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Federal Register / Vol. 86, No. 159 / Friday, August 20, 2021 / Notices
still be able to avail themselves of the information provided in the notifications by reviewing a dealers website. Since SMMPs affirm to having a level of sophistication, knowledge and familiarity with the municipal securities market, these notifications add little benefit for SMMPs, if any. By exempting the requirement to send notifications to SMMPs, the proposed amendments would reduce the time and cost burdens for dealers with minimal reduction in benefits for SMMPs.
In addition to any costs to customers, dealers would likely incur some minor costs, relative to the baseline state, to meet the standards of conduct and duties contained in the proposed rule change. These changes may include a one-time upfront cost related to revising policies and procedures, as well as ongoing costs such as compliance costs associated with limiting the receipt to only the relevant municipal securities customers for targeted communication outreach. However, the MSRB believes these costs would be minimal, as firms would be able to leverage their existing customer database to swiftly identify the relevant pool of customers eligible for the required notifications under the proposed rule change.
As to the overall scale of cost reduction to dealers, as well as potential costs to some customers who may no longer receive the notifications unless they initiate a transaction in municipal securities, the MSRB is currently unable to quantify these economic effects precisely because not all the information necessary to provide a reasonable estimate is available. For example, the MSRB is interested in the percentage of dealers customers who trade or hold municipal securities for a given calendar year, which would be helpful for the MSRB to assess the impact of the draft rule amendments.
The MSRB sought the data during the Request for Comment process but was unable to obtain it. Therefore, the MSRB
has considered these benefits and costs in qualitative terms.

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Effect on Competition, Efficiency, and Capital Formation The MSRB believes that the proposed rule change would neither impose a burden on competition nor hinder capital formation, as the proposed rule change would reduce burdens to dealers of remitting the notifications to all customers by narrowing the scope of the application of the rule. The MSRB
believes that the proposed rule change would improve the municipal securities markets operational efficiency by clarifying existing regulatory
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obligations, further promoting fair dealings between market participants.
The MSRB does not expect that the proposed rule change would change the competitive landscape of the municipal securities dealer community, as the proposed amendments to Rule G10 and Rule G48 would be applicable to all dealers; therefore, the expected benefits and minor costs would be proportionate to the size and business activities of each dealer.
C. Self-Regulatory Organizations Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others As previously noted, on May 14, 2021, the MSRB published a Request for Comment, which sought comment on the matters included in the proposed rule change for a period of 45 days. The MSRB received four comment letters.18
These comments, along with the MSRBs responses, are discussed below.
Narrowing the Scope of Customers Receiving the Dealer Notifications The MSRB sought comment on whether to narrow the scope of customers who receive the required notifications once every calendar year to include only those customers of the dealer who have effected transactions in municipal securities within the prior one-year or who hold a municipal securities position. All four commenters noted that the MSRBs draft amendments would ensure that the customers who would most benefit from receiving the required information would receive the notifications.
Commenters also noted that no longer requiring dealers to provide such notifications unnecessarily to other customers would mitigate the compliance burden on dealers.
One commenter, BDA, recommended that the MSRB exempt dealers from providing issuers the required notifications, stating that issuers are financial professionals who understand the municipal market well enough to know about the MSRB and do not require additional annual reminders.
As a threshold matter, the MSRB does not agree with the premise that all issuers have the same level of market sophistication and should have a wholesale exclusion. Pursuant to Rule D9, an issuer is a customer except in 18 See Letter from Christopher A. Iacovella, Chief Executive Officer, American Securities Association ASA Letter or ASA, dated June 28, 2021;
Letter from Michael Decker, Senior Vice President, Bond Dealers of America BDA Letter or BDA, dated June 28, 2021; SIFMA Letter; and Letter from Jennifer Szaro Szaro Letter or Szaro, dated May 17, 2021.

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the case of a sale by the issuer of a new issue of its securities. Therefore, in these instances, dealers would not be required to provide the required notifications to an issuer.19 If an issuer is otherwise a customer, a dealer would continue to be obligated to provide the notifications pursuant to Rule G10a unless the issuer customer is an SMMP, which would be determined based on the nature of the issuer, a determination of sophistication by the dealer and an affirmation by the issuer.20 As noted above, with respect to an SMMP, the proposed amendment to Rule G48
would allow a dealer to make the notifications available on its website rather than remit the notifications to an SMMP pursuant to Rule G10a.
BDA also requested that the MSRB
eliminate the annual requirement to provide notifications to customers who do not hold a municipal securities position at the dealer at calendar yearend. BDA stressed that modifying the proposed rule language in such a way would diminish the burden on dealers of looking through stock records to identify municipal securities customers for whom dealers no longer hold positions because they were either transferred, sold or matured entirely prior to the stock record review. The MSRB believes that the proposed rule change requiring the notifications to those customers who effected transactions in municipal securities or who hold a municipal securities position, coupled with the supplementary material on the sequencing of such notifications, strikes the right balance in providing investor protections and reducing regulatory burdens. The MSRB does not believe the rule should be narrowed further as BDA
suggests.
Additionally, BDA suggested that municipal advisors should not be obligated to provide municipal advisory clients with the required notifications promptly after the establishment of a municipal advisory relationship or 19 The MSRB did solicit feedback in the RFC on whether Rule G10 should require dealers to provide notifications to issuer clients at the earliest stage of the underwriters relationship with such issuer client when an issuer client has not otherwise engaged a municipal advisor. A summary of the comments received in response to this question is discussed in Section C. below.
20 See Rule D15 on the definition of the term Sophisticated Municipal Market Professional. In order to deem a customer an SMMP, a dealer is required to determine the nature of the customer and the customers sophistication level, and also requires the customers affirmation, as specified in Rule D15. In addition, this determination must be reasonable, including an analysis of the amount or type of securities owned or under management by the customer. See Rule D15, Supplementary Material .01.

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