MSRB NOTICE 2011-41 (AUGUST 10, 2011)

REQUEST FOR COMMENT ON DRAFT AMENDMENTS TO MSRB RULE G-21 (ON ADVERTISING) AND DRAFT INTERPRETIVE NOTICE CONCERNING THE APPLICATION OF MSRB RULE G-17 (ON FAIR DEALING) TO CERTAIN COMMUNICATIONS

The Municipal Securities Rulemaking Board (“MSRB”) is requesting comment on draft amendments to Rule G-21 (on advertising) and a draft interpretive notice concerning the application of Rule G-17 to certain communications. Comments should be submitted no later than September 14, 2011 and may be submitted in electronic or paper form. Electronic comments may be submitted via email to CommentLetters@msrb.org. Please indicate the notice number in the subject line of the email and, if possible, send comments in PDF format. Comments submitted in paper form should be sent to Ronald W. Smith, Corporate Secretary, Municipal Securities Rulemaking Board, 1900 Duke Street, Suite 600, Alexandria, VA 22314. All comments will be available for public inspection on the MSRB’s website.[1]

Questions about this notice should be directed to Peg Henry, Deputy General Counsel, or Kathleen Miles, Associate General Counsel, at 703-797-6600.

BACKGROUND

Existing MSRB Rule G-21. Existing Rule G-21 (on advertising) applies to advertisements by brokers, dealers, and municipal securities dealers (“dealers”) that are engaged in municipal securities activities, including the distribution of 529 plans. This request for comment discusses draft amendments to Rule G-21, which would extend the rule’s coverage to all municipal advisors, including dealers that are municipal advisors because they solicit business from municipal entities and obligated persons on behalf of unrelated third parties. Draft amendments to Rule G-21 would also expand the types of advertisements covered to include those concerning municipal financial products and third-party services.

Under existing Rule G-21, the term “advertisement” includes material concerning the products or services of a dealer published or used in electronic or other public media or written or electronic promotional literature distributed or made available to customers or the public. The term “public” means the general public. The term “customer,” as defined by MSRB Rule D-9, is another word for “investor.” It does not include clients or prospective clients that are not investors. Exceptions from the definition of “advertisement” are provided for preliminary official statements, official statements, and similar documents.

Under the draft amendments, the term “advertisement” would also include material concerning the products or services of a municipal advisor or third party on behalf of which a municipal advisor is soliciting business. Additional exceptions from the definition would be created for notices of sale, offering circulars, and private placement memoranda.

Content Standards. Existing Rule G-21 generally provides that a dealer must not publish or disseminate advertisements relating to municipal securities that the dealer knows or has reason to know are materially false or misleading. Professional advertisements, which describe the “facilities, services, or skills” of the dealer with respect to municipal securities, are subject to a stricter standard. They must not be materially false or misleading. These content standards would be retained in the draft amendments to Rule G-21.

Approval; Recordkeeping. As under existing Rule G-21, draft Rule G-21 would provide that all advertisements would require written approval by a principal prior to first use. The written approval would be obtained from either a municipal securities principal, general securities principal, or municipal advisor principal depending on the applicable supervisory regime. Records of advertisements would also still be required to be kept current and filed separately. The supervisory regime of Rule G-27 would govern the review and recordkeeping of advertisements published or disseminated by dealers concerning municipal securities. The supervisory regime of draft Rule G-44 (on supervision of municipal advisory activities) would apply to municipal advisory activities that are not covered by Rule G-27.

Draft Amendments to MSRB Rule G-9

The draft amendments to Rule G-21 would necessitate conforming draft amendments to Rule G-9 (on preservation of records). The draft amendments to Rule G-9 would require municipal advisors to preserve records for a period of three years and to make such records accessible and available as required by subsection (d) and maintained in the manner required by subsection (e) of Rule G-9.

