[Federal Register Volume 79, Number 150 (Tuesday, August 5, 2014)]
[Notices]
[Pages 45529-45534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18380]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72705; File No. SR-MSRB-2014-05]
Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change Consisting of
Proposed Amendments to Rule G-3, on Professional Qualification
Requirements, Regarding Continuing Education Requirements
July 29, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on July 22, 2014, the Municipal Securities Rulemaking Board (the
``MSRB'' or ``Board'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The MSRB is filing with the Commission a proposed rule change
consisting of proposed amendments to Rule G-3, on professional
qualification requirements (the ``proposed rule change'').\3\ The
effective date of the proposed rule change will be January 1, 2015.
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\3\ Certain portions of Rule G-3, including the title, are the
subject of proposed amendments that are currently pending SEC
approval and will not be effective until 60 days following the date
of such approval. See SEC Release No. 34-72425 (Jun. 18, 2014); 79
FR 35829 (Jun. 24, 2014); File No. SR-MSRB-2014-04.
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The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2014-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 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 purpose of the proposed rule change is to improve the Firm
Element continuing education requirement of MSRB Rule G-3(h)(ii) by
requiring brokers, dealers and municipal securities dealers
(collectively, ``dealers'') to conduct annual municipal securities
training for registered representatives who regularly engage in, and
municipal securities principals who regularly supervise, municipal
securities activities. While the MSRB has intended, from the inception
of the rule, that dealers consider the scope of their municipal
securities activities and regulatory developments in preparing their
annual training plan, the rule does not specifically require dealers to
train registered persons on municipal securities issues. The proposed
rule change would require such training for a select group of
registered persons who are regularly engaged in or supervise municipal
securities activities.
Background
In 1993, a self-regulatory organization (``SRO'') task force \4\
was created to study and develop recommendations regarding continuing
education in the securities industry. The task force issued a report
calling for a formal, two-part continuing education program consisting
of: (i) A Regulatory Element requiring securities industry
professionals to obtain periodic and uniform training in regulatory
matters, and (ii) a Firm Element requiring firms to provide ongoing
training to employees to ensure they have up to date knowledge of job
and securities product-related subjects.
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\4\ The task force included representatives from six SROs,
including the MSRB, and industry representatives.
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On February 8, 1995 the SEC approved SRO rule changes based on the
task force's recommendations.\5\ In approving the SRO rule changes, the
SEC stated that these SROs ``may require their members, either
individually or as part of a group, to provide specific training in any
areas the SROs deem necessary.'' \6\ The SEC added that ``[a]s the
program evolves, it is expected that educational standards will be
defined by the SROs for products and services where heightened
regulatory concerns exist.'' \7\ Since approval of the continuing
education rules, SROs have amended their continuing education rules as
industry and market practices evolved.
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\5\ See SEC Release No. 34-35341 (Feb. 8, 1995), 60 FR 8426
(Feb. 14, 1995), File No. SR-MSRB-94-17 (approving MSRB Rule G-3(h),
on continuing education requirements).
\6\ Id.
\7\ Id.
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Current Firm Element Continuing Education Requirement
Currently, MSRB Rule G-3(h)(ii)(B)(1) requires dealers to maintain
a continuing and current education program for their covered registered
persons to enhance their securities knowledge, skill and
professionalism. Under Rule G-3(h)(ii)(A), covered registered persons
are limited to those registered representatives who have direct contact
with customers in the conduct of a dealer's securities sales, trading
and investment banking
[[Page 45530]]
activities, and to their immediate supervisors.
At least annually, dealers are required to evaluate and prioritize
their training needs (commonly known and referred to herein as a
``needs analysis'') and develop written training plans for their
covered registered persons. The needs analysis should take into
consideration the firm's size, organizational structure, and scope of
business activities, as well as regulatory developments and the
performance of covered registered persons in the Regulatory Element.
However, while the current rule requires dealers to evaluate their
training needs annually, it does not require dealers to conduct
municipal securities training for their covered registered persons,
regardless of the extent to which they engage in municipal securities
activities. The proposed rule change addresses concerns that municipal
securities professionals may not be receiving adequate training because
dealers may not be placing a sufficiently high priority on municipal
securities in their needs analysis.
