Transcript Slide 1

MSRB/SIFMA Regulatory and Compliance
Seminar
****************************
SIFMA Headquarters
120 Broadway, 2nd Floor, New York, NY
October 26, 2009
Panelists:
Leslie Carey, Associate General Counsel, MSRB
Peg Henry, Deputy General Counsel, MSRB
Ernie Lanza, General Counsel, MSRB
Malcolm Northam, Director, Fixed Income Securities, FINRA
Justin Pica, Director, Uniform Practice Policy, MSRB
Lawrence Sandor, Senior Associate General Counsel, MSRB
2
MSRB in a Nutshell
 Self Regulatory Organization for broker-dealers and bank
dealers in the municipal market
 no rulemaking authority over issuers, intermediaries or other
market participants
 no non-securities rulemaking authority (e.g., derivatives)
 MSRB coordinates with SEC, FINRA, bank regulators on
enforcement, examinations, and surveillance
 Coordinating efforts with IRS, Treasury, others on market
issues
 Congressionally mandated mission:
 protect investors and the public interest
 promote fair and efficient municipal bond market
 MSRB furthers mission through rulemaking, information
services/systems, outreach and education and market
leadership
MSRB’s Recent Investor Protection
and Fair Practice Initiatives
 Build America Bonds
•Build America Bonds – MSRB Notice 2009-15 (April 24, 2009)
Reminder that all MSRB rules apply to transactions in BABs – fair
dealing, disclosure of material facts, suitability of recommendations.
•Build America Bonds –MSRB Notice 2009-30 (June 9, 2009)
Reminder that ban on business may be triggered by solicitations of
Build America Bond business by employees whose contributions
have not been vetted (e.g., taxable desk personnel).
•Build America Bonds – MSRB Notice 2009-49 (August 25, 2009)
Reminder of requirement to disclose on confirm yield at which
transaction is priced. Some BABs have pro rata mandatory sinking
fund redemptions and are priced to average life.
•Research and Market Statistics – Build America Bond Report – July 2009
MSRB’s Recent Investor Protection
and Fair Practice Initiatives
 Political Contributions
•Bond Ballot Campaign Contributions – MSRB Notice 2009-35 (June
22, 2009)
Request for comment on mandatory disclosure of contributions
to bond ballot campaign committees and associated municipal
securities business.
•Bank PAC Contributions – MSRB Notice 2009-51 (September 16, 2009)
Request for comment on mandatory disclosure of contributions
to issuer officials by dealer-affiliated PACs of banks and bank
holding companies.
 Investors and Issuers
•MSRB/FINRA Notice – MSRB Notice 2009-38 (June 30, 2009)
Joint reminder on issues to consider when investing in
municipal bonds in light of current market conditions.
MSRB’s Recent Investor Protection
and Fair Practice Initiatives
 Investors and Issuers
•California IOUs – MSRB Notice 2009-41 (July 10, 2009)
IOUs are municipal securities and most MSRB rules apply. Trading
reporting is not required because the IOUs have no CUSIP numbers.
Focus on customer protection obligations – fair dealing, disclosure of
material facts, suitability of recommendations, fair pricing.
•Retail Investors – MSRB Notice 2009-42 (July 14, 2009)
Reminder to dealers on duty of fair dealing to investors. Focus on
individual and other retail investors. Disclosure of material facts,
suitability of recommendations, fair pricing. Focus on VRDOs.
•Issuers - MSRB Notice 2009 – 54 (September 29, 2009)
Reminder to dealers on duty of fair dealing to issuers. Fair practice
requirements of Rule G-17 apply to dealers’ municipal securities
activities with issuers, such as underwritings.
MSRB’s Recent Investor Protection
and Fair Practice Initiatives
 Underwriting/Syndicates
•Priority of Orders – MSRB Notice 2009-47 (August 11, 2009)
Fair dealing rules apply to retail order periods and priority of orders.
•Settlement of Syndicates – MSRB Notice 2009-55 (September 30, 2009)
Syndicate settlement by 30 calendar days after bond closing;
designations paid by 10 calendar days after bond closing; and
designations due to manager by 2 business days after bond closing
 Uniform Practice
•Electronic Confirms – MSRB Notice 2009-50 (September 15, 2009)
Requirement in Rule G-15(a) to provide customer confirmation may
be satisfied by electronic confirmation for DVP/RVP transactions if:
URL link to information required by Rule G-15(a);
Provider has no-action letter from SEC under SEC Rule 10b-10.
