MSRB NOTICE 2012-41 (AUGUST 9, 2012)

REQUEST FOR COMMENT ON CONCEPT PROPOSAL TO STRENGTHEN ACCOUNT OPENING AND SUPERVISORY PRACTICES OF DEALERS EFFECTING ONLINE MUNICIPAL SECURITIES TRANSACTIONS WITH INDIVIDUAL INVESTORS

INTRODUCTION

The Municipal Securities Rulemaking Board (“MSRB”) is requesting comment on a concept proposal intended to strengthen protections for individual investors by establishing new account opening and supervision requirements for brokers, dealers and municipal securities dealers (“dealers”) effecting online transactions in municipal securities with individual investors, which for purposes of this notice would be any natural person other than sophisticated municipal market professionals (“SMMP”).[1]  A dealer that effects transactions in municipal securities with individual investors solely through electronic means, such as a web portal where individual investors could purchase and sell municipal securities online without any direct contact with a registered representative of the dealer, is referred to as an “electronic brokerage.”[2]

The MSRB is issuing this concept proposal due to the growth of online trading of municipal securities by individual investors.  The intent of the proposal outlined in the concept release is to improve the likelihood that individual investors who trade online would understand the features and risks of municipal securities and purchase securities that are appropriate based on their financial condition and risk tolerance.

Comments should be submitted no later than September 21, 2012, and may be submitted in electronic or paper form.  Comments may be submitted electronically by clicking here.  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.[3] 

Questions about this notice should be directed to Lawrence P. Sandor, Deputy General Counsel, Regulatory Support, at 703-797-6600.

APPLICABILITY OF MSRB FAIR PRACTICE RULES

In addition to seeking comments on potential additional protections for individual investors effecting transactions through electronic brokerages, the concept proposal is intended to remind dealers that operate as electronic brokerages of their fair dealing obligations to customers under MSRB Rule G-17, their fair pricing responsibilities under MSRB Rules G-18 and G-30, and their suitability obligations under MSRB Rule G-19, when recommending municipal securities transactions to individual investors.  While not all municipal securities transactions effected online are recommended to individual investors, electronic brokerages are obligated to determine whether a particular transaction is recommended to an individual investor and, if so, perform a suitability analysis to ensure the recommendation is suitable for the customer.  The concept proposal would require that electronic brokerages, as part of their written supervisory procedures, have a means to determine whether or not online municipal securities transactions are recommended.

MSRB Rule G-17 sets forth the basic customer protection obligation of dealers when executing municipal securities transactions with or on behalf of customers, regardless of whether the dealer does business with the customer online, in person, by telephone, or through other means, and regardless of whether the transaction with a customer is recommended or is unsolicited.  It provides that, in the conduct of its municipal securities activities, each dealer shall deal fairly with all persons and shall not engage in any deceptive, dishonest or unfair practice.  The rule contains an anti-fraud provision, and a general duty to deal fairly, even in the absence of fraud.[4]

MSRB Rules G-18 and G-30 set forth the fair pricing obligation of dealers.  As with Rule G-17, these rules apply to dealers that execute municipal securities transactions with or on behalf of customers online or through any other means.  Rule G-18 applies to agency transactions and Rule G-30 applies to principal transactions.[5]  Rule G-18 provides that a dealer effecting an agency transaction on behalf of a customer must undertake “a reasonable effort to obtain a price for the customer that is fair and reasonable in relation to prevailing market conditions,” and Rule G-30 provides that a dealer effecting a principal transaction with a customer must do so at an aggregate price, including any mark-down or mark-up, that is fair and reasonable, taking into consideration all relevant factors, including the best judgment of the dealer as to the fair market value of the securities at the time of the transaction.  Regardless of whether the dealer executes the transaction as agent or principal, it must exercise diligence in establishing the market value of the security and the reasonableness of the compensation it receives on the transaction.[6]  These pricing responsibilities apply regardless of whether the transaction with a customer is recommended or unsolicited.

