MSRB files proposed rule on on activities of financial advisors
- MSRB Notice 2011-10: Proposed Rule Amendments and Interpretive Notice Filed Regarding Rule G-23 on Activities of Financial Advisors MSRB, February 9, 2011
- prohibit a dealer financial advisor with respect to the issuance of municipal securities from acquiring all or any portion of such issue directly or indirectly from the issuer as principal or acting as agent for the issuer in arranging the placement of such issue either alone or as a participant in a syndicate or other similar account formed for that purpose;
- apply the same prohibition to any dealer controlling, controlled by, or under common control with the dealer financial advisor; and (iii) prohibit a dealer financial advisor from acting as the remarketing agent for such issue.
The MSRB also filed a proposed interpretive notice that would provide guidance on when a dealer that provides advice to an issuer would be considered to be “acting as an underwriter” for purposes of Rule G-23, rather than a financial advisor.
SEC extends "fair dealing" rule to cover muni advisors
- Source: SEC Extends Ban on Unfair Practices to Cover Municipal Finance Advisers Bloomberg, December 23, 2010
The Securities and Exchange Commission approved a rule barring financial advisers to state and local governments from engaging in deceptive practices, one of the first steps to regulate the business.
The decision applies the Municipal Securities Rulemaking Board’s so-called fair dealing rule to those advising officials who oversee debt issuance and investments. It bars deceptive, dishonest or unfair practices by bond dealers. The change takes effect immediately, the board said today in a statement.
The rulemaking board gained power over the previously unregulated consultants with the passage of the Dodd-Frank law. Such advisers once recommended derivative trades known as swaps that proved costly when the 2008 financial crisis struck, and several face charges for conspiring with bankers to make local governments pay above-market rates for investments purchased with money raised with municipal bonds.
“The MSRB’s fair-dealing rule is an essential rule of conduct for protecting investors in municipal securities and the municipal entities that issue them,” Lynnette Hotchkiss, the board’s executive director, said in a statement. “We are pleased that we now have this fundamental rule in place.”
Rules made by the industry’s self-regulatory organization, based in Alexandria, Virginia, are subject to SEC review and approval.
MSRB to tighten rules on advisors
- Source: Muni Self-Regulator Plans To Tighten Rules On Advisers Wall Street Journal, November 1, 2010
The self-regulating agency for the $2.8 trillion municipal bond market on Monday started to flex some newfound muscles, saying it plans to require municipal advisers to register with it and to extend a "fair-dealing" rule to their activities.
The Dodd-Frank Wall Street Reform and Consumer Protection Act broadened the Municipal Securities Rulemaking Board's regulatory jurisdiction to cover those who advise state and local governments and other local entities on municipal financial products and securities.
The act, which became effective Oct. 1, also expanded the MSRB's mission to include the protection of municipal entities and so-called "obligated persons" in addition to the protection of investors and the public interest.
"Municipal advisers should be subject to the most basic of MSRB's professional conduct rules in providing services to the municipal market," said MSRB Executive Director Lynnette Kelly Hotchkiss.
Monday's proposal, in the form of a filing with the Securities and Exchange Commission, would require advisers to begin filing with the MSRB between Nov. 15 and Dec. 31. Individuals, except for sole proprietors, won't be required to register.
The proposal also would extend an existing MSRB rule to cover municipal adviser activities by imposing on advisers a duty to deal fairly with all persons and prohibiting deceptive or unfair conduct.
The MSRB said in a press release that subjecting municipal advisers to its fair-dealing rule is "necessary for the robust protection of investors against fraud." Many municipal advisers play a key role in the structuring of offerings of municipal securities and the preparation of offering documents used to market those securities to investors, it pointed out.
Municipal advisers include many market participants not previously subject to regulation by the MSRB. They also include firms and individuals soliciting business from municipal entities on behalf of unrelated dealers, banks, municipal advisers or investment advisers.
The MSRB's proposal also extends an MSRB disciplinary rule to require municipal advisers to comply with SEC disciplinary actions. Both the fair-dealing and disciplinary rule changes are subject to SEC approval.
"The obligation of market intermediaries to operate with integrity is a vital component to ensuring a fair and efficient municipal market," Hotchkiss said. "Applying our fair-dealing rule to municipal advisers creates a fundamental foundation for professional standards of conduct."
Advisers who register with the MSRB would have to pay administrative fees of $100 initially and $500 annually.
- Board Members Beware - SEC Regulatory Authority May Cast Wide Net Thompson Coburn LLP, January 14, 2011