Tennessee Republican Party (16-3360); Georgia Republican Party and New York Republican State Committee (16-3732), Petitioners,
Securities and Exchange Commission; Municipal Securities Rulemaking Board, Respondents.
Argued: May 4, 2017
Petition for Review to the Securities and Exchange
Commission; No. MSRB-2016-06.
Torchinsky, HOLTZMAN VOGEL JOSEFIAK TORCHINSKY, Warrenton,
Virginia, for Petitioners.
Staroselsky, SECURITIES AND EXCHANGE COMMISSION, Washington,
D.C., for Respondent Securities and Exchange Commission.
G. Phillips, SIDLEY AUSTIN LLP, Washington, D.C., for
Respondent Municipal Securities Rulemaking Board.
Torchinsky, HOLTZMAN VOGEL JOSEFIAK TORCHINSKY, Warrenton,
Virginia, H. Christopher Bartolomucci, Edmund G. LaCour Jr.,
KIRKLAND & ELLIS LLP, Washington, D.C., for Petitioners.
Staroselsky, Jeffrey A. Berger, SECURITIES AND EXCHANGE
COMMISSION, Washington, D.C., for Respondent Securities and
R. Guerra, Eric D. McArthur, SIDLEY AUSTIN LLP, Washington,
D.C., Michael L. Post, MUNICIPAL SECURITIES RULEMAKING BOARD,
Washington, D.C., for Respondent Municipal Securities
Dickerson, CENTER FOR COMPETITIVE POLITICS, Alexandria,
Virginia, Tara Malloy, THE CAMPAIGN LEGAL CENTER, Washington,
D.C., for Amici Curiae.
Before: DAUGHTREY, MOORE, and KETHLEDGE, Circuit Judges.
NELSON MOORE, Circuit Judge.
the Tennessee Republican Party, the Georgia Republican Party,
and the New York Republican State Committee, have challenged
the legality of amendments to rules ("2016
Amendments") proposed by Respondent Municipal Securities
Rulemaking Board ("MSRB") and that are "deemed
to have been approved by [Respondent Securities and Exchange]
Commission" ("SEC"). 15 U.S.C. §
78s(b)(2)(D) (2012). The amendments limit the campaign
activities of persons who advise city and state governments
on issuing municipal securities. Ultimately, however, we do
not reach the merits of this case because Petitioners have
failed to establish that they have standing to challenge
these amendments. Therefore, we DISMISS the petitions for
review of the final rule for lack of jurisdiction. We DENY AS
MOOT the SEC's motion to dismiss and DENY AS MOOT the
MSRB's motion to be designated as an intervenor.
Municipal Securities Terminology
key terms in this case tend to be arcane, we begin with a
brief primer on municipal securities markets and their
participants. Put simply, a municipal security is
"[a] bond issued by a nonfederal government or
governmental unit, such as a state bond to finance local
improvements." Municipal Security &
Municipal Bond, Black's Law Dictionary (10th ed.
2014); see also 15 U.S.C. § 78c(a)(29)
(similarly defining municipal security under the
Exchange Act). On either end of the creation of securities
are issuers and dealers. An issuer
is "any person who issues or proposes to issue any
security." 15 U.S.C. § 78c(a)(8); MSRB Rule Book
Rule G-37(g)(vii), at 271 (Apr. 1, 2017). Those who are
"engaged in the business of buying and selling
securities" for their "own account[s] through a
broker or otherwise" are called dealers, 15
U.S.C. § 78c(a)(5); municipal securities
dealers are those "engaged in the business of
buying and selling municipal securities for [their] own
account[s], " 15 U.S.C. § 78c(a)(30). Dealers do
not always buy and sell securities on their own, however.
They often operate through brokers, persons who
"engage in the business of effecting transactions in
securities for the account[s] of others." 15 U.S.C.
§ 78c(a)(4). Brokers and dealers often operate with the
assistance of municipal finance professionals, a
catchall category of persons loosely defined as being
associated with brokers and dealers. MSRB Rule Book Rule
G-37(g)(ii), at 269-70 (Apr. 1, 2017); see also Blount v.
SEC, 61 F.3d 938, 939-40 (D.C. Cir. 1995).
municipal entities and those "committed by contract or
other arrangement to support the payment of all or part of
the obligations on the municipal securities, " 15 U.S.C.
§ 78o-4(e)(10), in participating in municipal securities
markets, municipal advisors "provide advice .
. . 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."
15 U.S.C. § 78o-4(e)(4)(A)(i). Municipal advisors also
solicit business from municipal entities "on behalf of a
broker, dealer, municipal securities dealer, municipal
advisor, or investment adviser . . . that does not control,
is not controlled by, or is not under common control with the
person undertaking such solicitation." Id.
§ 78o-4(e)(4)(A)(ii), (9). It is possible for an entity
to be registered as both a dealer and a municipal advisor;
these entities are called dealer-municipal advisors.
