Prometric has resumed access
to its testing centers; \15\
---------------------------------------------------------------------------
\15\ The MSRB will publish a notice on its website announcing
when Prometric resumes operations in its testing centers so
regulated entities are on notice of when the 120-day period begins
to toll.
---------------------------------------------------------------------------
The date by which an individual has to complete their
Regulatory Element component of continuing education training, as
required pursuant to Rule G-3(i)(i)(A)(1), would be extended 120 days
from the time the MSRB announces that Prometric has resumed access to
its testing centers; \16\
---------------------------------------------------------------------------
\16\ This extension is only for purposes of compliance with MSRB
Rule G-3(i)(i)(A)(1) and is not intended to provide relief to
individuals who may need to complete the Regulatory Element
component of continuing education pursuant to the rules of another
regulatory authority.
---------------------------------------------------------------------------
The date by which certain individuals are required to
become qualified with the Municipal Advisor Principal Qualification
Examination (Series 54) would be extended until March 31, 2021. On
October 11, 2019, the MSRB announced that a municipal advisor
principal, \17\ as defined under Rule G-3(e), would have a one-year
grace period, sunsetting on November 12, 2020, to pass the Series
54.\18\ The MSRB is proposing to extend the grace period until March
31, 2021. As a result, individuals qualified with the Municipal Advisor
Representative Qualification Examination (Series 50) will be able to
continue to engage in principal-level activities without passing the
Series 54 until March 31, 2021; and
---------------------------------------------------------------------------
\17\ The term ``municipal advisor principal'' means a natural
person associated with a municipal advisor who is directly engaged
in the management, direction or supervision of the municipal
advisory activities of the municipal advisor and its associated
persons. To become qualified as a municipal advisor principal a
person must, as a pre-requisite, take and pass the Municipal Advisor
Representative Qualification Examination; and take and pass the
Municipal Advisor Principal Qualification Examination.
\18\ MSRB Notice 2019-18 (October 21, 2019) announcing the
launch of the Series 54 exam, which the SEC had approved on November
20, 2018. See Release No. 34-84630 (Nov. 20, 2018), 80 FR 60927
(Nov. 27, 2018) (File No. SR-MSRB-2018-07).
---------------------------------------------------------------------------
The annual needs analysis and the delivery of continuing
education pursuant to Rule G-3(i)(i)(B) and G-3(i)(ii), as applicable,
shall be deemed to have been timely completed for calendar year 2020,
provided that the needs analysis and the delivery of continuing
education are completed on or before March 31, 2021.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Act,\19\ which provides that the MSRB's
rules shall:
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78o-4(b)(2)(C).
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.
The proposed rule change is designed to provide dealers and
municipal advisors additional time to comply with certain obligations
for a temporary period of time and suspend late fees on payments owed
to the MSRB; it does not relieve such regulated entities from
compliance with underlying obligations that directly serve investor
protection or market transparency goals. In a time when faced with
unique challenges resulting from the COVID-19 pandemic, the proposed
rule change will afford regulated entities the ability to more
effectively allocate resources to serve and promote the protection of
investors, municipal entities, obligated persons and the public
interest during these unprecedented market conditions. In addition, the
proposed rule change will also alleviate some of the operational
challenges regulated entities may be experiencing, which will allow
them to more effectively allocate resources to operations facilitate
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.
[[Page 23091]]
B. Self-Regulatory Organization's Statement on Burden on Competition
Section 15B(b)(2)(C) of the Act \20\ requires that MSRB rules be
designed not to impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. The MSRB does
not believe that the proposed rule change will impose any burden on
competition not necessary or appropriate in furtherance of the Act. The
goal of the proposed rule change is to relieve the burden on regulated
entities during the exigent circumstances of the COVID-19 pandemic. The
proposed rule change will only provide temporary relief for regulated
entities; excluding the suspension on the assessment of late fees,
regulated entities will still be required to fulfill their underlying
obligations under MSRB rules.
---------------------------------------------------------------------------
\20\ Id.