MSRB Rule G-19 requires that a dealer recommending to a customer a municipal securities transaction have reasonable grounds for believing that the recommendation is suitable based upon the information available from the issuer of the security or otherwise and the facts disclosed by such customer or otherwise known about such customer.[7]  Rule G-19 further requires a dealer recommending to a non-institutional customer a municipal securities transaction to make reasonable efforts to obtain information concerning the customer’s financial status, tax status, and investment objectives, as well as any other information reasonable and necessary in making the recommendation.[8]  Under Rule G-19, a dealer making such a recommendation must undertake a meaningful analysis, taking into consideration the information about the customer and the security, which establishes the reasonable grounds for believing that the recommendation is suitable.  The MSRB has made clear that the suitability obligation applies to recommendations made to individual investors online, as well as by other means.[9]

SUMMARY OF THE CONCEPT PROPOSAL

Under the concept proposal, electronic brokerages would be required to deliver at account opening a municipal securities educational document to each individual investor containing important information about common features and risks of municipal securities.  Electronic brokerages also would be required to collect investment profile information for each individual investor unless they have determined that none of the municipal securities transactions executed with or on behalf of the customer would be recommended.  Further, electronic brokerages would be required to have a municipal securities principal approve each new online account opened by individual investors prior to the first municipal securities transaction.  Finally, electronic brokerages would be required to establish written supervisory procedures to delineate under what circumstances municipal securities transactions would be considered recommendations, how they fulfill their obligation to deliver material information about municipal securities transactions to individual investors, and how they fulfill their fair pricing obligations.  The concept proposal also seeks input from market participants as to whether additional guidelines would be appropriate for electronic brokerages, given the growth of online investing.

This concept proposal is intended to elicit input from all interested parties on the potential benefits and burdens of establishing new account opening and supervision guidelines for electronic brokerages, as well as on alternatives to achieving the purposes enunciated below, to assist the MSRB in determining whether to consider undertaking a rulemaking process to propose requirements for electronic brokerages effecting transactions with individual investors.

BACKGROUND

The MSRB is charged by Congress with, among other responsibilities, protecting investors in municipal securities.  In discharging this responsibility, the MSRB has, over the years, promulgated a number of rules governing the conduct of dealers, including fair dealing, fair pricing and suitability rules.   Historically, investors purchased municipal securities through municipal securities representatives located at dealers’ branch or centralized offices.  As technology evolved, investors were able to purchase municipal securities online, with or without the assistance of a municipal securities representative.  MSRB rules, including Rules G-17, G-18, G-19, and G-30, apply to municipal securities transactions without regard to the manner in which such securities are purchased, such as online or in a “brick and mortar” office.  Since the time that dealers first offered internet investing platforms, online trading has grown and changed significantly.  While these platforms may offer investors numerous benefits, such as inexpensive trading, electronic investment tools, and rapid trade execution, they are not without potential drawbacks.

In 1999, the Securities and Exchange Commission (“SEC”) issued a report prepared by SEC Commissioner Laura Unger entitled “On-Line Brokerage: Keeping Apace of Cyberspace” (the “Unger Report”).[10]  The report addressed a number of concerns raised by market participants concerning online trading, including the suitability of online transactions for retail customers.  The Unger Report raised a number of questions as to when the delivery of investment information to online customers becomes a recommendation and made the point that data mining technology made it difficult to draw the line between informing and recommending.  Specifically, with the advent of technology to enable dealers to “push” information to customers and for customers to “pull” certain information from websites, including information tailored to their investment preferences, industry participants were unclear of their suitability obligations.  The report presented seven suitability examples for consideration by industry participants, which ranged from a dealer acting as a mere online order taker to a dealer recommending a security by telephone and then executing a trade in that security after the order is entered by the customer online.  The examples demonstrated ever increasing involvement by a dealer through the use of technology.  Although the report did not draw any conclusions, it was the impetus for interpretive guidance by the National Association of Securities Dealers[11] (“NASD”) (now known as, and hereinafter referred to as, the Financial Industry Regulatory Authority (“FINRA”)) and the MSRB.[12]  The 2002 Notice published by the MSRB is discussed in more detail below.  While these regulatory notices focused on the issue of when an online communication rises to the level of a recommendation, suitability has not been the only investor protection concern.

In 2001, the SEC identified concerns regarding online trading as its popularity grew.  In a report prepared on January 25, 2001 by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) summarizing examination findings and providing recommendations concerning broker-dealers that offered online trading, OCIE noted the growth and popularity of online trading and recommended that dealers enhance their investor education, review the objectivity of their advertising, establish procedures to ensure best execution of transactions, and review their operational capabilities and security measures online.[13]  The report explained that many individuals with no prior investment experience were opening online investment accounts and that, without the assistance of an investment professional, investors were obligated to educate themselves through a review of information posted by dealers on their websites.  OCIE recommended the following: “[t]o help educate customers, broker-dealers should consider enhancing their web sites to provide a basic explanation of securities trading, including definitions of each of the terms used on the firm’s order entry page that are accessible from the trading screen.  Firms should also provide conspicuous, plain English disclosure about the risks of securities trading.”  Some dealers took note of this guidance and improved their websites and their investor education material and disclosures; however, the investor resources provided by electronic brokerages vary.