MSRB Rule Book Rule G-37(b)(i)(D), at 266 (Apr. 1, 2017).
Certain persons associated with municipal advisors, analogous
to municipal financial professionals, are called
municipal advisor professionals. Id. Rule
G-37(g)(iii), at 270.
The Original Rules
municipal securities market is large. As of 1993, around the
time when the rules that the 2016 Amendments modify first
came into effect, the total value of the market was $1.2
trillion. Jon B. Jordan, The Regulation of
'Pay-to-Play' and the Influence of Political
Contributions in the Municipal Securities Industry, 1999
Colum. Bus. L. Rev. 489, 493. Concerned "that brokers
and dealers were engaging in a variety of ethically
questionable practices in order to secure underwriting
contracts, " the MSRB drafted, and the SEC approved,
several new rules that regulated pay-to-play practices in the
municipal securities markets. Blount, 61 F.3d at
939; Jordan, supra, at 496-501 (observing that
"[t]he initial movement against pay-to-play came from
the private sector, which was incurring its own expenses, in
the form of political contributions, to play under the
system"). Chief among these regulations was Rule G-37.
before the 2016 Amendments came into effect, Rule G-37 was
"composed of several separate and mutually reinforcing
requirements for dealers" and brokers.
See Notice of Filing of a Proposed Rule Change
Consisting of Proposed Amendments to Rule G-37, on Political
Contributions and Prohibitions on Municipal Securities
Business, Rule G-8, on Books and Records, Rule G-9, on
Preservation of Records, and Forms G-37 and G-37x ("2015
SEC Notice"), 80 Fed. Reg. 81710, 81711 (Dec. 23, 2015)
(Pet'rs' App'x at 54) (emphasis added). The rule
imposed "[l]imitations on business activities that are
triggered by the making of certain political contributions;
limitations on solicitation and coordination of political
contributions; and disclosure and recordkeeping regarding
political contributions and municipal securities
Rule G-37 prohibited brokers, dealers, and municipal
securities dealers from "engag[ing] in municipal
securities business with an issuer within two years after any
contribution to an official of such issuer made by . . . the
broker, dealer or municipal securities dealer; . . . any
municipal finance professional associated with such broker,
dealer or municipal securities dealer; or . . . any political
action committee controlled by the broker, dealer or
municipal securities dealer or by any municipal finance
professional." MSRB Rule Book Rule G-37(b)(i), at 269
(July 1, 2016). There was one exception to this prohibition:
municipal finance professionals could contribute up to $250
per election to an official of an issuer for whom they were
entitled to vote without triggering the above prohibition.
Id. For instance, a municipal finance professional
associated with a dealer could contribute a maximum of $250
to a gubernatorial candidate in their state without affecting
the dealer's ability to engage in municipal securities
business with that state.
addition to prohibiting contributions, Rule G-37 also
prohibited the solicitation of other persons for
contributions and payments. Brokers, dealers, municipal
securities dealers, and their municipal finance professionals
were prohibited from "solicit[ing] any person . . . to
make any contribution, or [to] coordinate any
contributions, to an official of an issuer with
which the broker, dealer or municipal securities dealer is
engaging or is seeking to engage in municipal securities
business." Id. Rule G-37(c)(i), at 269
(emphasis added). They were also prohibited from
"solicit[ing] any person . . . to make any
payment, or . . . coordinate any payments, to a
political party of a state or locality where the
broker, dealer or municipal securities dealer is engaging or
is seeking to engage in municipal securities business."
Id. Rule G-37(c)(ii), at 269 (emphasis added).
Rule G-37 imposed disclosure requirements for brokers,
dealers, and municipal securities dealers. Id. Rule
G-37(e), at 269-71. Rules G-8 and G-9 and Forms G-37 and
G-37x complemented these disclosure requirements: Rules G-8
and G-9 "specify the books and records that must be made
and kept current by dealers, " MSRB Reg. Notice 2016-06,
at 24 (Feb. 17, 2016) (Pet'rs' App'x at 24), and
regulated entities submit Forms G-37 and G-37x to comply with
disclosure requirements, id. at 25 (Pet'rs'
App'x at 25).
The 2016 Amendments
Rule G-37 had historically been limited to dealers and
brokers, the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 expanded the MSRB's regulatory
authority to include municipal advisors in addition to
brokers and dealers. 2015 SEC Notice, 80 Fed. Reg. at 81710
(Pet'rs' App'x at 53); see also 15
U.S.C. §§ 78o-4(a)(5), (b)(2). Granted this new
authority, the MSRB proposed amendments to Rules G-8, G-9,
and G-37 and Forms G-37 and G-37x (the 2016 Amendments),
which were "deemed to have been approved by the
[Securities and Exchange] Commission." See MSRB
Reg. Notice 2016-06, at ...