Draft Interpretive Notice Concerning Certain Communications. Dealers and municipal advisors regulated by the MSRB (“regulated parties”) engage in a wide range of written and oral communications that are not advertisements because they are directed neither to the general public nor to customers. The draft notice characterizes some of those communications as sales and marketing communications (including sales literature) and correspondence. Sales literature would be characterized by the draft notice as material, other than correspondence, that is distributed or made available to targeted recipients with the objective of convincing the targeted recipient to effect a transaction in municipal securities or to hire the regulated party or the third party it represents to engage in municipal securities activities or municipal advisory activities or to provide certain third-party services. A targeted recipient could be a prospective customer, existing or prospective municipal entity client, existing or prospective obligated person client, or a municipal entity or obligated person that is the subject of a solicitation of business by a municipal advisor on behalf of a third party. Correspondence would include, but not be limited to, responses to requests for proposals or qualifications and letters or electronic mail sent or received by a regulated party in the ordinary course of business or in response to a complaint from a customer or others.

The draft notice would provide that, under Rule G-17, such communications must not be materially false or misleading, which is the standard that is applied to professional advertisements by Rule G-21. Although pre-use review of such communications would not be required, the draft notice would advise regulated parties to establish and maintain training and supervisory activities to ensure compliance with the Rule G-17 content standard.

If the draft amendments to Rule G-21 and Rule G-9 and the draft interpretive notice are filed with the Securities and Exchange Commission (the “SEC”), the MSRB expects to propose that they be made effective on the date that the rules defining the term “municipal advisor” under Section 15B of the Securities Exchange Act of 1934 are first made effective by the SEC or such later date as the SEC approves them.

The MSRB is aware that the Financial Industry Regulatory Authority has proposed significant changes to NASD Rule 2210 (on communications with the public). If its proposed changes are approved by the SEC, the MSRB will consider whether any additional amendments to Rule G-21 are advisable.[2]

REQUEST FOR COMMENT

The MSRB requests comments on (i) the draft amendments to Rule G-21, (ii) the associated draft amendments to Rule G-9, and (iii) the draft interpretive notice.

August 10, 2011

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TEXT OF DRAFT AMENDMENTS[3]

G-21: Advertising

(a) General Provisions.

(i) Definition of “Advertisement.” For purposes of this rule, the term “advertisement” means any material (other than listings of offerings) published or used in any electronic or other public media, or any written or electronic promotional literature distributed or made generally available to customers or the public, including any notice, circular, report, market letter, form letter, telemarketing script, seminar text, press release concerning the products or services of the broker, dealer or, municipal securities dealer, municipal advisor, or third party, or reprint, or any excerpt of the foregoing or of a published article. The term does not apply to notices of sale, preliminary official statements or, official statements, offering circulars, and private placement memoranda but does apply to abstracts or summaries of official statements, offering circulars the foregoing and other such similar documents prepared by brokers, dealers or, municipal securities dealers, or municipal advisors.

(ii) Definition of “Form Letter.” For purposes of this rule, the term “form letter” means any written letter or electronic mail message distributed to 25 or more persons within any period of 90 consecutive days.

(iii) Definition of “Third Party.” The term “third party” means a person described in the definition of “solicitation of a municipal entity or obligated person” contained in Section 15B(e)(9) of the Act, other than a municipal advisor engaged in a solicitation.

(iv) Definition of “Third Party Services.” The term “third party services” means the services described in Section 15B(e)(9) of the Act.

(v) General Standard for Advertisements. Subject to the further requirements of this rule relating to professional advertisements and product advertisements, no broker, dealer or, municipal securities dealer, or municipal advisor shall publish or disseminate, or cause to be published or disseminated, any advertisement relating to municipal securities, municipal financial products, or third-party services that such broker, dealer or, municipal securities dealer, or municipal advisor knows or has reason to know is materially false or misleading.

(b) Professional Advertisements.

(i) Definition of “Professional Advertisement.” The term “professional advertisement” means any advertisement concerning the facilities, services or skills with respect to the municipal securities activities, municipal advisory activities, or third party services of such broker, dealer or, municipal securities dealer, municipal advisor, or third party, or of another broker, dealer, or municipal securities dealer, or municipal advisor.

(ii) Standard for Professional Advertisements. No broker, dealer or, municipal securities dealer, or municipal advisor shall publish or disseminate, or cause to be published or disseminated, any professional advertisement that is materially false or misleading.

(c) Product Advertisements.

i) Definition of “Product Advertisement.” The term “product advertisement” means any advertisement concerning one or more specific municipal securities, one or more specific issues of municipal securities, the municipal securities of one or more specific issuers, or the specific features of municipal securities, or a specific municipal financial product.