The SEC also warned investors to educate themselves before investing online.  In a publication entitled “Tips for Online Investing,”[14] the SEC explained that, “[a]lthough online trading saves investors time and money, it does not take the homework out of making investment decisions.  You may be able to make a trade in a nanosecond, but making wise investment decisions takes time.  Before you trade, know why you are buying and selling, and the risk of your investment.”

In an “Online Trading FAQ,”[15] FINRA similarly warned investors of the risks of online trading: “[a]lso, for some online investors, there is a temptation to ‘overtrade’ by trading too frequently or impulsively without considering their investment goals or risk tolerance.  Overtrading can [a]ffect investment performance, raise trading costs, and complicate your tax situation.”

In order to educate investors about the risks of online trading, the North American Securities Administrators Association (“NASAA”) created the Investing Online Resource Center.[16]  This website contains information intended to educate investors who are interested in opening investment accounts online.  On the website, NASAA cautions investors not to overtrade, to diversify their holdings, and to conduct careful research before investing.

While these cautionary statements are sound, given the growth of online trading, the MSRB has become concerned that some electronic brokerages may offer inadequate protections for their individual customers.  At the same time that more customers seek to take advantage of the lower transaction costs that electronic brokerages may offer, those same firms often make a variety of complex municipal securities available for purchase without differentiating among potential purchasers as to their financial circumstances, investment objectives, or experience with municipal securities investments.  By way of example, an elderly investor on a fixed income with no experience with municipal securities investments can, in many cases, open an electronic brokerage account and purchase the most complex and risky municipal securities without a meaningful analysis of the suitability of the transaction by a municipal securities representative.  Some electronic brokerages do place restrictions on municipal securities that can be purchased by individual investors such as, for example, limiting online inventory to investment-grade municipal securities.  These restrictions, however, are voluntary, not uniform and not necessarily the only or best way to provide for appropriate protections for investors.

Similarly, some electronic brokerages have developed systems to ensure that individual investors have access to material information regarding municipal securities at or before the time of trade, as required by MSRB Rule G-17.  These systems are also not uniform, and the MSRB is concerned that individual investors who purchase municipal securities online may not be receiving all material information about the transactions known by the electronic brokerage or reasonably accessible to the market, in violation of Rule G-17.[17]  Finally, the MSRB is concerned that electronic brokerages may not be fulfilling their fair pricing obligations to individual investors.  Whether acting as agent or principal, electronic brokerages have an obligation to assess the market value of the security, as well as determine that their compensation is reasonable.  Although many electronic brokerages charge less than so-called full-service dealers for executing municipal securities transactions, the MSRB has stated previously that it is possible for a dealer to restrict its profit on transactions to reasonable levels and still violate Rule G-18 or Rule G-30 because of inattention to market value.[18]  For these reasons, the MSRB believes guidance regarding account opening and supervision of online electronic brokerage accounts offering municipal securities may be appropriate.

PRIOR MSRB GUIDANCE ON SUITABILITY

Following the Unger Report, FINRA issued guidance regarding online suitability. The MSRB issued similar guidance, though the MSRB did not adopt the FINRA guidance in its totality, due to differences in the municipal securities market.[19]  Pursuant to the guidance in the 2002 Notice, as under the FINRA guidance, a dealer is not required to conduct a suitability review if a transaction is not recommended by the dealer, such as where the transaction is initiated by the customer without a related recommendation by the dealer.  However, the MSRB made it clear that online communications that, depending on the facts and circumstances, do constitute a recommendation are subject to MSRB Rule G-19 and require that a meaningful suitability determination be undertaken.  As with the FINRA guidance, the MSRB explained that the facts and circumstances determination is based on an objective analysis of the content, context, and manner of presentation, and that one important factor is whether the communication could be reasonably viewed as a “call to action” or suggestion that the customer engage in a securities transaction.  Additionally, the MSRB noted that, in general, the more individually tailored the communication is to a particular customer, the greater the likelihood that the communication may be viewed as a recommendation.

