Section 975

SEC. 975. REGULATION OF MUNICIPAL SECURITIES AND CHANGES TO THE BOARD OF THE MSRB.

(a) Registration of Municipal Securities Dealers and Municipal Advisors.--Section 15B(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78o-4(a)) is amended--

(1) in paragraph (1)--

(A) by inserting "(A)" after "(1)"; and
(B) by adding at the end the following:
"(B) It shall be unlawful for a municipal advisor to provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person, unless the municipal advisor is registered in accordance with this subsection.";

(2) in paragraph (2), by inserting "or municipal advisor" after "municipal securities dealer" each place that term appears;
(3) in paragraph (3), by inserting "or municipal advisor"after "municipal securities dealer" each place that term appears;
(4) in paragraph (4), by striking "dealer, or municipal securities dealer or class of brokers, dealers, or municipal securities dealers" and inserting "dealer, municipal securities dealer, or municipal advisor, or class of brokers, dealers, municipal securities dealers, or municipal advisors"; and
(5) by adding at the end the following:
"(5) No municipal advisor shall make use of the mails or any means or instrumentality of interstate commerce to provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products, the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person, in connection with which such municipal advisor engages in any fraudulent, deceptive, or ".

(b) Municipal Securities Rulemaking Board.--Section 15B(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4(b)) is amended--

(1) in paragraph (1)--

(A) in the first sentence, by striking "Not later than" and all that follows through "appointed by the Commission" and inserting "The Municipal Securities Rulemaking Board shall be composed of 15 members, or such other number of members as specified by rules of the Board pursuant to paragraph (2)(B),";
(B) by striking the second sentence and inserting the following: "The members of the Board shall serve as members for a term of 3 years or for such other terms as specified by rules of the Board pursuant to paragraph (2)(B), and shall consist of (A) 8 individuals who are independent of any municipal securities broker, municipal securities dealer, or municipal advisor, at least 1 of whom shall be representative of institutional or retail investors in municipal securities, at least 1 of whom shall be representative of municipal entities, and at least 1 of whom shall be a member of the public with knowledge of or experience in the municipal industry (which members are hereinafter referred to as `public representatives'); and (B) 7 individuals who are associated with a broker, dealer, municipal securities dealer, or municipal advisor, including at least 1 individual who is associated with and representative of brokers, dealers, or municipal securities dealers that are not banks or subsidiaries or departments or divisions of banks (which members are hereinafter referred to as `broker-dealer representatives'), at least 1 individual who is associated with and representative of municipal securities dealers which are banks or subsidiaries or departments or divisions of banks (which members are hereinafter referred to as `bank representatives'), and at least 1 individual who is associated with a municipal advisor (which members are hereinafter referred to as `advisor representatives' the bank representatives, are referred to as `regulated representatives'). Each member of the board shall be knowledgeable of matters related to the municipal securities markets."; and
(C) in the third sentence, by striking "initial";

(2) in paragraph (2)--

(A) in the matter preceding subparagraph (A)--

(i) by inserting before the period at the end of the first sentence the following: "and advice provided to or on behalf of municipal entities or obligated persons by brokers, dealers, municipal securities dealers, and municipal advisors with respect to municipal financial products, the issuance of municipal securities, and solicitations of municipal entities or obligated persons undertaken by brokers, dealers, municipal securities dealers, and municipal advisors"; and
(ii) by striking the second sentence;;

(B) in subparagraph (A)--

(i) in the matter preceding clause (i)--

(I) by inserting ", and no broker, dealer, municipal securities dealer, or municipal advisor shall provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities," after "sale of, any municipal security"; and
(II) by inserting "and municipal entities or obligated persons" after protection of investors";

(ii) in clause (i), by striking "municipal securities brokers and municipal securities each place that term appears and inserting "municipal securities brokers, municipal securities dealers, and municipal advisors";
(iii) in clause (ii), by adding "and" at the end;
(iv) in clause (iii), by striking "; and" and inserting a period; and
(v) by striking clause (iv);

(C) by amending subparagraph (B) to read as follows:
"(B) <<NOTE: Procedures.>> establish fair procedures for the nomination and election of members of the Board and assure fair representation in such nominations and elections of public representatives, broker dealer representatives, bank representatives, and advisor representatives. Such rules--

"(i) shall provide that the number of public representatives of the Board shall at all times exceed the total number of regulated representatives and that the membership shall at all times be as evenly divided in number as possible  between public representatives and regulated representatives;
"(ii) shall specify the length or lengths of terms members shall serve;
"(iii) may increase the number of members which shall constitute the whole Board, provided that such number is an odd number; and
"(iv) <<NOTE: Requirements.>> shall establish requirements regarding the independence of public representatives.".