(ii) Standard for Product Advertisements. No broker, dealer or, municipal securities dealer, or municipal advisor shall publish or disseminate, or cause to be published or disseminated, any product advertisement that such broker, dealer, or municipal securities dealer, or municipal advisor knows or has reason to know is materially false or misleading and, to the extent applicable, that is not in compliance with section (d) or (e) hereof.

(d) New Issue Product Advertisements. In addition to the requirements of section (c), all product advertisements for new issue municipal securities (other than municipal fund securities) shall be subject to the following requirements:

(i) Accuracy at Time of Sale. A syndicate or syndicate member which or municipal advisor that publishes or causes to be published any advertisement regarding the offering by the syndicate of a new issue of municipal securities, or any part thereof, may show the initial reoffering prices or yields for the securities, even if the price or yield for a maturity or maturities may have changed, provided that the advertisement contains the date of sale of the securities by the issuer to the syndicate. In the event that the prices or yields shown in a new issue advertisement are other than the initial reoffering prices or yields, such an advertisement must show the prices or yields of the securities as of the time the advertisement is submitted for publication. For purposes of this rule, the date of sale shall be deemed to be, in the case of competitive sales, the date on which bids are required to be submitted to an issuer and, in the case of negotiated sales, the date on which a contract to purchase securities from an issuer is executed.

ii) Accuracy at Time of Publication. Each advertisement relating to a new issue of municipal securities shall also indicate, if applicable, that the securities shown as available from the syndicate may no longer be available from the syndicate at the time of publication or may be available from the syndicate at a price or yield different from that shown in the advertisement.

(e) Municipal Fund Security Product Advertisements. In addition to the requirements of section (c), all product advertisements for municipal fund securities published by a broker, dealer, municipal securities dealer, or municipal advisor shall be subject to the following requirements:

(i) Required Disclosures.

(A) Substance and Format of Disclosure. Except as described in paragraph (B) of this subsection (i), each product advertisement for municipal fund securities:

(1) basic disclosure – must include a statement to the effect that:

(a) an investor should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing;

(b) more information about municipal fund securities is available in the issuer's official statement;

(c) if the advertisement identifies a source from which an investor may obtain an official statement and the broker, dealer or municipal securities dealer that publishes the advertisement is the underwriter for one or more of the issues of municipal fund securities for which any such official statement may be supplied, the advertisement must state that such broker, dealer or municipal securities dealer is the underwriter for one or more issues (as appropriate) of such municipal fund securities; and

(d) the official statement should be read carefully before investing.

(2) additional disclosures for identified products – that refers by name (including marketing name) to any municipal fund security, issuer of municipal fund securities, state or other governmental entity that sponsors the issuance of municipal fund securities, or to any securities held as assets of municipal fund securities or to any issuer thereof, must include the following disclosures, as applicable:

(a) unless the offer of such municipal fund securities is exempt from Exchange Act Rule 15c2-12 and the issuer thereof has not produced an official statement, a source from which an investor may obtain an official statement;

(b) if the advertisement relates to municipal fund securities issued by a qualified tuition program under Internal Revenue Code Section 529, a statement to the effect that an investor should consider, before investing, whether the investor's or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program; provided, however, that this statement shall not be required for any advertisement relating to municipal fund securities of a specific state if such advertisement is sent to, or is otherwise distributed through means that are reasonably likely to result in the advertisement being received by, only residents of such state and is not otherwise published or disseminated by the broker, dealer or, municipal securities dealer, or municipal advisor or made available by the broker, dealer or, municipal securities dealer, or municipal advisor to any of its their affiliates, the issuer or any of the issuer’s agents with the expectation or understanding that such other parties will otherwise publish or disseminate such advertisement; and

(c) if the advertisement is for a municipal fund security that the issuer holds out as having the characteristics of a money market fund, statements to the effect that an investment in the security is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency (unless such guarantee is provided by or on behalf of such issuer) and, if the security is held out as maintaining a stable net asset value, that although the issuer seeks to preserve the value of the investment at $1.00 per share or such other applicable fixed share price, it is possible to lose money by investing in the security.