The MSRB understands that this deficiency may be the result of
municipal securities topics competing with training on other products,
and the perception that municipal securities are a relatively safe
investment option in comparison to other investment products. However,
despite competition for dealer training resources and the possible
perception that municipal securities are low risk products, the MSRB
believes that the municipal securities market possesses unique
attributes that require particularized education and training. In
addition, dealers engaging in municipal securities activities are
subject to, and as a result, must be familiar with MSRB rules that are
distinct from the rules of other SROs and that are tailored to address
the particularities of the municipal securities market.
Since Rule G-3(h) does not require any training on municipal
securities, registered persons regularly engaged in municipal
securities activities and supervisors who regularly supervise municipal
securities activities may receive insufficient, or no, training on
municipal securities, particularly if such persons are employed by
firms that offer a broad range of financial products. The MSRB believes
that requiring dealers to conduct annual municipal securities training
for registered persons who are regularly engaged in or who regularly
supervise municipal securities activities would ensure the delivery of
municipal securities content to those individuals who are active in the
municipal securities market, while allowing dealers sufficient
flexibility in delivering such content. Under the proposed rule change,
dealers would continue to determine the nature of the training and
would have the discretion as to content based on the specific type of
municipal securities activities conducted by the firm and the
individual registered person.
In addition to mandating annual training, the proposed rule change
would also expand the definition of covered registered persons who are
required to participate in such training to include registered persons
who engage in a variety of municipal securities activities, regardless
of whether such activities are customer-facing. Currently, only
registered representatives who have direct contact with customers in
securities sales, trading and investment banking activities and their
immediate supervisors are required to participate in Firm Element
continuing education.
Request for Comment on Proposed Changes to the Firm Element Requirement
On December 13, 2013, the MSRB published a request for public
comment on a draft of the proposed rule change.\8\ In response, the
MSRB received eleven comment letters.\9\ In formulating the proposed
rule change, the Board reviewed all comments submitted in connection
with the proposal and considered the suggestions and issues they
raised. The MSRB also considered the alternatives suggested by
commenters and amended the proposed rule change in response to the
comments.
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\8\ See MSRB Notice 2013-22 (Dec. 13, 2013) (``December
Notice'').
\9\ Letters were received from Bond Dealers of America
(``BDA''), Diamant Investment Corporation (``Diamant''), Financial
Services Institute (``FSI''), Investment Company Institute
(``ICI''), MetLife Securities, Inc. (``MetLife''), National Society
of Compliance Professionals (``NSCP''), Romano Wealth Management
(``Romano''), RW Smith & Associates, Inc. (``RW Smith''), Securities
Industry and Financial Markets Association (``SIFMA''), Securities
Industry Council on Continuing Education (``SICCE''), and Wulff,
Hansen & Co (``Wulff''). The comment letters are discussed in more
detail below.
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For example, a number of commenters objected to the initial
proposal to extend the Firm Element training to all persons associated
with dealers who primarily engage in municipal securities activities.
In response to the comments, as more fully discussed below, the MSRB
modified the proposal to require only registered persons who are
regularly engaged in municipal securities activities and supervisors
who regularly supervise municipal securities activities to participate
in the training.
Training of Registered Persons Who are Not Customer-Facing
Several commenters expressed concerns about requiring registered
persons who are not customer-facing but perform middle or back-office
functions to participate in continuing education. In this regard, the
proposed rule change sets no new precedent. Both the Financial Industry
Regulatory Authority (``FINRA'') and the Chicago Board Options Exchange
(``CBOE'') require certain registered personnel who are not customer-
facing to fulfill continuing education requirements.\10\ In approving
FINRA's operations professional classification, the SEC stated,
``[g]iven the growing complexity of the industry, and the importance of
the services provided by the back-office personnel, the Commission
believes that FINRA's proposal to . . . require members to provide
Operations Professionals with continuing education . . . will help to
address regulatory gaps in this area.'' \11\
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\10\ FINRA Rule 1250(a)(5) requires operation professionals
(Series 99) to complete continuing education, and CBOE Rule 9.3A(c)
requires proprietary traders (Series 56) to complete continuing
education requirements.
