Municipal Securities Rulemaking Board Reform Act of 2019

II 116TH CONGRESS 1ST SESSION S. 1236 To amend the Securities Exchange Act of 1934 to clarify the composition of the membership of the Municipal Securities Rulemaking Board, and for other purposes. IN THE SENATE OF THE UNITED STATES APRIL 30, 2019 Mr. KENNEDY introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Securities Exchange Act of 1934 to clarify the composition of the membership of the Municipal Se- curities Rulemaking Board, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Municipal Securities 4 Rulemaking Board Reform Act of 2019’’. 5 SEC. 2. THE MUNICIPAL SECURITIES RULEMAKING BOARD. 6 (a) IN GENERAL.—Section 15B of the Securities Ex- 7 change Act of 1934 (15 U.S.C. 78o–4) is amended— 8 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 2 •S 1236 IS (1) by striking subsection (b) and inserting the 1 following: 2 ‘‘(b) MUNICIPAL SECURITIES RULEMAKING 3 BOARD.— 4 ‘‘(1) MEMBERSHIP.— 5 ‘‘(A) DEFINITIONS.—For the purposes of 6 this paragraph, a person is associated with— 7 ‘‘(i) a municipal securities broker if 8 that person is— 9 ‘‘(I) a partner, officer, director, 10 or branch manager of a municipal se- 11 curities broker; 12 ‘‘(II) a person occupying a simi- 13 lar status as, or performing similar 14 functions as, a person described in 15 subclause (I); 16 ‘‘(III) any other employee of a 17 municipal securities broker who is en- 18 gaged in the management, direction, 19 supervision, or performance of any ac- 20 tivities relating to the business of ef- 21 fecting transactions in municipal secu- 22 rities for the account of others; or 23 ‘‘(IV) a person directly or indi- 24 rectly controlling, controlled by, or 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 3 •S 1236 IS under common control with a munic- 1 ipal securities broker; 2 ‘‘(ii) a municipal securities dealer if 3 the person is a person associated with a 4 municipal securities dealer; and 5 ‘‘(iii) a municipal advisor if the person 6 is a person associated with a municipal ad- 7 visor. 8 ‘‘(B) COMPOSITION OF BOARD.— 9 ‘‘(i) IN GENERAL.—The Municipal Se- 10 curities Rulemaking Board (referred to in 11 this section as the ‘Board’) shall be com- 12 posed of 15 members, or such other num- 13 ber of members as specified by the Com- 14 mission under clause (ii), who shall be— 15 ‘‘(I) appointed from among 16 prominent individuals of integrity and 17 reputation; and 18 ‘‘(II) knowledgeable of matters 19 relating to the municipal securities 20 markets. 21 ‘‘(ii) COMMISSION ALTERATIONS.— 22 The Commission may alter the number of 23 members that constitute the Board if that 24 number is an odd number. 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 4 •S 1236 IS ‘‘(C) PUBLIC REPRESENTATIVES AND REG- 1 ULATED REPRESENTATIVES.— 2 ‘‘(i) PUBLIC REPRESENTATIVES.—A 3 majority of the membership of the Board 4 shall be individuals who were not associ- 5 ated with a municipal securities broker, 6 municipal securities dealer, or municipal 7 advisor during the 5-year period preceding 8 the date on which those individuals are ap- 9 pointed to the Board (referred to in this 10 subsection as ‘public representatives’)— 11 ‘‘(I) not less than 1 of whom 12 shall be representative of institutional 13 or retain investors in municipal secu- 14 rities; 15 ‘‘(II) not less than 1 of whom 16 shall be representative of municipal 17 entities; and 18 ‘‘(III) not less than 1 of whom 19 shall be a member of the public with 20 knowledge or experience in the munic- 21 ipal industry. 22 ‘‘(ii) REGULATED REPRESENTA- 23 TIVES.—Other than public representatives, 24 the members of the Board shall be individ- 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 5 •S 1236 IS uals who are associated with a broker, 1 dealer, municipal securities dealer, or mu- 2 nicipal advisor (referred to in this sub- 3 section as ‘regulated representatives’)— 4 ‘‘(I) not less than 1 of whom 5 shall be associated with and rep- 6 resentative of brokers, dealers, or mu- 7 nicipal securities dealers that are not 8 banks or subsidiaries, departments, or 9 divisions of banks (referred to in this 10 subsection as ‘broker-dealer represent- 11 atives’); 12 ‘‘(II) not less than 1 of whom 13 shall be associated with and rep- 14 resentative of municipal securities 15 dealers that are banks or subsidiaries, 16 departments, or divisions of banks 17 (referred to in this subsection as 18 ‘bank representatives’); and 19 ‘‘(III) not less than 1 of whom 20 shall be associated with a municipal 21 advisor (referred to in this subsection 22 as ‘advisor representatives’). 