(3) additional disclosures concerning performance – that includes performance data must include:

(a) a legend disclosing that the performance data included in the advertisement represents past performance; that past performance does not guarantee future results; that the investment return and the value of the investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost; and that current performance may be lower or higher than the performance data included in the advertisement. Unless the advertisement includes total return quotations current to the most recent month ended seven business days prior to the date of any use of the advertisement, the legend must also identify either a toll-free (or collect) telephone number or a website where an investor may obtain total return quotations current to the most recent month-end for which such total return, or all information required for the calculation of such total return, is available;

(b) if a sales load or any other nonrecurring fee is charged, the maximum amount of the load or fee (current as of the date any such advertisement is submitted for publication or otherwise disseminated) and, if the sales load or fee is not reflected in the performance data included in the advertisement, a statement that the performance data does not reflect the deduction of the sales load or fee and that the performance data would be lower if such load or fee were included; and

(c) to the extent that such performance data relates to municipal fund securities that are not held out as having the characteristics of a money market fund and to the extent applicable, the total annual operating expense ratio of such municipal fund securities (calculated in the same manner as the total annual fund operating expenses required to be included in the registration statement for a registered investment company, subject to paragraph (e)(ii)(A) hereof), gross of any fee waivers or expense reimbursements.

(4) format of disclosure – must meet the following requirements:

(a) for a print advertisement:

(i) the statements required by subparagraphs (1), (2) and (3) of this paragraph (A) must be presented in a type size at least as large as and of a style different from, but at least as prominent as, that used in the major portion of the advertisement, provided that when performance data is presented in a type size smaller than that of the major portion of the advertisement, the statements required by subparagraph (3) of this paragraph may appear in a type size no smaller than that of the performance data;

(ii) the statements required by subparagraph (3) of this paragraph must be presented in close proximity to the performance data; provided that such statements must be presented in the body of the advertisement and not in a footnote unless the performance data appears only in such footnote; and

(iii) the maximum amount of the sales load required to be disclosed pursuant to clause (3)(b) and the information required to be disclosed pursuant to clause (3)(c), along with the standardized performance information mandated by Securities Act Rule 482 as applicable by virtue of subsection (e)(ii) of this rule, must be presented in a prominent text box that contains only such information but which may also contain comparative performance and fee data and disclosures required under this section (e).

(b) for an advertisement delivered through an electronic medium:

(i) the legibility requirements for the statements required by subparagraphs (1), (2) and (3) of this paragraph relating to type size and style may be satisfied by presenting the statements in any manner reasonably calculated to draw investor attention to them;

(ii) if such an advertisement is a radio or television advertisement, the statements required by subparagraphs (1), (2) and (3) of this paragraph must be given emphasis equal to that used in the major portion of the advertisement; and

(iii) the statements required by subparagraph (3) of this paragraph must be presented in close proximity to the performance data.

(B) Exceptions from Certain Disclosure Requirements. Notwithstanding any other provision of this rule, the following advertisements relating to municipal fund securities shall not be subject to the provisions of subparagraphs (1) and (2) of paragraph (e)(i)(A):

(1) generic advertisements – any advertisement that does not refer by name to any specific investment option or portfolio offered by an issuer of municipal fund securities, but includes the name and address of the broker, dealer or municipal securities dealer or other person sponsoring the advertisement, and that is limited to any one or more of the following:

(a) explanatory information relating to municipal fund securities generally or the nature of the issuers thereof or of the programs through which they are issued, or to services offered in connection with the ownership of such securities; or

(b) the mention or explanation of municipal fund securities of different generic types or having various investment objectives; or

(c) offers, descriptions, and explanations of various products and services not constituting a municipal fund security, provided that such offers, descriptions, and explanations do not relate directly to the desirability of owning or purchasing a municipal fund security; or

(d) invitation to inquire for further information; provided that if an official statement for municipal fund securities is to be sent or delivered in response to such inquiries and if the sponsor of the advertisement is the underwriter for one or more of the issues of municipal fund securities for which such official statement may be supplied, the advertisement must state that such broker, dealer or municipal securities dealer is the underwriter for one or more issues (as appropriate) of such municipal fund securities.