\11\ SEC Release No. 34-64687 (Jun. 16, 2011), 76 FR 36586 (Jun.
22, 2011), File No. SR-FINRA-2011-013. Similarly, regarding CBOE's
Proprietary Trader exam (Series 56), the Commission stated, ``Though
proprietary traders with a Series 56 registration do not interact
with the public, the Exchange believes this requirement is
appropriate as it ensures these registered persons continue to
enhance their securities knowledge, skill and professionalism. . . .
Thus, the Exchange believes it is appropriate that these individuals
also complete the Firm Element.'' SEC Release No. 34-70027 (Jul. 23,
2013), 78 FR 45584 (Jul. 29, 2013), File No. SR-CBOE-2013-076.
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Requiring training for registered representatives and principals
who regularly engage in or supervise municipal securities activities
will provide reasonable assurance that individuals performing important
functions in a dealer's middle and back-office understand their
professional responsibilities and applicable regulations, as well as
the importance of identifying and escalating indications of possible
wrongdoing. As a baseline, dealers that are FINRA members must deliver
Firm Element training to certain customer-facing and back-office
registered persons. The MSRB believes that the proposed rule change
would result in training that would be appropriately targeted to
registered representatives who regularly engage in municipal securities
activities, such as sales, trading, investment banking, and processing
and clearance of municipal securities transactions, as well as those
[[Page 45531]]
principals who regularly supervise such activity. Furthermore, the MSRB
believes that the proposed rule change would not pose an undue burden
on dealers because most registered persons already participate in some
form of Firm Element training.
Flexibility To Determine Who is Regularly Engaged in Municipal
Securities Activities
Under the proposed rule change, not all registered persons would be
required to participate in a dealer's Firm Element training. Rather,
dealers would be required to train only those registered persons
engaged in or supervising municipal securities activities on a regular
basis. Dealers would determine which of their registered persons
regularly engage in or supervise municipal securities activities, and
they would not be required to provide Firm Element continuing education
for those individuals who engage in municipal securities activities on
an infrequent or de minimis basis.
Dealers would be required, under Rule G-3(h)(ii)(B)(1), to
document, in writing, their method for determining whether an
individual, or class of individuals, regularly engages in or regularly
supervises municipal securities activities as part of their needs
analysis. Dealers would have the flexibility to determine who
participates in such training, so long as they have a reasonable basis
for determining which registered persons regularly engage in or
supervise municipal securities activities.
A dealer could, for example, determine that registered
representatives are ``regularly engaged in municipal securities
activities'' if such individuals are engaged in sales of municipal
securities to customers and derived more than a certain percent of
their gross sales in the preceding year from municipal securities
transactions. Or, dealers might determine that registered
representatives who participate in a threshold level of municipal
securities trades, or are part of a particular group within the firm
(e.g., a dealer's public finance group) are regularly engaged in
municipal securities activities.
Flexibility Regarding Training Content
As is currently the case, dealers also would have the flexibility
to determine the content of the training. While some dealers may elect
to develop original content, others may utilize existing content
available in the marketplace. Dealers would be able to access and
include MSRB webinars as part of the training. Conferences and other
municipal securities training offered by trade associations and other
market participants could also be utilized. Given the variety of
sources for municipal securities training content, the MSRB believes
the proposed rule change would impose little additional burden on
dealers.
Technical Amendments
Finally, the proposed rule change includes certain technical
amendments to conform other portions of Rule G-3 to the proposed rule
change. First, the proposed rule change would amend Rule G-3(h)(ii)(C)
to clarify that covered registered persons must participate in the Firm
Element training as required by the dealer.\12\ Second, Rule G-
3(h)(ii)(B)(1) would be amended to clarify that, under the proposed
rule change, supervisory training would be required for any registered
principal who regularly supervises municipal securities activities.\13\
Third, Rule G-3(h)(ii)(B)(2) would be amended to explicitly require
that a firm's training program include training on the municipal
securities products, services and strategies offered by the dealer.
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\12\ Rule G-3(h)(ii)(C) currently states: ``Participation in the
Firm Element--Covered registered persons included in a broker,
dealer or municipal securities dealer's plan must [take all
appropriate and reasonable steps to] participate in continuing
education.'' (emphasis added) Proposed revised Rule G-3(h)(ii)(C)
would remove the text in brackets to ensure all covered registered
persons participate in Firm Element continuing education annually.