23 ‘‘(D) LIMITATION.—The membership of 24 the Board shall, at all times, be as evenly di- 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 6 •S 1236 IS vided as possible between the number of public 1 representatives and regulated representatives, 2 taking into account the requirement under sub- 3 paragraph (C)(i) that the majority of the mem- 4 bership of the Board shall be public representa- 5 tives. 6 ‘‘(E) APPOINTMENT OF BOARD MEM- 7 BERS.— 8 ‘‘(i) INITIAL BOARD.—Not later than 9 180 days after the date of enactment of 10 the ‘Municipal Securities Rulemaking 11 Board Reform Act of 2019’, the Commis- 12 sion shall, subject to clause (ii)— 13 ‘‘(I) appoint a Chairperson of the 14 Board and all other initial members of 15 the Board; and 16 ‘‘(II) designate a term of service 17 for each member appointed under 18 subclause (I). 19 ‘‘(ii) INTERIM BOARD.— 20 ‘‘(I) IN GENERAL.—Before ap- 21 pointing the initial members of the 22 Board under clause (i), the Commis- 23 sion may, without regard to the limi- 24 tations in subparagraph (C), appoint 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 7 •S 1236 IS not more than 3 individuals to serve 1 as interim members of the Board who 2 shall be responsible for ensuring the 3 continuity of the operations of the 4 Board until the Commission appoints 5 those initial members. 6 ‘‘(II) MEMBERSHIP.—In making 7 an appointment under subclause (I), 8 the Commission shall select from 9 among individuals of integrity and 10 reputation and who are knowledgeable 11 of matters relating to the municipal 12 securities markets. 13 ‘‘(III) AUTHORITY.—The mem- 14 bers of the interim Board appointed 15 under this subparagraph may exercise 16 all of the authority of the Board 17 under this section. 18 ‘‘(F) VACANCIES.—A vacancy on the 19 Board— 20 ‘‘(i) shall not affect the authority of 21 the Board under this section; and 22 ‘‘(ii) shall be filled by the Commission. 23 ‘‘(G) TERM OF SERVICE.—The term of 24 service for each Board member shall be 3 years, 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 8 •S 1236 IS plus the amount of time necessary for the ap- 1 pointment of a successor, except that— 2 ‘‘(i) the term of service for a member 3 appointed under subparagraph (E)(i), 4 other than the Chairperson of the Board, 5 shall expire in increments, with— 6 ‘‘(I) 1⁄3 of the terms of the mem- 7 bers so appointed expiring on the date 8 that is 1 year after the date on which 9 those members are appointed; 10 ‘‘(II) 1⁄3 of the terms of the 11 members so appointed expiring on the 12 date that is 2 years after the date on 13 which those members are appointed; 14 and 15 ‘‘(III) 1⁄3 of the terms of the 16 members so appointed expiring on the 17 date that is 3 years after the date on 18 which those members are appointed; 19 ‘‘(ii) the term of service for a member 20 appointed under subparagraph (E)(ii) shall 21 be not more than 180 days; and 22 ‘‘(iii) any Board member appointed to 23 fill a vacancy on the Board before the expi- 24 ration of the term with respect to that va- 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 9 •S 1236 IS cancy shall be appointed only for the re- 1 mainder of that term. 2 ‘‘(H) REMOVAL.—A member of the Board 3 shall be removable at will by the Commission. 4 ‘‘(2) RULES.—The Board shall propose and 5 adopt rules to effect the purposes of this title with 6 respect to transactions in municipal securities ef- 7 fected by brokers, dealers, and municipal securities 8 dealers and advice provided to or on behalf of mu- 9 nicipal entities or obligated persons by brokers, deal- 10 ers, municipal securities dealers, and municipal advi- 11 sors with respect to municipal financial products, the 12 issuance of municipal securities, and solicitations of 13 municipal entities or obligated persons undertaken 14 by brokers, dealers, municipal securities dealers, and 15 municipal advisors and that, at a minimum, shall— 16 ‘‘(A) provide that no municipal securities 17 broker or municipal securities dealer shall effect 18 any transaction in, or induce or attempt to in- 19 duce the purchase or sale of, any municipal se- 20 curity, and no broker, dealer, municipal securi- 21 ties dealer, or municipal advisor shall provide 22 advice to or on behalf of a municipal entity or 23 obligated person with respect to municipal fi- 24 nancial products or the issuance of municipal 