(2) certain blind advertisements – any advertisement that does not identify a broker, dealer or municipal securities dealer or any affiliate of a broker, dealer or municipal securities dealer and that is limited to any one or more of the following:

(a) the name of an issuer of municipal fund securities; or

(b) contact information for an issuer of municipal fund securities or for any agent of such issuer to obtain an official statement or other information; provided that, if any such agent of the issuer is a broker, dealer or municipal securities dealer or an affiliate of a broker, dealer or municipal securities dealer, no orders for municipal fund securities shall be accepted through such source unless initiated by the customer; or

(c) a logo or other graphic design of an issuer of municipal fund securities that does not directly or indirectly identify the broker, dealer or municipal securities dealer or any affiliate of the broker, dealer or municipal securities dealer; or

(d) a service mark, trademark or short slogan of the issuer’s general objectives that does not constitute a call to invest in municipal fund securities.

(3) certain form letters to existing customers – any form letter relating to municipal fund securities distributed solely to existing customers of the broker, dealer or municipal securities dealer to whom the broker, dealer or municipal securities dealer has previously sent or caused to be sent an official statement for:

(a) any municipal fund securities of the issuer of such municipal fund securities; or

(b) any municipal fund securities of a different issuer of municipal fund securities, provided that the advertisement form letter includes the applicable disclosures under clause (e)(i)(A)(1)(c) and subparagraph (e)(i)(A)(2) of this rule.

(ii) Performance Data. Each Any product advertisement that includes performance data relating to municipal fund securities must present performance data in the format, and calculated pursuant to the methods, prescribed in paragraph (d) of Securities Act Rule 482 (or, in the case of a municipal fund security that the issuer holds out as having the characteristics of a money market fund, paragraph (e) of Securities Act Rule 482) and, to the extent applicable, subparagraph (e)(i)(A)(4) of this rule, provided that:

(A) source of data – to the extent that information necessary to calculate performance data or to determine loads, fees and expenses for purposes of clause (e)(i)(A)(3)(b) or (c) is not available from an applicable balance sheet included in a registration statement, or from a prospectus, the broker, dealer or municipal securities dealer shall use information derived from the issuer's official statement, otherwise made available by the issuer or its agents, or (when unavailable from the official statement, the issuer or the issuer's agents) derived from such other sources which the broker, dealer or municipal securities dealer reasonably believes are reliable;

(B) period of calculation – if the issuer first began issuing the municipal fund securities fewer than one, five, or ten years prior to the date of the submission of the advertisement for publication, such shorter period shall be substituted for any otherwise prescribed longer period in connection with the calculation of average annual total return or any similar returns;

(C) currentness of calculation – performance data and total annual operating expense ratio shall be calculated as of the most recent practicable date considering the type of municipal fund securities and the media through which data will be conveyed, except that any advertisement containing total return quotations will be considered to have complied with this paragraph provided that:

(1) (a) the total return quotations are current to the most recent calendar quarter ended prior to the submission of the advertisement for publication for which such performance data, or all information required for the calculation of such performance data, is available to the broker, dealer or municipal securities dealer as described in paragraph (A) of this subsection (e)(ii); and

(b) total return quotations (current to the most recent month ended seven business days prior to the date of any use of the advertisement for which such total return, or all information required for the calculation of such total return, is available to the broker, dealer or municipal securities dealer as described in paragraph (A) of this subsection (e)(ii)) are provided at the toll-free (or collect) telephone number or website identified pursuant to clause (i)(A)(3)(a) of this section (e) and the month to which such information is current is identified; or

(2) the total return quotations are current to the most recent month ended seven business days prior to the date of any use of the advertisement for which such total return, or all information required for the calculation of such total return, is available to the broker, dealer or municipal securities dealer and the month to which such information is current is identified.

(D) 12b-1-type plans – where such calculation is required to include expenses accrued under a plan adopted under Investment Company Act Rule 12b-1, the broker, dealer or municipal securities dealer shall include all such expenses as well as any expenses having the same characteristics as expenses under such a plan where such a plan is not required to be adopted under said Rule 12b-1 as a result of Section 2(b) of the Investment Company Act of 1940;

(E) tax-adjusted calculations – in calculating tax-equivalent yields or after-tax returns, the broker, dealer or municipal securities dealer shall assume that any unreinvested distributions are used in the manner intended with respect to such municipal fund securities in order to qualify for any federal tax-exemption or other federally tax-advantaged treatment with respect to such distributions, provided that the advertisement must also provide a general description of how federal law intends that such distributions be used and disclose that such yield or return would be lower if distributions are not used in this manner.