\13\ Rule G-3(h)(ii)(B)(1) currently states ``If a broker,
dealer or municipal securities dealer's analysis determines a need
for supervisory training for persons with supervisory
responsibility, such training must be included in the broker, dealer
or municipal securities dealer's training plan.'' The MSRB proposes
to eliminate this provision because, under the proposed rule change,
registered principals who regularly supervise municipal securities
activity would be required to participate in Firm Element training
annually.
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Effective Date
The MSRB is proposing January 1, 2015 as the effective date for the
proposed rule change to provide dealers with adequate time to include
the training requirements of the proposed rule change into their annual
needs analysis and written training plan developed after such date.
2. Statutory Basis
The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(A) of the Act,\14\ which provides that the MSRB's
rules shall:
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\14\ 15 U.S.C. 78o-4(b)(2)(A).
provide that no municipal securities broker or municipal securities
dealer shall effect any transaction in, or induce or attempt to
induce the purchase or sale of, any municipal security, and no
broker, dealer, municipal securities dealer, or municipal advisor
shall provide advice to or on behalf of a municipal entity or
obligated person with respect to municipal financial products or the
issuance of municipal securities, unless . . . such municipal
securities broker or municipal securities dealer and every natural
person associated with such municipal securities broker or municipal
securities dealer meet such standards of training, experience,
competence, and such other qualifications as the Board finds
necessary or appropriate in the public interest or for the
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protection of investors and municipal entities or obligated persons.
Additionally, the MSRB believes that the proposed rule change is
consistent with Section 15B(b)(2)(C) of the Act,\15\ which provides
that the MSRB's rules shall:
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\15\ 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,
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municipal entities, obligated persons, and the public interest.
Requiring Firm Element continuing education for registered persons
who regularly engage in municipal securities activities and supervisors
who regularly supervise municipal securities activities is essential
for the protection of investors, municipal entities and the public
interest because such education will help ensure that individuals
regularly participating in the municipal securities market will stay
abreast of new municipal securities features, products and risks;
changes to applicable regulatory regimes; and innovations in market
practices. As SIFMA noted in a recent comment letter to the MSRB
regarding a rule proposal on professional qualifications for municipal
advisors, ``[c]ontinuing education and day to day training are critical
parts of the core training of a firm's employees. Regulations change
frequently, and firms need to ensure their associated persons are
appropriately informed about such changes.'' \16\ The MSRB agrees with
SIFMA's assertion that continuing education is necessary to remain
current on regulatory developments and believes the proposed rule
change will accomplish that objective.
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\16\ See SIFMA Letter dated May 16, 2014 in response to MSRB
Notice 2014-08 (Mar. 17, 2014).
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[[Page 45532]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The MSRB does not believe that the proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act since it would apply equally to
all dealers who engage in municipal securities activities. The proposed
rule change does nothing more than specify that, in developing an
annual training plan based on the firm's needs analysis, the dealer
must include municipal securities training for those registered
individuals who are regularly engaged in municipal securities
activities and supervisors who regularly supervise municipal securities
activities. The proposed rule change does not set forth any
quantitative or qualitative requirements regarding the training that
must be provided. Rather, it continues to grant dealers flexibility to
develop Firm Element training based on the nature of their business
activities. Several commenters indicated that the proposed rule change
would likely improve the municipal securities market and its efficient
operation, and that potential burdens created by the proposed rule
change are to be likely outweighed by the benefits.
The Board has historically given careful consideration to the costs
and benefits of its new and amended rules. The Board recently adopted a
policy to more formally integrate economic analysis into its rulemaking
process. According to the policy, the Board should, prior to proceeding
with a rulemaking, evaluate the need for the rule and determine whether
the rule as drafted will, in its judgment, meet that need. The Board
also should identify, prior to proceeding with a rulemaking, data and
other information it would need in order to make an informed judgment
about the potential economic consequences of the rule. In addition, the
Board should make a preliminary identification of both relevant
baselines and reasonable alternatives to the proposed rule. Finally,
the Board should consider the potential benefits and costs of the
proposed rule and the reasonable alternative regulatory approaches.
