2022-25475. Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MSRB Rule G-27, on Supervision, To Further Extend the Current Regulatory Relief for ...

November 17, 2022.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) ^[1] and Rule 19b-4 thereunder,^[2] notice is hereby given that on November 16, 2022, the Municipal Securities Rulemaking Board (“MSRB” or “Board”) filed with the Securities and Exchange Commission (“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.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The MSRB filed with the Commission a proposed rule change to amend Supplementary Material .01, Temporary Relief for Completing Office Inspections, of MSRB Rule G-27, on supervision, to further extend the current regulatory relief and permit brokers, dealers and municipal securities dealers (collectively, “dealers”) to conduct office inspections, due to be completed during calendar year 2023, remotely, through June 30, 2023 (the “proposed rule change”).

The MSRB has designated the proposed rule change as constituting a “noncontroversial” rule change under Section 19(b)(3)(A) ^[3] of the Act and Rule 19b-4(f)(6) ^[4] thereunder, which renders the proposal effective upon receipt of this filing by the Commission. The MSRB proposes an operative date of January 1, 2023.

The text of the proposed rule change is available on the MSRB's website at https://msrb.org/​2022-SEC-Filings, 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 MSRB has continued to monitor the impact of the coronavirus disease (“COVID-19” or “pandemic”) on municipal market participants and how dealers' operations and business models have evolved during the public health crisis. The MSRB understands that a large number of firms have integrated a hybrid work environment in which particular business functions continue to be de-centralized. Given that dealers are still devising plans and spending time to implement hybrid work environments more fully, the MSRB believes the additional time of a six-month extension to conduct office inspections remotely, due to be completed in calendar year 2023, would allow dealers time to focus on the integration of their hybrid work environments.

The MSRB previously filed a proposed rule change for immediate effectiveness with the SEC in April 2020,^[5] a second proposed rule change in December 2020,^[6] a third proposed rule change in October 2021,^[7] and a fourth proposed rule change in March 2022 ^[8] (“April relief,” “December relief” “October relief,” and “March relief”). In connection with the April relief, the MSRB provided an extension of time for dealers to complete certain supervisory obligations, including, among other things, that office inspections due to be conducted during calendar year 2020 could be conducted by March 31, 2021, but with the expectation that dealers would conduct their inspections on-site. The December relief provided dealers with the option to conduct their office inspections remotely that were due to be completed by March 31, 2021 (for calendar year 2020) and those for calendar year 2021, subject to certain conditions being met. The October relief provided an additional extension of time permitting dealers to continue to conduct office inspections remotely until June 30, 2022, for their office inspections that were due to be completed for calendar year 2022.^[9] The March relief allowed for dealers to complete office inspections, due to be completed during calendar year 2022, remotely until December 31, 2022.

Through stakeholder engagement, the MSRB understands that dealers delayed their original return to office plans due to the continued pandemic and only more recently implemented long-term hybrid work arrangements dependent on functions and regulatory requirements, which continue to lead to logistical challenges to conducting in-person office inspections that are still being addressed. To that end, in recognition of the aforementioned challenges, and in order to address ongoing industry-wide concerns regarding having to conduct in-person office inspections while safety concerns continue to evolve as new infections, hospitalizations, and deaths due to the COVID-19 virus still persist in the United States,^[10] the MSRB is proposing amendments to Supplementary Material .01 of MSRB Rule G-27. Specifically, the proposed amendments to Supplementary Material .01 of MSRB Rule G-27 would allow dealers to satisfy their office inspection obligations by permitting dealers to conduct calendar year 2023 office inspections remotely for the first six months of 2023—extending the current relief for an additional six months from December 31, 2022, to June 30, 2023.^[11]

The conditions required to be met for dealers to avail themselves of the option to conduct office inspections remotely would remain unchanged under Rule G-27; however, amendments are being proposed to paragraphs (a) and (d) of Supplementary Material .01 to reflect the additional extension of time under the proposed rule change. Pursuant to paragraphs (b)-(d) of Supplementary Material .01 of MSRB Rule G-27, dealers electing to conduct their office inspections remotely must (i) amend or supplement their written supervisory procedures as appropriate to provide for remote inspections that are reasonably designed to assist in detecting and preventing violations of, and achieving compliance with, applicable securities laws and regulations, and with applicable Board rules; (ii) use remote office inspections as part of an effective supervisory system, which would include the ongoing review of activities and functions occurring at all offices and locations whether or not the dealer conducts inspections remotely; and (iii) make and maintain the required records for all offices or locations that had inspections that were conducted remotely; and any offices or locations for which the dealer determined to impose additional supervisory procedures or more frequent monitoring.

2. Statutory Basis

The MSRB believes that the proposed rule change is consistent with Section 15B(b)(2)(C) of the Exchange Act,^[12] which provides that the MSRB's rules shall be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities and municipal financial products, to remove impediments to and perfect the mechanism of a free and open market in municipal securities and municipal financial products, and, in general, to protect investors, municipal entities, obligated persons, and the public interest.