The 2002 Notice did endorse certain of the examples of recommendations in the FINRA guidance, such as where a dealer narrows a list of securities based on customer specific information and sends or displays such securities for review by the customer.  Similarly, the MSRB endorsed, as recommendations, communications by a dealer to a customer encouraging the customer to buy a type of municipal security, such as securities of a particular state or in a particular sector.  In general, the 2002 Notice provided that a dealer should consider, in determining whether a particular communication is a recommendation, whether and to what extent the communication reasonably would influence a customer to purchase a particular municipal security.

FINRA further stated, in its guidance, that merely providing research tools that allow customers access to a “wide universe of securities” (e.g., all exchange-listed and Nasdaq securities) or an externally recognized group of securities (e.g., certain indexes) to identify potential securities to purchase would not rise to the level of a recommendation, so long as the algorithms used in the search engine or research tool did not steer the customer to particular securities on the dealer’s buy list or in which the dealer made a market.

The MSRB explained that the “wide universe of securities” example in the FINRA guidance was inapplicable to the municipal securities market:

This example makes sense in the equity market where there are centralized exchanges and where electronic trading platforms routinely utilize databases that provide customer access to all of the approximately 7,300 listed securities on Nasdaq, the NYSE and Amex.  However, no dealer in the municipal securities market has the ability to offer all of the approximately 1.3 million outstanding municipal securities for sale or purchase.  The municipal securities market is a fragmented dealer market.  Municipal securities do not trade through a centralized exchange and only a small number of securities (approximately 10,000) trade at all on any given day.  Therefore, there is no comparable central exchange that could serve as a reference point for a database that is used in connection with municipal securities research engines.  The databases used by dealer systems typically are limited to the municipal securities that a dealer, or a consortium of dealers, holds in inventory.  In these types of systems the customer’s ability to search for desirable securities that meet the broad, objective criteria chosen by the customer (e.g., all insured investment grade general obligation bonds offered by a particular state) is limited.  The concept of a wide universe of securities, which is central to all of the NASD’s examples, is thus difficult to define and has extremely limited, or no, application in the municipal securities market.[20]

The description of the municipal securities market in the 2002 Notice remains largely true today.  The municipal securities market remains an over-the-counter market without a centralized exchange and where only a small number of securities trade on a given day.  Liquidity is dependent on dealers that buy and sell municipal securities out of inventory, broker’s brokers that principally assist dealers in buying and selling securities for their customers, and SEC-registered alternative trading systems that utilize automated and electronic means to bring together buyers and sellers.

The MSRB is concerned that electronic brokerages may not appreciate the distinctions between the guidance it provided and the guidance provided by FINRA and, consequently, electronic brokerages that offer investors a limited universe of municipal securities for purchase may not be adhering to the suitability obligations in Rule G-19.  Electronic brokerages must determine whether the information that is communicated through their platform to individual investors constitutes a recommendation under the guidance provided by the MSRB in the 2002 Notice.  If so, they must perform a suitability analysis to determine if the security is suitable for the individual investor.

OTHER FAIR PRACTICE OBLIGATIONS

In the 2002 Notice, the MSRB also explained that, even absent a recommendation, a dealer must fulfill certain other important fair practice obligations when executing municipal securities transactions for customers online.  The MSRB noted that dealers have an obligation under Rule G-17, when executing municipal securities transactions online, to disclose all material information about a municipal security that is known by the dealer or is reasonably accessible to the market.[21]  This obligation to disclose all material information at or prior to the sale of municipal securities to a customer includes an obligation to disclose information available from “established industry sources,” as well as information known by the dealer about the securities.[22]  Electronic brokerages should develop written supervisory procedures to ensure that material information about municipal securities transactions is delivered to individual investor customers at or prior to the sale for all online transactions, regardless of whether the transaction with a customer is recommended or is unsolicited.

Electronic brokerages should also develop written supervisory procedures to ensure they are fulfilling their fair pricing obligations to their individual investor customers under MSRB Rules G-18 and G-30 for all online transactions, regardless of whether the transaction with a customer is recommended or is unsolicited.  These written supervisory procedures should be designed not only to ensure the reasonableness of compensation on municipal securities transactions but also that the aggregate transaction price to customers in principal trades is fair and reasonable, taking into consideration all relevant factors, and that, for agency transactions, it undertakes a reasonable effort to obtain a price for the customer that is fair and reasonable in relation to prevailing market conditions.