The Need for the Proposed Rule Change
The need for the proposed rule change arises from concerns that
municipal securities professionals may not be receiving adequate
training on municipal securities. The structure of the current rule
allows for dealers to evaluate and prioritize their firm-level training
needs, at least annually, through a needs analysis. The current rule
does not require dealers to conduct municipal securities training for
their covered registered persons, regardless of the extent to which
they engage in municipal securities activities. Absent a requirement,
some dealers may not be placing a sufficiently high priority on
municipal securities in their needs analysis, particularly when
municipal securities topics are competing with training on other
topics. This situation may arise, for example, in firms with a broad
scope of business activities with only a small subset of employees
engaged on a regular basis with municipal securities activities. In
evaluating training needs at these firms, municipal securities training
can become a low priority at the firm level even though such training
is important to the subset of employees who are registered individuals
regularly engaged in municipal securities activities. The proposed rule
change addresses the need to ensure adequate training for municipal
securities professionals by requiring focused training for registered
representatives who engage regularly in municipal securities
activities.
Relevant Baselines
To evaluate the potential impact of the proposed rule change, a
baseline, or baselines, must be established as a point of reference.
The analysis proceeds by comparing the expected state after the
proposed rule change is approved to the baseline state prior to the
rule taking effect. The economic impact of the proposed rule change is
measured as the difference between these two states.
One baseline that can be used to evaluate the impact of the
proposed rule change is the current structure of Rule G-3 which
requires Firm Element education programs for a firm's covered
registered persons, i.e., those who are registered representatives who
have direct contact with customers in the conduct of a dealer's
securities sales, trading and investment banking activity, and their
immediate supervisors.
For the subset of municipal securities professionals who are
associated persons of FINRA members, a baseline to evaluate the impact
of the proposed rule change is the current FINRA requirements for Firm
Element training applied to certain customer-facing and back-office
registered persons.
Identifying and Evaluating Reasonable Alternative Regulatory Approaches
One alternative to adopting the proposed rule change would be for
the MSRB not to engage in additional rulemaking, and thus, not require
dealers to conduct municipal securities training for their covered
registered persons, regardless of the extent to which they are engaged
in municipal securities activities. In the absence of such a
requirement, dealers would evaluate and prioritize their training needs
which may not include training regarding municipal securities even if
registered representatives and principals are regularly engaged in or
supervise such activities.
Various alternatives were suggested by commenters and have been
addressed herein. Some of the suggested alternative regulatory
approaches have been incorporated into the proposed rule change. For
example, a number of commenters raised concerns with the initial
proposal to extend the Firm Element training to all persons associated
with dealers who primarily engage in municipal securities activities.
In response to the comments, the MSRB modified the proposal to require
only registered persons regularly engaged in municipal securities
activities and supervisors who regularly supervise municipal securities
activities to participate in the training.
Another alternative suggested by commenters was to eliminate a
proposed one-hour continuing education requirement. After carefully
considering the views of the commenters, the MSRB has eliminated the
one-hour requirement in the proposed rule change.
Assessing the Benefits and Costs
The purpose of the proposed rule change is to enhance the municipal
securities knowledge of those registered individuals who regularly
engage in or regularly supervise municipal securities activities.
Relative to the baseline of existing Rule G-3, the proposed rule change
would require dealers to conduct municipal securities training annually
for their registered representatives and principals who are regularly
engaged in, or supervise, such activities.
At the outset, the MSRB notes it is currently unable to quantify
the economic effects of the proposed rule change because the
information necessary to provide reasonable estimates is not available.
The likely benefit of the proposed rule change is that it will
ensure that registered individuals who are regularly engaged in or
regularly supervise municipal securities activities will receive
training on municipal securities topics for the purpose of keeping them
up to date, and to enhance their knowledge, skill and professionalism.
Because the municipal securities market is complex and has unique
institutional features, it is important for these individuals that some
portion of their
[[Page 45533]]
required annual training include topics specific to municipal
securities.