(F) applicability with respect to underlying assets – notwithstanding any of the foregoing, this subsection (e)(ii) shall apply solely to the calculation of performance relating to municipal fund securities and does not apply to, or limit the applicability of any rule of the Commission, NASD Financial Industry Regulatory Authority (“FINRA”) or any other regulatory body relating to, the calculation of performance for any security held as an underlying asset of the municipal fund securities.

(iii) Nature of Issuer and Security. An advertisement for a specific municipal fund security must provide sufficient information to identify such specific security in a manner that is not false or misleading. An advertisement that identifies a specific municipal fund security must include the name of the issuer (or the issuer's marketing name for its issuance of municipal fund securities, together with the state of the issuer), presented in a manner no less prominent than any other entity identified in the advertisement, and must not imply that a different entity is the issuer of the municipal fund security. An advertisement must not raise an inference that, because municipal fund securities are issued under a government-sponsored plan, investors are guaranteed against investment losses if no such guarantee exists. If an advertisement concerns a specific class or category of an issuer's municipal fund securities (e.g., A shares versus B shares; direct sale shares versus advisor shares; in-state shares versus national shares; etc.), this must clearly be disclosed in a manner no less prominent than the information provided with respect to such class or category.

(iv) Capacity of Dealer and Other Parties. An advertisement that relates to or describes services provided with respect to municipal fund securities must clearly indicate the entity providing those services. If any person or entity other than the broker, dealer or municipal securities dealer is named in the advertisement, the advertisement must reflect any relationship between the broker, dealer or municipal securities dealer and such other person or entity. An advertisement soliciting purchases of municipal fund securities that would be effected by a broker, dealer or municipal securities dealer or any other entity other than the broker, dealer or municipal securities dealer that publishes the advertisement must identify which entity would effect the transaction, provided that the advertisement may identify one or more such entities in general descriptive terms but must specifically name any such other entity if it is the issuer, an affiliate of the issuer, or an affiliate of the broker, dealer or municipal securities dealer that publishes the advertisement. This subsection (iv) shall not apply to any advertisement described in subparagraph (e)(i)(B)(2) of this rule.

(v) Tax Consequences and Other Features. Any discussion of tax implications or other benefits or features of investments in municipal fund securities included in an advertisement must not be false or misleading. In the case of an advertisement that includes generalized statements regarding tax or other benefits offered in connection with such municipal fund securities or otherwise offered under state or federal law, the advertisement also must include a generalized statement that the availability of such tax or other benefits may be conditioned on meeting certain requirements. If the advertisement describes the nature of specific benefits, such advertisement must also briefly list the substantive factors that may materially limit the availability of such benefits (such as residency, purpose for or timing of distributions, or other factors, as applicable). Such statements of conditions or limitations must be presented in close proximity to, and in a manner no less prominent than, the description of such benefits.

(vi) Underlying Registered Securities. If an advertisement for a municipal fund security provides specific details of a security held as an underlying asset of the municipal fund security, the details included in the advertisement relating to such underlying security must be presented in a manner that would be in compliance with any Commission or NASD FINRA advertising rules that would be applicable if the advertisement related solely to such underlying security; provided that details of the underlying security must be accompanied by any further statements relating to such details as are necessary to ensure that the inclusion of such details does not cause the advertisement to be false or misleading with respect to the municipal fund securities advertised. This subsection does not limit the applicability of any rule of the Commission, NASD, FINRA or any other regulatory body relating to advertisements of securities other than municipal fund securities, including advertisements that contain information about such other securities together with information about municipal securities.

(vii) Correspondence Presenting Performance Data. Notwithstanding any other provision of this rule, all correspondence with the public that includes performance data relating to municipal fund securities must comply with the provisions of subparagraph (e)(i)(A)(3) (presented in the manner provided in subparagraph (e)(i)(A)(4)) and subsection (e)(ii) as if such correspondence were a product advertisement under this rule.

(f) Approval by Principal.; Recordkeeping. Each advertisement subject to the requirements of this rule must be approved in writing by a municipal securities principal or, general securities principal, or municipal advisor principal, as applicable, prior to first use. Each broker, dealer and, municipal securities dealer, and municipal advisor shall make, and keep current in a separate file, records of all such advertisements .

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Rule G-9: Preservation of Records

(a) - (g) No change.

(h) Municipal Advisor Records.