---------------------------------------------------------------------------
Additionally, Section 15B(b)(2)(L)(iv) of the Act, requires that
MSRB rules 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.\21\ The MSRB believes that the proposed rule change is
consistent with Section 15B(b)(2)(L)(iv) of the Act in that, while the
proposed rule change will affect all municipal advisors, including
small municipal advisors, there is no new regulatory burden that
results, and each municipal advisor continues to be obligated to meet
baseline competence standards and complete requisite supervisory
functions. Small municipal advisors typically have fewer associated
persons and, as a result, during the COVID-19 pandemic their resources
may be more limited. As the proposed rule change is designed to provide
regulated entities an opportunity to better manage and allocate
resources during these exigent circumstances, the proposed rule change
may be of greater benefit to small municipal advisors.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78o-4(b)(2)(L)(iv).
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A) \22\ of the Act and Rule 19b-
4(f)(6) \23\ thereunder, the MSRB has designated the proposed rule
change as one that effects a change that: (i) Does not significantly
affect the protection of investors or the public interest; (ii) does
not impose any significant burden on competition; and (iii) by its
terms, does not become operative for 30 days after the date of the
filing, or such shorter time as the Commission may designate. A
proposed rule change filed under Rule 19b-4(f)(6) normally does not
become operative until 30 days after the date of filing.\24\ However,
Rule 19b-4(f)(6)(iii) \25\ permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest.\26\ The MSRB has requested that the
Commission designate the proposed rule change operative upon
filing,\27\ as specified in Rule 19b-4(f)(6)(iii),\28\ which would make
the proposed rule change operative on April 13, 2020.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6).
\24\ Id.
\25\ 17 CFR 240.19b-4(f)(6)(iii).
\26\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its
intent to file a proposed rule change, along with a brief
description and text of such proposed rule change, at least five
business days prior to the date of filing, or such shorter time as
designated by the Commission. The Commission has designated a
shorter time for delivery of such written notice.
\27\ See SR-MSRB-2018-10.
\28\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
The MSRB notes that the proposed rule change does not relieve
regulated entities from compliance with underlying obligations. Rather,
the proposed rule change provides regulated entities with additional
time to complete certain compliance obligations, suspends late fees due
to the MSRB for a temporary period of time, and extends the compliance
date of MSRB rule changes not yet implemented. The MSRB believes the
proposed rule change will afford regulated entities the ability to more
effectively allocate resources to serve and promote the protection of
investors, municipal entities, obligated persons and the public
interest during unprecedented market conditions. Further the MSRB has
stated, in light of the operational challenges and unprecedented
conditions in the municipal market due to the COVID-19 pandemic, the
proposed rule change would alleviate operational challenges and
facilitate transactions in municipal securities and municipal financial
products.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The proposed rule change does not relieve regulated entities from
compliance with underlying obligations and will allow regulated
entities to more effectively allocate resources during unprecedented
municipal securities market conditions. Waiver of the 30-day operative
period will alleviate operational challenges and facilitate
transactions in the municipal securities market in light of the exigent
circumstances presented by the COVID-19 pandemic. Accordingly, the
Commission hereby waives the 30-day operative delay specified in Rule
19b-4(f)(6)(iii) and designates the proposed rule change to be
operative upon filing.\29\
---------------------------------------------------------------------------
\29\ For the purpose of waiving the 30-day operative delay for
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please
include File Number SR-MSRb- 2020-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MSRB-2020-01. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/
[[Page 23092]]
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for website
viewing and printing in the Commission's Public Reference Room, 100 F
Street NE, Washington, DC 20549 on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be
available for inspection and copying at the principal office of the
MSRB. All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2020-01 and should be
submitted on or before May 15, 2020.
---------------------------------------------------------------------------
\30\ 17 CFR 200.30-3(a)(12).
For the Commission, pursuant to delegated authority.\30\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08696 Filed 4-23-20; 8:45 am]
BILLING CODE 8011-01-P