Retrospective Rule Review Overview

The Municipal Securities Rulemaking Board (MSRB) Board of Directors recently prioritized an ongoing effort to review its rules and related interpretive guidance for brokers, dealers and municipal securities dealers (together, “dealers”) and municipal advisors. In 2012, the MSRB began a more formal process of revisiting its rules and their interpretations to help ensure that they continue to achieve their intended purposes and take into account the current state of the municipal securities market. This retrospective rule review has led to 13 rule changes or amendments based on themes such as regulatory consistency, efficiency and modernization (see Rules Amended to Date section below.)  

In October 2018, the Board identified the ongoing retrospective rule review efforts as a strategic priority for its current fiscal year and subsequently developed criteria to help identify priority rules or rule areas for review. In July 2019, the Board prioritized for retrospective reviews to be initiated in fiscal year 2020: MSRB Rule G-27, on supervision, to consider further alignment with FINRA’s supervision rules; MSRB Rule G-42, on duties of municipal advisors, to revisit requirements related to the disclosure of disciplinary events; and a review of the MSRB Rule Book in light of the SEC’s recent adoption of Regulation Best Interest.

The Board is advancing its review of previously identified priority areas, including MSRB Rule G-23, on activities of financial advisors; a newly implemented requirement under MSRB Rule G-34, on CUSIP numbers, new issue and market information requirements; and amendments to guidance under MSRB Rule G-17 on fair dealing to improve issuer protections and streamline underwriter disclosure requirements. 

Purpose

The purpose of the retrospective rule review is to help ensure MSRB rules and interpretive guidance are effective in their principal goal of protecting investors, issuers and the public interest; not overly burdensome; clear; harmonized with the rules of other regulators, as appropriate; and reflective of current market practices. As part of the retrospective rule review, the MSRB also enhances the display of information on the MSRB website to facilitate easier access to relevant regulatory information and understanding of their compliance obligations by regulated persons. 

Review Criteria and Priorities

The MSRB is sensitive to the fact that the municipal securities market has seen numerous changes in the regulatory landscape over the last few years, including but not limited to, the MSRB’s adoption of rules creating a core regulatory framework for municipal advisors and new best-execution requirements and new mark-up disclosure obligations for dealers. The MSRB has learned from stakeholders that, while essential to protecting investors, municipal entities and obligated persons, these changes have required dealers and municipal advisors to devote increasingly more time to regulatory compliance efforts.

The Board has prioritized an initial set of rule areas for retrospective review. These priorities were identified through the application of a set of Board-developed criteria to MSRB rules. These criteria include, among others:

  • Whether the rule is clear and understandable or a subject of common stakeholder questions;
  • Whether the rule is consistent with market practices and/or consistent with the relevant rules of other regulators or other requirements for the relevant regulated entity;
  • Whether there is a continued need for the rule;
  • Whether the rule has a substantial body of historical interpretive guidance;
  • Whether commenters have previously expressed (whether in a formal comment letter or otherwise) a desire for the MSRB to reconsider a particular rule requirement;
  • The age of the rule and the length of time since it was reviewed holistically;
  • The level of relevant enforcement activity; and
  • Whether the benefits of the rule are commensurate with its burdens.

After applying these and additional criteria to the MSRB rulebook, the MSRB has determined to prioritize the following areas for the next phase of its retrospective rule review.

Read about current rules under review for 2019 and 2020:


Technical Review

The MSRB plans to conduct a technical review of the entire MSRB rulebook to, among other things, delete transitional provisions that are no longer in operation and update references to the National Association of Securities Dealers (NASD) to its successor organization, the Financial Industry Regulatory Authority (FINRA).

Process

Additionally, consistent with the MSRB’s standard practice, and in order to begin streamlining the MSRB rule book and benefitting from the retrospective rule review as early as possible, in some instances, the MSRB may forego a formal request for comment on certain technical retrospective review initiatives—for example, by filing with the SEC technical amendments without first publishing an MSRB public request for comment (proposals filed with the SEC would, in any case, be subject to the SEC’s own public comment process). 