(i) [Reserved]

(ii) Records to be Preserved for Three Years. Every municipal advisor shall preserve for no less than three years:

(A) [Reserved.]

(B) each advertisement from the date of each use.

(iii) Method of Record Retention. Such records shall be accessible and available as required by subsection (d) of this rule and retained in the manner required by subsection (e) of this rule.

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INTERPRETIVE NOTICE CONCERNING THE APPLICATION OF MSRB RULE G-17 TO CERTAIN COMMUNICATIONS

Rule G-21 generally requires that advertisements by brokers, dealers, and municipal securities dealers (“dealers”), and municipal advisors not be published or disseminated if the dealer or municipal advisor knows or has reason to know that the advertisements are materially false or misleading. Professional advertisements are subject to a stricter standard. They must not be materially false or misleading because they concern the products or services of dealers and municipal advisors themselves, as well as those of certain third-party clients.[1]

The MSRB is aware that dealers and municipal advisors (“regulated parties”) also engage in a range of communications not covered by Rule G-21, because they are made neither to the general public nor to customers.[2] For example, in the course of municipal securities activities or municipal advisory activities, as applicable, regulated parties communicate with persons other than customers, such as prospective customers, municipal entity clients or prospective municipal entity clients, obligated person clients or prospective obligated person clients, or municipal entities or obligated persons that are the subject of solicitations by municipal advisors on behalf of third parties.

When the purpose of the communication is intended to persuade the recipient thereof to effect a transaction in municipal securities or to engage the dealer, municipal advisor, or a third party to engage in municipal securities activities or municipal advisory activities or to provide the third-party services described in Section 15B(e)(9) of the Exchange Act, this notice characterizes the communication as “sales” or “marketing” and any materials utilized in such communications as “sales literature.” Examples of sales literature include, but are not limited to, educational newsletters; materials marketing a product or service to a client or prospective customer or client or materials describing the qualifications or services of the dealer, municipal advisor, or third party, other than those that are correspondence. Regulated parties may also correspond with, among others, the general public, customers, prospective clients or clients (e.g., responses to requests for proposals or qualifications and letters or electronic mail messages sent in the ordinary course of business or in response to a complaint from a customer or others).

Rule G-17 (on the conduct of municipal securities and municipal advisory activities) states that each regulated party “shall deal fairly with all persons and shall not engage in any deceptive, dishonest, or unfair practice.” The MSRB is publishing this notice to advise dealers and municipal advisors that the fair practice requirements of Rule G-17 apply to all communications (written and oral), including the content of advertisements, sales or marketing communications (including sales literature), and correspondence.

As is the case with respect to professional advertisements, under Rule G-17 sales and marketing communications (including sales literature) and correspondence must not be materially false or misleading. Each regulated party should establish and maintain training and supervisory procedures adequate to manage the written and oral communications of the firm and its associated persons to ensure that such communications are not materially false or misleading.
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[1] The term “third party” means a person described in the definition of “solicitation of a municipal entity or obligated person” contained in Section 15B(e)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”), other than a municipal advisor engaged in a solicitation. Section 15B(e)(9) of the Exchange Act provides that:

the term ‘solicitation of a municipal entity or obligated person’ means a direct or indirect communication with a municipal entity or obligated person made by a person, for direct or indirect compensation, on behalf of a broker, dealer, municipal securities dealer, municipal advisor, or investment adviser (as defined in section 202 of the Investment Advisers Act of 1940) that does not control, is not controlled by, or is not under common control with the person undertaking such solicitation for the purpose of obtaining or retaining an engagement by a municipal entity or obligated person of a broker, dealer, municipal securities dealer, or municipal advisor for or in connection with municipal financial products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of a municipal entity.

[2] Rule D-9 provides that, “Except as otherwise specifically provided by rule of the Board, the term "customer" shall mean any person other than a broker, dealer, or municipal securities dealer acting in its capacity as such or an issuer in transactions involving the sale by the issuer of a new issue of its securities.”


[1] Comments are posted on the MSRB website without change. Personal identifying information such as name, address, telephone number, or email address will not be edited from submissions. Therefore, commenters should submit only information that they wish to make available publicly.

[2] See SEC Release No. 34-64984 (July 28, 2011), File No. SR-FINRA-2011-035.

[3] Underlining indicates additions; strikethrough indicates deletions.