The MSRB understands that certain electronic brokerages subscribe to services offered by alternative trading systems in order to access inventory of municipal securities for their customers.  Some of these alternative trading systems provide electronic brokerages with user interface screens (commonly referred to as “white label” products) that permit investors to search for municipal securities by feature, conduct research, and enter orders to purchase or sell municipal securities.  The MSRB further understands that search results typically include only municipal securities available through the alternative trading system that provided the “white label” product, though electronic brokerages may subscribe to more than one alternative trading system and may be able to selectively search for securities through these other alternative trading systems or through the use of broker’s brokers.  The securities available through any one alternative trading system are necessarily a limited universe of municipal securities - meaning those securities listed as offerings or “bid-wanteds” by participants in such systems.

Electronic brokerages should implement written supervisory procedures to determine if the prices obtained for individual investors through one or more of these alternative trading systems satisfy their obligations under MSRB Rules G-18 and G-30.

THE CONCEPT PROPOSAL

Under the concept proposal, in order to improve the likelihood that individual investors understand the features and risks of municipal securities and purchase securities that are appropriate based on their investment profile, at prices that are fair and reasonable, electronic brokerages would be required to:

First, deliver (in either paper or electronic form) municipal securities educational materials to all new individual investors within 10 days of account opening.  The educational materials would be required to cover the following topics, at a minimum:

  • Types of municipal securities, such as general obligation and revenue bonds, and the specific sources of revenue being pledged
  • Special features of municipal securities, such as floating-rate and variable-rate bonds, callable bonds, defeased and refunded bonds, zero coupon bonds, and “put” bonds
  • Taxable municipal securities
  • Non-rated and high yield municipal securities
  • Municipal fund securities, such as interests in 529 college savings plans
  • Primary market versus secondary market purchases of municipal securities
  • Retail order periods
  • Taxable equivalent yields
  • Pricing of municipal securities, including the availability of transaction information on the MSRB’s Electronic Municipal Market Access (EMMA®) system[23]
  • Cost of investing in municipal securities, including mark-ups, mark-downs, and commission
  • Principal versus agency transactions
  • Official statements and continuing disclosures, including the availability of such information on EMMA
  • Risks of investing in municipal securities, such as credit risk (including default and downgrade risk), interest rate risk, inflation risk, call risk, liquidity risk, event risk, reinvestment risk, and enhancement risk
  • Taxation, including treatment of interest and capital gains and losses
  • Suitability of municipal securities
  • Importance of diversification

Second, electronic brokerages would be required to use reasonable efforts to obtain the information about an individual investor’s investment profile required by MSRB Rule G-19, unless the electronic brokerage has determined that none of the transactions executed for the individual investor would be recommended:

  • the customer's financial status;
  • the customer’s tax status;
  • the customer’s investment objectives; and
  • such other information used or considered to be reasonable and necessary by such dealer in making recommendations to the customer.

As part of the “other information” referred to in the fourth bullet above, the electronic brokerage should use reasonable efforts to obtain information about the customer’s:

  • age;
  • annual income, source of income, net worth (exclusive of primary residence), liquid assets;
  • years of investment experience in municipal securities and other fixed income securities; and
  • risk tolerance.

Third, electronic brokerages would be required to have a municipal securities principal review and approve any new individual investor customer account in advance of the first municipal securities transaction for basic supervisory purposes and to determine compliance with the first two requirements above.[24]

Fourth, electronic brokerages would be required to provide individual investors who purchase municipal securities online with the option to subscribe to MSRB-generated email alerts of continuing disclosures submitted to EMMA for the municipal securities purchased by the investors.  If the investors so elected, the electronic brokerages would be required to collect the individual investors’ email addresses and sign them up for such EMMA alerts.

Finally, electronic brokerages would be required to establish written supervisory procedures to delineate under what circumstances municipal securities transactions would be considered recommendations, how they fulfill their obligation to deliver material information about municipal securities transactions to individual investors under MSRB Rule G-17, and how they fulfill their fair pricing obligations under MSRB Rules G-18 and G-30.

The MSRB believes that a system of supervision that includes a new account review prior to executing municipal securities transactions by a municipal securities principal, delivery of an educational document, collection of information regarding the customer’s investment profile, and enhanced written supervisory procedures would provide individual investors with greater protection when executing municipal securities transactions online.