(D) in subparagraph (C)--

(i) by inserting "and municipal financial products" after "municipal securities" the first two times that term appears;
(ii) by inserting ", municipal entities, obligated persons," before "and the public interest";
(iii) by striking "between" and inserting "among";
(iv) by striking "issuers, municipal securities brokers, or municipal securities dealers, to fix" and inserting "municipal
entities, obligated persons, municipal securities brokers, municipal securities dealers, or municipal advisors, to fix"; and
(v) by striking "brokers or municipal securities dealers, to regulate" and inserting "brokers, municipal securities dealers, or municipal advisors, to regulate";

(E) in subparagraph (D)--

(i) by inserting "and advice concerning municipal financial products" after "transactions in municipal securities";
(ii) by striking "That no" and inserting "that no";
(iii) by inserting "municipal advisor," before "or person associated"; and
(iv) by striking "a municipal securities broker or municipal securities dealer may be compelled" and inserting "a municipal securities broker, municipal securities dealer, or municipal advisor may be compelled";

(F) in subparagraph (E)--

(i) by striking "municipal securities brokers and municipal securities dealers" and inserting "municipal securities brokers, municipal securities dealers, and municipal advisors"; and
(ii) by striking "municipal securities broker or municipal securities dealer" and inserting "municipal securities broker, municipal securities dealer, or municipal advisor";

(G) in subparagraph (G), by striking "municipal securities brokers and municipal securities dealers" and inserting "municipal securities brokers, municipal securities dealers, and municipal advisors";
(H) in subparagraph (J)--

(i) by striking "municipal securities broker and each municipal securities dealer" and inserting "municipal securities broker, municipal securities dealer, and municipal advisor"; and
(ii) by striking the period at the end of the second sentence and inserting ", which may include charges for failure to submit to the Board, or to any information system operated by the Board, within the prescribed timeframes, any
items of information or documents required to be submitted under any rule issued by the Board.";

(I) in subparagraph (K)--

(i) by inserting "broker, dealer, or" before "municipal securities dealer" each place that term appears; and
(ii) by striking "municipal securities investment portfolio" and inserting "related account of a broker, dealer, or municipal securities dealer"; and

(J) by adding at the end the following:
"(L) with respect to municipal advisors--

"(i) prescribe means reasonably designed to prevent acts, practices, and courses of business as are not consistent with a municipal advisor's fiduciary duty to its clients;
"(ii) provide continuing education requirements for municipal advisors;
"(iii) provide professional standards; and
"(iv) not impose a regulatory burden on small municipal advisors that is not necessary or appropriate in the public interest and for the protection of investors, municipal entities, and obligated persons, provided that there is robust
protection of investors against fraud.";

(3) by redesignating paragraph (3) as paragraph (7); and
(4) by inserting after paragraph (2) the following:
"(3) The Board, in conjunction with or on behalf of any
Federal financial regulator or self-regulatory organization,
may--

"(A) establish information systems; and
"(B) assess such reasonable fees and charges for the submission of information to, or the receipt of information from, such systems from any persons which systems may be developed for the purposes of serving as a repository of information from municipal market participants or otherwise in furtherance of the purposes of the Board, a Federal financial regulator, or a self-regulatory organization, except that the Board--

"(i) may not charge a fee to municipal entities or obligated persons to submit documents or other information to the Board or charge a fee to any person to obtain, directly from the Internet site of the Board, documents or information submitted by municipal entities, obligated persons, brokers, dealers, municipal securities dealers, or municipal advisors, including documents submitted under the rules of the Board or the Commission; and
"(ii) shall not be prohibited from charging commercially reasonable fees for automated subscription-based feeds or similar services, or for charging for other data or document-based services customized upon request of any person,
made available to commercial enterprises, municipal securities market professionals, or the general public, whether delivered through the Internet or any other means, that contain all or part of the documents or information, subject to approval of the fees by the Commission under section 19(b).