The proposed rule change includes training for individuals
performing important functions pertaining to municipal securities
transactions in a dealer's middle or back-office. The benefit of
requiring training for these individuals is that the training will
provide reasonable assurance that these individuals will understand
their professional responsibilities and applicable regulations, as well
as the importance of identifying and escalating matters that may
indicate possible violations of MSRB rules or the federal securities
laws.
Relative to the baseline of existing Rule G-3, the likely benefit
of the proposed rule change will accrue primarily to municipal
securities professionals employed by firms engaged in many activities,
where municipal securities activities are only a portion of the
business. Individuals in such firms may not be receiving training on
municipal securities because the Firm Element needs analysis, when
evaluated across a broad scope of a firm's activities, may result in
training for other areas that are deemed a higher priority. For firms
specializing in municipal securities activities, the proposed rule
change will likely produce no additional benefit, except for training
of registered back-office personnel, since the Firm Element needs
analysis performed by these firms under existing Rule G-3 will likely
result in specialized training on municipal securities topics.
Relative to the baseline of existing Rule G-3, the proposed rule
change would likely produce additional compliance costs for certain
firms, primarily for firms engaged in many activities where municipal
securities activities are only a portion of the business. These firms
would incur costs associated with determining and documenting which of
their covered employees are regularly engaged in, or regularly
supervise municipal securities activities. To address this cost, the
proposed rule change allows dealers flexibility in determining which
individual employees meet the criteria of regularly engaging in or
supervising these activities.
It also would be expected that firms will incur costs in developing
instructional materials specifically addressing topics related to
municipal securities. Many of the comment letters addressed concerns
about the cost of producing these instructional materials. However,
there are less costly alternatives to developing original instructional
materials. The training requirement can be satisfied by attending
professional conferences or webinars addressing topics related to
municipal securities. Some of these webinars are available without
charge and may be able to satisfy all or a portion of a dealer's
training needs.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
In response to the December Notice, the MSRB received eleven
comment letters. BDA and FSI expressed support for requiring municipal
securities training as part of the Firm Element training. BDA commented
that requiring training of registered representatives regularly engaged
in municipal securities activities ``would also help keep these
professionals abreast of emerging regulatory developments and industry
trends, without having to include additional municipal securities
content on such general securities qualification examinations or impose
a specific examination requirements [sic] for registered
representatives engaged in municipal securities activities.'' FSI
stated that it believed the proposed rule change would effectively
target registered representatives regularly engaged in municipal
securities activities without ``imposing additional continuing
education requirements on associated persons of a broker-dealer firms
[sic] for whom this additional training would be unnecessary.'' FSI
further commented that the proposal ``provides a measured and balanced
approach to achieving MSRB's goals to increase municipal securities
training while ensuring that unnecessary additional regulatory
requirements are avoided.''
One-Hour Training Requirement
Some commenters objected to the proposed one-hour continuing
education requirement included in the draft rule language proposed in
the December Notice, arguing that it improperly focused on the
quantitative aspect of training instead of the qualitative nature of
the training. Several commenters believed that the one-hour requirement
was too subjective and did not adequately consider the quality of the
training being delivered. According to SIFMA, ``[f]ocusing on the
quantity (i.e., time element) versus the quality of the training
provided is misguided.'' Wulff expressed a similar sentiment, stating
``[t]he specified one-hour minimum will also complicate the process of
identifying and proving a violation of the rule by firms whose programs
are deemed inadequate by their examiners but meet the quantitative
minimum set forth in the rule.'' NSCP noted that ``[c]urrently, there
are no prescriptive rules that we are aware of that mandate specific
time on any aspect of securities industry CE training.'' NSCP added
that ``mandating prescriptive minimum hourly training requirements is
inconsistent with the industry-wide goal of designing CE training
appropriately addressing each firm's needs, based upon a self-managed
analysis.''
After carefully considering the views of the commenters and the
objectives of the proposed rule change, the MSRB eliminated the one-
hour requirement in the proposed rule change. One of the core
objectives of the proposed rule change is to ensure that registered
individuals regularly engaged in municipal securities activities take
part in municipal securities continuing education. The MSRB believes
that the proposed rule change can achieve the objective of enhancing an
individual's municipal securities knowledge without setting time
parameters for the training.