Rules Amended to Date

Since 2012, the MSRB has been engaged in an effort to promote efficiency, consistency and clarity in regulating the municipal securities market. With many MSRB rules in place for more than 40 years, the MSRB recognizes the need to regularly review rules to identify potential changes to ensure that they function as efficiently as possible, reflect current market practices and are consistent with the rules of other regulators, where appropriate. 

To date, the MSRB has amended, consolidated and streamlined several key rules in response to recommendations received from stakeholders and in accordance with the MSRB's rulemaking process. A major component of the rulemaking process is receiving input from municipal market participants and other regulators. In addition to conducting internal reviews of its rules, the MSRB regularly solicits public comment on rulemaking initiatives and the implications they may have on market conditions. The MSRB aligns its process closely with those of other self-regulatory organizations in an effort to promote more effective and efficient compliance. Read about each of the rule changes below. 

Elimination of Requirement to Maintain Copy of MSRB Rule Book
June 2019
MSRB Rule G-29 required each dealer to keep a copy of all MSRB rules in all offices in which certain municipal securities activities are conducted and to make those rules available for examination by customers promptly upon request. While a 1998 MSRB interpretive notice permitted dealers to meet the requirements of Rule G-29 by a number of different means, including by having internet access in their offices, the MSRB rescinded the rule in light of the current widespread availability of internet access for dealers and their customers alike.

Ensuring Consistency in MSRB Information Facilities 
2018–2019
The MSRB’s information facilities govern the functionality of and operational parameters by which the MSRB operates its market transparency programs. As part of its ongoing efforts to ensure the precision and accuracy of its information facilities, the MSRB initiated a year-long initiative to review each of its three information facilities to ensure that they sufficiently and clearly describe the basic functionality and operations of the systems. In April 2018, the MSRB modernized the Real-Time Transaction Reporting System (RTRS) information facility to consolidate formatting and reduce redundancies in order to ensure overall consistency (MSRB IF-1). Thereafter, the MSRB modernized the Electronic Municipal Market Access (EMMA®) information facility in December 2018 (MSRB IF-3) and completed the year-long initiative in February 2019, with the modernization of the Short-Term Obligation Rate Transparency (SHORT) System information facility (MSRB IF-2). 

Promoting Consistency of Advertising Regulations with those of other Regulators
May 2018
To promote consistency in the regulation of advertising by dealers, the MSRB adopted amendments to MSRB Rule G-21, on advertising by brokers, dealers or municipal securities. The amendments bring greater consistency with the provisions of other regulatory organizations in areas such as content standards and the use of testimonials.

Modernizing Customer Account Transfer Rule
July 2017
To promote a uniform standard and reduce confusion and risk to investors, the MSRB amended MSRB Rule G-26, on customer account transfers. The amendments, effective January 2018, update Rule G-26 to better harmonize with the customer account transfer rules of other self-regulatory organizations. 

Handling of Customer Complaints
January 2017
The MSRB amended MSRB Rule G-10 on customer complaints to apply to municipal advisors, while also modernizing the requirements for municipal securities dealers. The updated rule provisions, effective October 13, 2017, focus more clearly on customer and municipal advisory client education and protection.

Efficiency Gains in Close-Out Procedures
November 2016
Amendments to MSRB Rule G-12, on uniform practice, regarding close-out procedures for failed municipal securities transactions, compress the timing to initiate and complete an inter-dealer close-out from 90 calendar days to 10, with an allowance for an additional 10-calendar-day extension at the buyer’s discretion.

Moving to a Two-Day Settlement Cycle
May 2016
Consistent with a broad securities industry initiative to transition to a two-day (T+2) regular-way settlement cycle, the MSRB was one of the first regulators to express support for the initiative by amending MSRB Rule G-12, on uniform practice, and MSRB Rule G-15 on confirmation, clearance and settlement, to facilitate this shift. 