"(4) The Board may provide guidance and assistance in the enforcement of, and examination for, compliance with the rules
of the Board to the Commission, a registered securities association under section 15A, or any other appropriate regulatory agency, as applicable.
"(5) The Board, the Commission, and a registered securities association under section 15A, or the designees of the Board,
the Commission, or such association, shall meet not less frequently than 2 times a year--

"(A) to describe the work of the Board, the Commission, and the registered securities association involving the regulation of municipal securities; and
"(B) to share information about--

"(i) the interpretation of the Board, the Commission, and the registered securities association of Board rules; and
"(ii) examination and enforcement of compliance with Board rules.".

(c) Discipline of Brokers, Dealers, Municipal Securities Dealers and Municipal Advisors; Fiduciary Duty of Municipal Advisors.--Section
15B(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4(c)) is amended--

(1) in paragraph (1), by inserting ", and no broker, dealer, municipal securities dealer, or municipal advisor shall make use of the mails or any means or instrumentality of interstate commerce to provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products, the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person," after "any municipal security";
(2) by adding at the end of paragraph (1) the following: "A municipal advisor and any person associated with such municipal advisor shall be deemed to have a fiduciary duty to any municipal entity for whom such municipal advisor acts as a municipal advisor, and no municipal advisor may engage in any act, practice, or course of business which is not consistent with a municipal advisor's fiduciary duty or that is in contravention of any rule of the Board.".
(3) in paragraph (2), by inserting "or municipal advisor" after "municipal securities dealer" each place that term appears;
(4) in paragraph (3)--

(A) by inserting "or municipal entities or obligated person" after "protection of investors" each place that term appears; and
(B) by inserting "or municipal advisor" after "municipal securities dealer" each place that term appears;

(5) in paragraph (4), by inserting "or municipal advisor" after "municipal securities dealer or obligated person" each place that term appears;
(6) in paragraph (6)(B), by inserting "or municipal entities or obligated person" after "protection of investors";
(7) in paragraph (7)--

(A) in subparagraph (A)--

(i) in clause (i), by striking "; and" and inserting a semicolon;
(ii) in clause (ii), by striking the period and inserting "; and"; and
(iii) by adding at the end the following:
"(iii) the Commission, or its designee, in the case of municipal advisors.". (B) in subparagraph (B), by inserting "or municipal entities or obligated person" after "protection of investors"; and

(8) by adding at the end the following:
"(9)(A) <<NOTE: Fines.>> Fines collected by the Commission for violations of the rules of the Board shall be equally divided between the Commission and the Board.
"(B) Fines collected by a registered securities association under section 15A(7) with respect to violations of the rules of the Board shall be accounted for by such registered securities association separately from other fines collected under section 15A(7) and shall be allocated between such registered securities association and the Board, and such allocation shall require the registered securities association to pay to the Board \1/3\ of all fines collected by the registered securities association reasonably allocable to violations of the rules of the Board, or such other portion of such fines as may be directed by the Commission upon agreement between the registered securities association and the Board.".

(d) Issuance of Municipal Securities.--Section 15B(d)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4(d)) is amended--

(1) by striking "through a municipal securities broker ormunicipal securities dealer or otherwise" and inserting"through a municipal securities broker, municipal securitiesdealer, municipal advisor, or otherwise"; and
(2) by inserting "or municipal advisors" before "tofurnish".

(e) Definitions.--Section 15B of the Securities Exchange Act of 1934 (15 U.S.C. 78o-4) is amended by adding at the end the following:
"(e) Definitions.--For purposes of this section--

"(1) the term `Board' means the Municipal Securities Rulemaking Board established under subsection (b)(1);
"(2) the term `guaranteed investment contract' includes any investment that has specified withdrawal or reinvestment provisions and a specifically negotiated or bid interest rate, and also includes any agreement to supply investments on 2 or more future dates, such as a forward supply contract;
"(3) the term `investment strategies' includes plans or programs for the investment of the proceeds of municipal securities that are not municipal derivatives, guaranteed investment contracts, and the recommendation of and brokerage of municipal escrow investments;
"(4) the term `municipal advisor'--