Persons Covered by the Training Requirement
Some commenters expressed concern over the MSRB's inclusion of the
phrase ``primarily engaged in municipal securities activities'' and the
use of the term ``associated person'' in the December Notice. These
commenters believed that the phrase ``primarily engaged'' did not
provide dealers with enough guidance to determine who at their firm
would meet such a standard. Furthermore, these commenters stated that
they would have difficulty determining which persons at their firm
would now be considered an ``associated person.'' ICI commented that
``[i]dentifying which of its associated persons are `primarily engaged
in municipal securities activities' may be a relatively easy exercise
for municipal securities dealers whose primary business consists of the
offer and sale of municipal securities other than municipal fund
securities. In the case of our members and other dealers whose
municipal securities activities are limited to the offer and sale of
municipal fund securities, such as 529 plan securities, this will be an
incredibly difficult exercise.'' Additionally, commenters raised
concerns over expanding the continuing education requirement to
unregistered associated persons, suggesting it was a departure from the
current regulatory standards set by other regulators. NSCP noted that,
``this new requirement [requiring non-registered personnel to complete
continuing education training]
[[Page 45534]]
represents a departure from current industry-wide requirements, e.g.,
FINRA Rule 1250 prescribes requirements for registered persons only.''
While the December Notice proposed a training requirement beyond
registered representatives, it simultaneously narrowed the category of
covered persons to those primarily engaged in municipal securities
activities. The Board's rationale for initially proposing to expand the
training requirement to unregistered persons who engage in municipal
securities activities in a dealer's middle or back-office was to
address cases where such individuals may not have been receiving
continuing education, and yet were charged with adhering to
requirements prescribed by the MSRB's uniform practice rules.
Nevertheless, after considering the concerns of commenters and the
potential impact of expanding the coverage of the training requirement,
the Board decided that its objective of ensuring proper levels of
continuing education for those individuals regularly participating in
the municipal securities market could be accomplished by requiring
training for registered representatives and principals who regularly
engage in or supervise municipal securities activities. The MSRB
believes that training registered persons who regularly supervise
municipal securities activities will improve their ability to supervise
registered and non-registered persons who engage in activities covered
by MSRB rules.
Additional Compliance Burden and Duplicative Requirements
Several commenters stated that the proposed rule change would be
duplicative and impose additional and unjustified compliance burdens.
BDA commented that ``with any new or enhanced regulatory requirement,
there are associated compliance costs borne by the staff at our member
firms.'' NSCP raised concerns about compliance professionals becoming
``bogged down by administrative functions associated with such a
prescriptive rule.'' Similarly, Diamant commented that ``. . .forcing
additional education requirements simply places another layer of
regulatory burden on top of the existing education requirement.'' The
MSRB maintains that the Firm Element requirement is not a new
requirement as described by commenters. Dealers have been delivering
continuing education that may have included municipal securities
content since the continuing education rules were first established in
1995. The proposed rule change would simply add the requirement that
some training on municipal securities be provided to select registered
persons. The MSRB concedes that this change may require some dealers to
devote resources to evaluating their training programs and including
content on municipal securities activities for registered
representatives and principals that regularly engage in or supervise
municipal securities activities.
Dealers, however, will have the ability to create and deliver
content in the most convenient and effective manner based on their own
business model. To the extent technology is available and affordable it
may be used to assist dealers in delivering content to their employees,
thereby mitigating the impact of the proposed rule change. The MSRB
understands that many dealers already provide substantial training for
their employees, and that many firms do not limit the training to their
customer-facing registered representatives. The goal of the proposed
rule change is to ensure that all dealers provide at least some
municipal securities training for those registered persons who
regularly engage in municipal securities activities and to those
registered persons who regularly supervise such activity. The Board
believes this approach is consistent with the investors' expectation of
financial professionals and the firms with which they do business.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period of up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 [email protected]. Please
include File Number SR-MSRB-2014-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.
All submissions should refer to File Number SR-MSRB-2014-05. 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 Web site (http://www.sec.gov/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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-MSRB-2014-05 and should be
submitted on or before August 26, 2014.
For the Commission, pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18380 Filed 8-4-14; 8:45 am]
BILLING CODE 8011-01-P