Codification of Gift-Giving Guidance
May 2016
To enhance market understanding of interpretive guidance related to exclusions, aggregation of gifts and the applicability of more restrictive state or other laws, the MSRB consolidated and codified this guidance in MSRB Rule G-20, on gifts, gratuities, non-cash compensation and expenses of issuance. The rule incorporates certain interpretive guidance previously adopted by the MSRB that is consistent with the gift-giving guidance of other regulatory organizations.

Web-Based Delivery of Regulatory Element Continuing Education
October 2015
The MSRB, in conjunction with FINRA, amended its continuing education requirements for municipal securities dealers to eliminate the requirements for in-firm and test-center delivery of the Regulatory Element. The advances in Web-based delivery of continuing education will provide registered persons the flexibility to meet the Regulatory Element requirement of MSRB Rule G-3 at a location of their choosing, including their private residence.

Aligning Professional Qualification Requirements with Industry Practices 
August 2014
To align regulatory requirements with current business practices, the MSRB amended its professional qualification rules for municipal securities dealers. The changes included the elimination of the Financial and Operations Principal (FINOP) classification and the restriction of the permitted activities of a “limited representative – investment company and variable contracts products” to sales to and purchases from customers of municipal fund securities. 

Consolidation of Fair-Pricing Obligations of Municipal Securities Dealers 
July 2014
The MSRB consolidated numerous fair-pricing obligations of dealers into a single fair-pricing rule for principal and agency transactions, MSRB Rule G-30, on prices and commissions.

Consolidation and Codification of Fair-Dealing Obligations for Municipal Securities Dealers 
July 2014
The MSRB codified several fair-dealing obligations of municipal securities dealers into new rules, MSRB Rule G-47, on time of trade disclosure, MSRB Rule D-15, on sophisticated market professionals and MSRB Rule G-48, on transactions with sophisticated municipal market professionals.

Alignment of Dealers' Suitability Obligation with that of other Regulators 
July 2014
The MSRB revised its Rule G-19 on the suitability of dealers’ recommendations of municipal securities transactions to incorporate existing interpretive guidance and to more closely align the obligation with that promulgated by other regulatory organizations.

Consolidation of Registration Requirements 
May 2014
To make the MSRB registration process more efficient and clearly stated for dealers and municipal advisors, the MSRB consolidated its multiple registration requirements and forms into a single rule and form, MSRB Rule A-12 and Form A-12.

Streamlining of New Issue Submission Requirements 
December 2012
The MSRB amended its rules to streamline certain new issue reporting requirements and to integrate into the Electronic Municipal Market Access (EMMA®) system certain data submitted by underwriters to the New Issue Information Dissemination Service operated by the Depository Trust and Clearing Corporation.

Cooperation and Coordination with Other Regulators
As part of the MSRB’s focus on regulatory efficiency, it has enhanced its interaction with other regulators. The MSRB collaborates extensively with the Securities and Exchange Commission (SEC) in its oversight of the municipal market, and provides enforcement support to regulatory authorities that examine for compliance with and enforce MSRB rules, including the SEC, FINRA and federal bank regulators. The MSRB frequently provides rule interpretations and training for examiners, and facilitates access to municipal market information in support of their examinations and enforcement activities. Frequent communications also occur between the MSRB and other federal regulators, such as the Internal Revenue Service, where the MSRB assists with the agency’s enforcement of tax laws related to municipal securities.


Communication

The MSRB will keep the public informed of upcoming retrospective rule review activities in a dedicated section of its website, MSRB.org. It will also seek both formal and informal feedback from market participants, including through informal outreach to market participants and their representatives, as well as through leveraging existing MSRB communication efforts (e.g., town halls and conference engagements, etc.).

The MSRB welcomes any feedback as to whether there are any additional MSRB rules not currently identified as a priority rule area that the MSRB should elevate to a priority for retrospective rule review. To the extent possible, the MSRB plans to time the publication of any concept proposals, requests for comment and/or other notices seeking stakeholder input on specific priority rule areas to be mindful of the time required to provide thoughtful comments.

On an ongoing basis, stakeholders are welcome to comment on any aspect of the retrospective rule review initiative. Comments should be directed to Ronald Smith, MSRB Corporate Secretary, at rsmith@msrb.org.