MSRB Rule G-27 on Dealer Supervision

Summary

SIFMA provided comments to the MSRB on  Notice 2026-012, and applauds the MSRB’s forward-thinking efforts to modernize its rules to reduce undue compliance burdens on regulated entities while continuing to provide appropriate investor and issuer protections.

Excerpt

SIFMA ¹ appreciates this opportunity to provide input on MSRB Notice 2026-01 ², and applauds the MSRB’s forward-thinking efforts to modernize its rules to reduce undue compliance burdens on regulated entities while continuing to provide appropriate investor and issuer protections. In furtherance of this goal the MSRB should:

• eliminate all location-based concepts of supervision, recognizing that functional-based supervision comports with how business and supervision is conducted today and how regulators operate in the current electronic workplace;
• if that is not possible at this time,
  • approve the draft amendments that increase the length of the exclusion from the municipal branch office registration for locations other than a primary residence from 30 business days to 60 business days; and
  • approve, with our suggested edits, the draft amendments which clarify that the term “structuring” in the definition of “office of municipal supervisory jurisdiction” does not include “public finance activities.”

I. The MSRB Should Eliminate All Location-Based Concepts of Supervision, Recognizing that Functional-Based Supervision Comports with How Business and Supervision is Conducted Today and how Regulators Operate in the Current Electronic Workplace

SIFMA is very pleased the MSRB has taken the opportunity to review MSRB Rule G-27, on dealer supervision, considering the changes to the modern workplace. ³ SIFMA appreciates that the MSRB has begun to address some of the longstanding issues with Rule G-27. SIFMA thanks the MSRB for its creativity and feels strongly that this is a unique opportunity for th MSRB to make additional amendments to Rule G-27 so that the rule not only reflects how business and supervision is conducted today and how regulators operate in the current electronic workplace, but also positions the rule to cover inevitable future developments, including paperless workflows, around the clock trading cycles, and tokenized securities.

Rule G-27 was originally adopted when business was conducted in person, with paper documents, in offices that custodied cash and/or securities. All documents and processes are now electronic and moving to or have moved to cloud storage where they are not even stored in computer hardware at a work location. Physical securities no longer exist, and funds are moved electronically. The current supervision rule creates unwitting challenges, including requirements for there to be a supervisor in a “onesie” one-person office even though that supervisor has no supervisory capabilities because they cannot supervise themselves.

It is not lost on the industry that despite Rule G-27 having requirements for location-based supervisions, virtually all SEC and FINRA examinations since 2020 have been conducted in an effective manner either largely or completely electronically. If the regulators are able to effectively conduct remote examinations of broker-dealers and carry out other statutory obligations via fully remote or hybrid work arrangements, then broker-dealers should be able to effectively conduct remote supervision themselves.

Comparatively, MSRB Rule G-44, on supervisory and compliance obligations of municipal advisors, has no location-based supervision requirements. Municipal advisors have been able to effectively supervise their compliance with MSRB rules without location-based requirements since the adoption of Rule G-44. Further, if the SEC and FINRA can conduct effective examinations on municipal advisors who operate without regulatory burdens mandating location-based supervision, as they have for the past six years, then the SEC and FINRA should similarly be able to conduct effective examinations of broker-dealers without location-based supervisio requirements.