MSRB’s Recent Transparency and Market
Efficiency Proposals
 Auction Rate and VRDO Transparency
• Currently collect and disseminate rate resets, related
data for each ARS auction and VRDO remarketing
• Proposal to collect additional documents and information
– MSRB Notice 2009-43 (July 14, 2009)
•
•
•
•
•
ARS and VRDO Documents
ARS Bidding Information
Identity of liquidity provider
VRDO tender agent contact information
Amount of bank bonds and bank bond rate
MSRB’s Recent Investor Protection
and Fair Practice Initiatives
 Primary Market Disclosure
•MSRB Notice 2009-28 (June 1, 2009)
•Effective June 1, 2009, underwriters must submit electronic copies of
official statements to EMMA.
•Submission of the official statement is required within one business day
after receipt but no later than bond closing.
•Certain key information must be submitted on or prior to the date of first
execution – plain English name of issue, original issue prices, check prepopulated CUSIPs.
•“Access equals delivery” – delivery of paper copies of official
statements to new issue customers required only if a customer requests
one.
•Confirms must direct customers to the EMMA website for a copy of the
official statement.
•Access equals delivery not available for municipal fund securities.
MSRB’s Recent Transparency and Market
Efficiency Initiatives
 Continuing Disclosure
•MSRB Notice 2009-39 (July 1, 2009)
•Effective July 1, 2009, EMMA became the sole official repository where all
continuing disclosure filings must be made by issuers, obligors, or their
agents.
•EMMA accepts mandatory continuing disclosure – required by SEC Rule
15c2-12 – and voluntary disclosure.
•Filers are encouraged to identify their voluntary continuing disclosure by
category – such as quarterlies, IRS letters, derivatives.
MSRB’s Recent Transparency and Market
Efficiency Proposals
 Proposed EMMA Enhancements for Issuers
• MSRB Notice 2009-44 (July 15, 2009)
• Permit issuers to post preliminary official statements.
• Also permit issuers or obligated persons to:
• undertake to prepare audited financial statements pursuant to
generally accepted accounting principles as established by the
Governmental Accounting Standards Board;
 undertake to submit annual financial information to EMMA within
120 calendar days after the end of the applicable fiscal year;
 provide the uniform resource locator (URL) of the issuer’s or
obligated person’s Internet-based investor relations or other
repository of financial/operating information; and
 Submit GFOA certificate regarding CAFR preparation
MSRB’s Recent Transparency and Market
Efficiency Proposals
 Proposed EMMA Enhancements for Underwriters
• Require dealers to submit the following information:
• whether there is a commitment to provide continuing disclosure;
 the identity of obligated persons who will be providing such
disclosure;
 the date by which annual financial information must be provided;
and
 Contact information for issuer/obligated person personnel
MSRB Recent Market Leadership Initiatives
•
MSRB Statement Regarding Regulation of the Municipal Market on January
9, 2009
• Focus attention on unregulated municipal market participants
• Uses pay-to-play as an example
•
MSRB Letter to Congress on February 6, 2009: Specific Recommendations
on Regulating Financial Intermediaries
• Focus on regulation of intermediaries
• Suggests Muni Czar or industry coordinating committee
• Calls for better coordination of federal and state enforcement
activities
• Articulates role for market-specific SROs to complement anti-fraud
authority of federal securities laws
•
MSRB Report on Unregulated Market Intermediaries
 Recommends regulation of unregulated market participants, such as
financial advisors, swaps advisors, and investment brokers.
MSRB Recent Market Leadership Initiatives
•
Derivatives - MSRB Letter to Congress on February 6, 2009:
• Muni derivatives to be subject to same regulatory framework
developed for other derivative markets
• Swap advisors should be subject to SRO regulation
•
Derivatives - MSRB Letter to Secretary Geithner on August 13,
2009
• EMMA already accepts voluntary issuer disclosure concerning
derivative transactions through its continuing disclosure
system
• While municipal derivatives disclosure is not mandated, many
investors consider it material to their investment decisions and
have recommended that issuers use EMMA as a means to
disseminate such disclosures to all investors
• All municipal derivatives counterparties should be well
informed about the risks of their derivative contracts
• Derivative advisors should be subject to comprehensive
regulatory scheme
MSRB/SIFMA Regulatory and Compliance
Seminar
****************************
SIFMA Headquarters
120 Broadway, 2nd Floor, New York, NY
October 26, 2009