The proposed rule change is designed to provide dealers additional time to comply with certain obligations under MSRB rules for a temporary period of time. The proposed rule change does not relieve dealers from compliance with their core regulatory obligations to establish and maintain a system to supervise the activities of each of their associated persons that is reasonably designed to achieve compliance with applicable rules and regulations, and with applicable MSRB rules, which serve to protect investors, municipal entities, obligated persons, and the public interest. The MSRB continues to believe that an additional extension affording dealers the option to conduct remote inspections, due to be completed in calendar year 2023, for the first half of the calendar year, or until June 30, 2023, is a prudent regulatory approach. This approach will allow dealers time to adapt to long-term hybrid work arrangements more fully and to continue to assess the ongoing events related to the pandemic while continuing to serve the important investor protection objectives of the inspection obligations.

In a time when faced with unique challenges resulting from the sustained pandemic and while much uncertainty still remains, the proposed rule change will afford dealers the ability to safeguard the health and safety of their personnel and to more effectively allocate resources to serve and promote the protection of investors, municipal entities, obligated persons and the public interest. In addition, the proposed rule change also will alleviate some of the operational challenges dealers may be experiencing, which will allow them to more effectively allocate resources to the operations that facilitate transactions in municipal securities and municipal financial products, to remove impediments to and perfect the mechanism of a free and open market in municipal securities and municipal financial products.^[13]

B. Self-Regulatory Organization's Statement on Burden on Competition

Section 15B(b)(2)(C) of the Act requires that MSRB rules be designed not to impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.^[14] In fact, the MSRB does not believe that the proposed rule change will have any burden on competition because the proposed rule change treats all dealers equally in that all dealers have the option to elect to conduct remote inspections remotely until June 30, 2023. The goal of the proposed rule change is to grant additional time for dealers to fully focus their time on the establishment and integration of long-term hybrid work arrangements—recognizing the use of a remote work force and transformative technology to decentralize functions—while also balancing the regulatory obligation to establish office inspection schedules for the first half of 2023 and meet their office inspection obligations, under Supplementary Material .01 of Rule G-27. The temporary relief afforded does not alter dealers' underlying obligations under the rule and with applicable MSRB rules that directly serve investor protection.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

Written comments were neither solicited nor received on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act ^[15] and Rule 19b-4(f)(6) ^[16] thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form ( http://www.sec.gov/​rules/​sro.shtml); or

Send an email to [e-mail]. Please include File Number SR-MSRB-2022-08 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-2022-08. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( http://www.sec.gov/​rules/​sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the MSRB. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-MSRB-2022-08 and should be submitted on or before December 14, 2022 .

For the Commission, pursuant to delegated authority.¹⁷

Sherry R. Haywood,

Assistant Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  15 U.S.C. 78s(b)(3)(A).

4.  17 CFR 240.19b-4(f)(6).

5.   See Exchange Act Release No. 88694 (April 20, 2020), 85 FR 23088 (April 24, 2020) (File No. SR-MSRB-2020-01).

6.   See Exchange Act Release No. 90621 (December 9, 2020), 85 FR 81254 (December 15, 2020) (File No. SR-MSRB-2020-09).

7.   See Exchange Act Release No. 93435 (October 27, 2021), 86 FR 60522 (November 2, 2021) (File No. SR-MSRB-2021-06).

8.   See Exchange Act Release No. 94383 (March 9. 2022), 87 FR 14596 (March 15, 2022) (File No. SR-MSRB-2022-01).

9.  The MSRB noted in the October relief that it would continue to assess through engagement with key stakeholders the effectiveness of remote office inspections on dealers' overall supervisory systems and would consider more long-term regulatory initiatives that align with and promote the evolving ways dealers are doing business and supervising the activities of the dealer and its associated persons. See Exchange Act Release No. 93435 (October 27, 2021), 86 FR 60522 (November 2, 2021) (File No. SR-MSRB-2021-06). The MSRB is still undertaking such review.

10.   See The Centers for Disease Control and Prevention (“CDC”), COVID Data Tracker (showing that as of September 29, 2022, there are 47,112 daily average new cases of COVID-19, 343 daily average new deaths from COVID-19, and 3,634 daily average new hospitalizations from COVID-19 in the United States). The CDC's COVID Data Tracker is available at https://covid.cdc.gov/​covid-data-tracker/​#datatracker-home. The MSRB recognizes that the aforementioned numbers are not representative of cases, hospitalizations and deaths during the height of the pandemic, but is also mindful that new variants and breakthrough cases persist.

11.  As previously noted, a temporary location established in response to the implementation of a business continuity plan is not deemed an office for purposes of complying with the office inspection obligations, under MSRB Rule G-27. See supra note 5.

12.  15 U.S.C. 78 o -4(b)(2)(C).

13.  The proposed amendments only create the option for dealers to conduct office inspections remotely through June 30, 2023. With that in mind, dealers should consider whether, under their particular operating conditions, electing to conduct the required office inspections remotely would be reasonable under facts and circumstances.

14.  15 U.S.C. 78 o -4(b)(2)(C).

15.  15 U.S.C. 78s(b)(3)(A).

16.  17 CFR 240.19b-4(f)(6).

17.  17 CFR 200.30-3(a)(12).