Broker-dealers told the Securities and Exchange Commission this week they support a proposal to reduce the volume of disclosures they would need to make to customers on an annual basis, though they also suggested some tweaks to the concept.

The Securities Industry and Financial Markets Association and Bond Dealers of America submitted comment letters to the SEC in response to the Municipal Securities Rulemaking Board’s August request that the SEC approve changes to two MSRB rules.

The changes to Rules G-10 on investor and municipal advisory client education and protection and G-48 on transactions with sophisticated municipal market professionals would require dealers to make certain disclosures only to customers who hold a muni position or who have made a municipal bond transaction in the prior year, and would exempt SMMPs from receipt of those disclosures.

“SIFMA supports many elements of the proposed amendments, which reduce the compliance burden on the dealer community without reducing investor protections,” wrote Leslie Norwood, SIFMA’s head of municipals.”

“We believe the MSRB’s proposed amendments would reduce the compliance burden on dealers without threatening investor protection,” wrote Michael Decker, senior vice president at Bond Dealers of America. “We urge the Commission to approve the MSRB’s proposal.”

Rule G-10 currently requires dealers and muni advisors to provide either electronically or in writing by the end of each calendar year certain notifications to their customers and clients. The notifications include a statement that the firm is registered with the MSRB and the Securities and Exchange Commission, the MSRB’s web address, and a notification about a brochure available on the MSRB website that describes the protections of MSRB rules and how to file complaints with regulators.

Under the proposed changes, dealers would not need to make these disclosures to customers who do not have and had not recently had any muni investments. But the rule would still require dealers to have those disclosures available on its website, so all customers could access them.

Both SIFMA and BDA suggested a modification related to clearing agreements.

“The rule is intended to increase the efficiency of disclosures by permitting clearing brokers to make disclosures on behalf of introducing brokers,” Decker wrote. “However, as currently drafted the rule would relieve an introducing broker of its obligation to make the disclosures only if it is a party to ‘a carrying agreement in which the carrying dealer has agreed to comply’ with the disclosure requirements. While it is quite likely that introducing and clearing brokers will agree to allocate responsibility for making the Rule G-10 disclosures, it is unlikely that this allocation of responsibility will be memorialized in a clearing agreement.”

The proposal should be amended, Decker suggested, to read: a dealer “that is an introducing dealer and whose carrying dealer has agreed to comply with section (a)” of the rule is exempt from the requirements of the rule.

Norwood wrote, SIFMA members believe the proposal would more effectively achieve its aim “if introducing dealers and carrying dealers had the flexibility to allocate responsibility for delivery of the disclosures outside of a clearing agreement.”

SIFMA has previously provided its own suggested language.

SIFMA also said the proposal should be changed to not require similar annual notifications by municipal advisors to their municipal advisory clients, which the current rule also requires.

“These notifications are already made promptly after the establishment of a municipal advisory relationship in the engagement letter/agreement where other required disclosures are included as required under [MSRB Rule G-42],” Norwood wrote. “SIFMA members strongly disagree with the MSRB’s assertion that the G-10 notifications are not commonly included in municipal advisor engagement letters as most members believed this to be a natural place for them and updated their templates to include them. Requiring annual notifications under Rule G-10 by municipal advisors to their clients is a manual and unnecessary process as the terms of the engagement are in force for as long as the engagement is active.”

The SEC may choose to approve the MSRB proposal as written or could require changes prior to approval.