"(A) means a person (who is not a municipal entity or an employee of a municipal entity) that--

"(i) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or
"(ii) undertakes a solicitation of a municipal entity;

"(B) includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors, if such persons are described in any of clauses (i) through (iii) of subparagraph (A); and
"(C) does not include a broker, dealer, or municipal securities dealer serving as an underwriter (as defined in section 2(a)(11) of the Securities Act of 1933) (15 U.S.C. 77b(a)(11)), any investment adviser registered under the Investment Advisers Act of 1940, or persons associated with such investment advisers who are providing investment advice, any commodity trading
advisor registered under the Commodity Exchange Act or persons associated with a commodity trading advisor who are providing advice related to swaps, attorneys offering legal advice or providing services that are of a traditional legal nature, or engineers providing engineering advice;

"(5) the term `municipal financial product' means municipal derivatives, guaranteed investment contracts, and investment strategies;
"(6) the term `rules of the Board' means the rules proposed and adopted by the Board under subsection (b)(2);
"(7) the term `person associated with a municipal advisor' or `associated person of an advisor' means--

"(A) any partner, officer, director, or branch manager of such municipal advisor (or any person occupying a similar status or performing similar functions);
"(B) any other employee of such municipal advisor who is engaged in the management, direction, supervision, or performance of any activities relating to the provision of advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities; and
"(C) any person directly or indirectly controlling, controlled by, or under common control with such municipal advisor;

"(8) the term `municipal entity' means any State, political subdivision of a State, or municipal corporate instrumentality of a State, including--

"(A) any agency, authority, or instrumentality of the State, political subdivision, or municipal corporate instrumentality;
"(B) any plan, program, or pool of assets sponsored or established by the State, political subdivision, or municipal corporate instrumentality or any agency, authority, or instrumentality thereof; and
"(C) any other issuer of municipal securities;

"(9) the term `solicitation of a municipal entity or obligated person' means a direct or indirect communication with a municipal entity or obligated person made by a person, for direct or indirect compensation, on behalf of a broker, dealer, municipal securities dealer, municipal advisor, or investment adviser (as defined in section 202 of the Investment Advisers Act of 1940) that does not control, is not controlled by, or is not under common control with the person undertaking such solicitation for the purpose of obtaining or retaining an engagement by a municipal entity or obligated person of a broker, dealer, municipal securities dealer, or municipal advisor for or in connection with municipal financial products, the issuance of municipal securities, or o f an investment adviser to provide investment advisory services to or on behalf of a municipal entity; and
"(10) the term `obligated person' means any person, including an issuer of municipal securities, who is either generally or through an enterprise, fund, or account of such person, committed by contract or other arrangement to support the payment of all or part of the obligations on the municipal securities to be sold in an offering of municipal securities.".

(f) Registered Securities Association.--Section 15A(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3(b)) is amended by adding at the end the following:

"(15) The rules of the association provide that the association shall--

"(A) request guidance from the Municipal Securities Rulemaking Board in interpretation of the rules of the Municipal Securities Rulemaking Board; and
"(B) provide information to the Municipal Securities Rulemaking Board about the enforcement actions and examinations of the association under section 15B(b)(2)(E), so that the Municipal Securities Rulemaking Board may--

"(i) assist in such enforcement actions and examinations; and
"(ii) evaluate the ongoing effectiveness of the rules of the Board.".

(g) Registration and Regulation of Brokers and Dealers.--Section 15 of the Securities Exchange Act of 1934 <<NOTE: 15 USC 78o.>> is
amended--

(1) in subsection (b)(4), by inserting "municipal advisor," after "municipal securities dealer" each place that term appears; and
(2) in subsection (c), by inserting "broker, dealer, or" before "municipal securities dealer" each place that term
appears.

(h) Accounts and Records, Reports, Examinations of Exchanges, Members, and Others.--Section 17(a)(1) of the Securities Exchange Act of
1934 <<NOTE: 15 USC 78q.>> is amended by inserting "municipal advisor," after "municipal securities dealer".

(i) <<NOTE: 15 USC 78o note.>> Effective Date.--This section, and the amendments made by this section, shall take effect on October 1, 2010.