The MSRB requests comment on this concept proposal and asks that market participants address the following specific questions:

  • Would the concept proposal further the MSRB’s objective of protecting individual investors?
  • Would a requirement to deliver a municipal securities educational document further the MSRB’s goal of educating individual investors regarding the features and risks of investing in municipal securities?
  • Do dealers currently deliver educational documents to individual investors regarding municipal securities?
  • If so, have such educational documents proven effective in educating individual investors regarding the features and risks of municipal securities?
  • Would the proposal to have a municipal securities principal approve all new individual investor online accounts prior to executing municipal securities transactions further the MSRB’s goal of investor protection?
  • Would the proposal to require electronic brokerages to enhance their written supervisory procedures by specifically addressing how they determine whether a transaction is recommended further the MSRB’s goal of investor protection?
  • Would the proposal to require electronic brokerages to enhance their written supervisory procedures by specifically addressing how they satisfy their obligation to deliver material information regarding municipal securities transactions to individual investors further the MSRB’s goal of investor protection?
  • Would the proposal to require electronic brokerages to enhance their written supervisory procedures by specifically addressing how they satisfy their fair pricing obligations further the MSRB’s goal of investor protection?
  • Are there other obligations that the MSRB should consider in order to protect individual investors who purchase and sell municipal securities online?
  • Would a requirement to qualify individual investors (other than through a suitability analysis) to purchase municipal securities through an electronic brokerage further the MSRB’s goal of protecting such investors?
  • Would a requirement to deliver online training to individual investors who purchase municipal securities online further the MSRB’s goal of protecting such investors?
  • Do dealers currently deliver training, whether online or otherwise, to individual investors regarding municipal securities?
  • If so, has such training proven effective in educating individual investors regarding the features and risks of municipal securities?
  • Should electronic brokerages that only effect transactions in municipal fund securities be treated differently from or the same as electronic brokerages that effect transactions in municipal bonds and notes?
  • Would any aspects of the concept proposal have a negative effect on the protection of investors and the public interest, or on the fair and efficient operation of the municipal market?  If so, please describe in detail.
  • What would be the incremental additional burden to electronic brokerages to institute the provisions of the concept proposal, beyond the burden of compliance with existing applicable requirements as described in this concept release?
  • Are there alternative methods the MSRB should consider to providing the protections sought under this concept proposal that would be more effective and/or less burdensome?

August 9, 2012


[1]  See Restated Interpretive Notice Regarding the Application of MSRB Rules to Transactions with Sophisticated Municipal Market Professionals, July 9, 2012.

[2]  The use of the term “brokerage” is not intended to limit the types of transactions to which such term applies solely to brokered agency transactions but would also include dealer activities as a principal, including as riskless principal.  Merely providing information about municipal securities online, without also providing individual investors with an ability to place an order electronically, would not be considered electronic brokerage for purposes of this notice.

[3]  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 the submissions.  Therefore, commenters should submit only information that they wish to make available publicly.

[6]  Id.

[7]  See MSRB Notice 2002-30 (September 25, 2002) (the “2002 Notice”).

[9]  See 2002 Notice.

[10]  See Report of SEC Commissioner Laura Unger: “On-Line Brokerage: Keeping Apace of Cyberspace” (November 1999), located at www.sec.gov/pdf/cybrtrnd.pdf.

[11]  NASD Notice to Members 01-23 (April 2001).

[12]  See 2002 Notice.

[13]  See Office of Compliance Inspections and Examinations: “Examinations of Broker-Dealers Offering Online Trading: Summary of Findings and Recommendations” (January 25, 2001), located at www.sec.gov/news/studies/online.htm.

[14]  See SEC publication “Tips for Online Investing,” located at www.sec.gov/investor/pubs/onlinetips.htm.

[15]  See FINRA publication “Online Trading FAQ,” located at www.finra.org/Investors/SmartInvesting/AdvancedInvesting/OnlineTrading/P005931.

[16]  See NASAA’s Investing Online Resource Center, located at www.investingonline.org.

[19]  See 2002 Notice.

[20]  Id.

[23]  EMMA is a registered trademark of the MSRB.

[24]  Currently, Rule G-27(c)(i)(G)(1) permits either a municipal securities principal or a general securities principal to review and approve the opening of each customer account in which transactions in municipal securities may be effected.  Additionally, currently Rule G-27(c)(i)(G)(1) does not require new municipal securities accounts to be reviewed and approved prior to the first municipal securities transaction.  Rather, the rule only requires that new accounts be reviewed and approved promptly.