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 10 •S 1236 IS securities, unless such municipal securities 1 broker or municipal securities dealer meets such 2 standards of operational capability and such 3 municipal securities broker or municipal securi- 4 ties dealer and every natural person associated 5 with such municipal securities broker or munic- 6 ipal securities dealer meets such standards of 7 training, experience, competence, and such 8 other qualifications as the Board finds nec- 9 essary or appropriate in the public interest or 10 for the protection of investors and municipal 11 entities or obligated persons. In connection with 12 the definition and application of such standards 13 the Board may— 14 ‘‘(i) appropriately classify municipal 15 securities brokers, municipal securities 16 dealers, and municipal advisors (taking 17 into account relevant matters, including 18 types of business done, nature of securities 19 other than municipal securities sold, and 20 character of business organization), and 21 persons associated with municipal securi- 22 ties brokers, municipal securities dealers, 23 and municipal advisors; 24 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 11 •S 1236 IS ‘‘(ii) specify that all or any portion of 1 such standards shall be applicable to any 2 such class; and 3 ‘‘(iii) require persons in any such 4 class to pass tests administered in accord- 5 ance with subsection (c)(7); 6 ‘‘(B) be designed to prevent fraudulent and 7 manipulative acts and practices, to promote just 8 and equitable principles of trade, to foster co- 9 operation and coordination with persons en- 10 gaged in regulating, clearing, settling, proc- 11 essing information with respect to, and facili- 12 tating transactions in municipal securities and 13 municipal financial products, to remove impedi- 14 ments to and perfect the mechanism of a free 15 and open market in municipal securities and 16 municipal financial products, and, in general, to 17 protect investors, municipal entities, obligated 18 persons, and the public interest; and not be de- 19 signed to permit unfair discrimination among 20 customers, municipal entities, obligated persons, 21 municipal securities brokers, municipal securi- 22 ties dealers, or municipal advisors, to fix min- 23 imum profits, to impose any schedule or fix 24 rates of commissions, allowances, discounts, or 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 12 •S 1236 IS other fees to be charged by municipal securities 1 brokers, municipal securities dealers, or munic- 2 ipal advisors, to regulate by virtue of any au- 3 thority conferred by this title matters not re- 4 lated to the purpose of this title or the adminis- 5 tration of the Board, or to impose any burden 6 on competition not necessary or appropriate in 7 furtherance of the purposes of this title; 8 ‘‘(C) if the Board deems appropriate, pro- 9 vide for the arbitration of claims, disputes, and 10 controversies relating to transactions in munic- 11 ipal securities and advice concerning municipal 12 financial products, except that no person other 13 than a municipal securities broker, municipal 14 securities dealer, municipal advisor, or person 15 associated with such a municipal securities 16 broker, municipal securities dealer, or municipal 17 advisor may be compelled to submit to such ar- 18 bitration except at his instance and in accord- 19 ance with section 29; 20 ‘‘(D) provide for the periodic examination 21 in accordance with subsection (c)(7) of munic- 22 ipal securities brokers, municipal securities 23 dealers, and municipal advisors to determine 24 compliance with applicable provisions of this 25 VerDate Sep 11 2014 00:27 May 03, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1236.IS S1236 pamtmann on DSKBFK8HB2PROD with BILLS 13 •S 1236 IS title, the rules and regulations thereunder, and 1 the rules of the Board. Such rules shall specify 2 the minimum scope and frequency of such ex- 3 aminations and shall be designed to avoid un- 4 necessary regulatory duplication or undue regu- 5 latory burdens for any such municipal securities 6 broker, municipal securities dealer, or municipal 7 advisor; 8 ‘‘(E) include provisions governing the form 9 and content of quotations relating to municipal 10 securities which may be distributed or published 11 by any municipal securities broker, municipal 12 securities dealer, or person associated with such 13 a municipal s [Text truncated for display. Full text available on Congress.gov.]