April 16, 2018

Ronald W. Smith
Corporate Secretary
Municipal Securities Rulemaking Board
1300 I Street NW, Suite 1000
Washington, DC 20005

Re: MSRB Notice 2018-03: Request for Input on Draft Frequently Asked Questions Regarding Rule G-42 and the Making of Recommendations

Dear Mr. Smith:

The Securities Industry and Financial Markets Association (“SIFMA”)1 greatly appreciates this opportunity to respond to Notice 2018-03 (the “Notice”)2 issued by the Municipal Securities Rulemaking Board (the “MSRB”) requesting comment on draft frequently asked questions and proposed responses (“FAQs”) regarding Rule G-42 and the making of recommendations. According to the MSRB, the FAQs are intended to provide market participants with an enhanced understanding of the provisions of Rule G-42 on duties of nonsolicitor municipal advisors (“municipal advisors”) related to providing “advice” and “recommendations” and related provisions of Rule G-8 on books and records.

We applaud the MSRB’s effort to seek information and insight from commenters to further inform the development of the FAQs for publication. We previously expressed the need for more published MSRB interpretive guidance and stated that market participants could benefit from interpretive guidance with respect to Rule G-42 and the recordkeeping requirements associated with MSRB rules.3 We do, however, have a few concerns with (1) the proposed FAQs, (2) the scenarios, and (3) the process that are set forth herein. Also, responses to the MSRB’s specific questions are attached hereto as Appendix A.

I. Concerns with the FAQs

Ambiguity and Imprecision

While the FAQs are helpful in providing some clarity as to what constitutes a Rule G-42 Recommendation, we are concerned about the absence of discussion regarding rules of the Securities and Exchange Commission (“SEC”). The MSRB acknowledges in the FAQs that there may be instances where, under SEC rules, the advice given by a municipal advisor may be characterized as a recommendation, but the same advice given would not constitute a G-42 Recommendation. This divergence causes confusion and creates ambiguities and imprecisions in the FAQs. For example, in FAQ 10, the MSRB emphasizes that it is important to remember that a municipal advisor has obligations to maintain and preserve books and records pursuant to SEC rules that go beyond its obligations under Rule G-8. Specifically, the MSRB states that advice that lacks specificity regarding a municipal financial product or an issuance of municipal securities (i.e., advice that is not a G-42 Recommendation) may, nevertheless, rise to the level of a recommendation for purposes of SEC rules and, if so, the records relating to such recommendation would be required to be maintained in accordance with SEC Rule 15Ba1- 8(a)(4). In this instance, the identification of the divergence is appreciated but further guidance should be provided to help ensure that municipal advisors understand the recordkeeping requirements of both SEC and MSRB rules. Notably, in 2017, one of the most frequently observed examination violations by the SEC’s Office of Compliance Inspection and Examinations was with respect to municipal advisors that failed to make and keep documents material to a recommendation made to a client.4

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1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2 MSRB Notice 2018-03, Request for Input on Draft Frequently Asked Questions Regarding Rule G-42 and the Making of Recommendations (Feb. 15, 2018).

3 See Letter to Corporate Secretary, MSRB regarding MSRB Notice 2017-22: Request for Comment on Compliance Support, from Leslie M. Norwood, Managing Director and Associate General Counsel, dated January 23, 2018.

4 See SEC National Exam Program Risk Alert, Volume III, Issue I (November 7, 2017) available at https://www.sec.gov/files/observations-from-municipal-advisor-examinations.pdf.