WASHINGTON — In a rare move, the Municipal Securities Rulemaking Board proposed eliminating a rule — one that requires dealers to keep in their offices a copy of all MSRB rules and to make it available for customers promptly upon request.
On the chopping block is Rule G-29 on availability of board rules. The board filed April 19 for Securities and Exchange Commission approval to to eliminate the rule effective June 3. The rule was no longer necessary given the ready availability of the rules online, the MSRB decided.
“It just became clear that this rule, which on its face looks pretty innocent, really didn’t make a lot of sense because of the availability of the internet and the rules on our website are the most current,” said Lynnette Kelly, the MSRB's president and CEO.
The proposed rule change would also eliminate compliance and supervisory burdens for dealers, without reducing customers’ or municipal securities professionals’ ability to access the rules, according to the MSRB.
The change is part of the board's ongoing retrospective rule review to “clean up the rulebook,” Kelly said.
“We’re looking at very complex rules, but we’re also looking at those rules which we can tackle on a more real-time basis,” she said.
The board approved the proposed rule change at its January 29-31, 2019 meeting. In its rule filing, the board wrote investors are more likely now to access MSRB rules electronically on their own, as opposed to requesting to review them under the provisions of Rule G-29.
The rule was adopted in 1977 and was designed to facilitate compliance with MSRB rules and protect investors by ensuring municipal securities professionals and their customers have access to the rules. When the MSRB published its rulebook electronically, the board issued interpretive guidance that said dealers could comply with Rule G-29 by giving customers access to the rules in printed form or electronically through the MSRB’s website. The PDF version of the rulebook online is updated annually, but rules themselves are updated in real time.
Also, Rule G-10 already requires dealers and municipal advisors to provide in writing to each customer how to access the MSRB’s website each year, so the rule change would have little effect on municipal securities professionals’ or their customers’ ability to access the rules, according to the MSRB's filing with the SEC.
Muni groups commended the MSRB for its continued retrospective rule review and its proposed rule change.
"With the discontinuation of the printed version of the MSRB Rulebook and the accessibility of MSRB rules online, Rule G-29 has become obsolete," wrote Mike Nicholas, Bond Dealers of America's CEO, in an email. "The reduced compliance and supervisory burdens this rule change will provide will be well received throughout the marketplace and the BDA and its members encourage the MSRB to continue its initiative to review existing rules removing those that are obsolete or redundant.”
The Securities Industry and Financial Markets Association agreed that Rule G-29 was no longer necessary.
"Elimination of this rule incrementally reduces a compliance burden on the broker dealer community, without reducing any information to or protections for issuers or the investing public," wrote Leslie Norwood, SIFMA managing director, associate general counsel and head of municipal securities, in an email. "We look forward to the MSRB identifying additional efficiencies of through its ongoing retrospective rule review.”
While elimination of a rule is rare, it is not unheard of.
In December 2013, the board proposed to eliminate its Rules A-14, on the board's annual fee, A-15 on the notification to the board of a change in status or a change in name or address and G-40, on electronic mail contacts — all of which were consolidated under Rule A-12, a registration rule.
Rule A-14 and A-15 are currently on reserve, meaning its titles could be used for an entirely different rule in the future, as was done with Rule G-40. Rule G-40 is a new rule going into effect in August on advertising by municipal advisors.
