Transcript MSRB Proposed Rules and Interpretations NALHFA 2011 Annual Educational Conference May 20, 2011

MSRB Proposed Rules and
Interpretations
NALHFA 2011 Annual Educational Conference
May 20, 2011
Rule G-23: Proposed Amendment to Prohibit Financial
Advisors from Underwriting and Remarketing
 Prohibits a financial advisor to an issuer with respect to the
issuance of municipal securities from:
– Underwriting, privately purchasing or acting as placement agent
in the transaction
– Acting as remarketing agent for such issue
 Eliminates the requirement that compensation must be received for
a financial advisor relationship to exist
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Rule G-23: Proposed Amendment to Prohibit Financial
Advisors from Underwriting and Remarketing
 Exceptions:
– May act as placement agent to place issue with a governmental
entity as part of a plan of financing by the governmental entity
on behalf of the issuer; provided, that the dealer does not
receive any compensation:
 for such placement or
 for underwriting any contemporaneous related financing
transaction undertaken by the governmental entity
– May purchase issue from underwriter so long as such purchase
is not made to circumvent the purpose and intent of Rule G-23
– May act as successor remarketing agent for the issuer one year
after financial advisory relationship has been terminated
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Rule G-23: Proposed Amendment to Prohibit Financial
Advisors from Underwriting and Remarketing
 Interpretive Guidance:
– A dealer providing advice to an issuer with respect to the
issuance of municipal securities is presumed to be a financial
advisor
– To overcome presumption a dealer must clearly identify itself as
an underwriter from earliest stages of relationship
– Underwriter’s subsequent actions may cause it to be
considered a financial advisor
– Financial advisory relationship does not exist when, acting as
an underwriter, the underwriter renders advice to an issuer with
respect to the issuance of municipal securities
MSRB Notice 2011-10 (February 9, 2011)
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Proposed Amendment of Rule G-20 Gifts and Gratuities
for Municipal Advisors
 Prohibits municipal advisors from giving or permitting to be given,
directly or indirectly, any thing or service of value, including
gratuities, in excess of $100 per year
 Exceptions:
– Occasional gifts of meals or tickets to theatrical, sporting, and
other entertainments hosted by the municipal advisor
– Legitimate business functions sponsored by the municipal
advisor
– Gifts of reminder advertising
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Rule G-42: Pay to Play Rules for Municipal Advisors
 Prohibits a municipal advisor from:
– engaging in municipal advisory business with a municipal entity
for compensation for a period beginning on the date of a nonde minimus (for municipal advisor professionals (MAPs))
political contribution and ending two years after all municipal
advisory business has terminated
– soliciting third-party business from a municipal entity for
compensation, or receiving compensation for the solicitation of
third-party business from a municipal entity, for two years after a
non-de minimus political contribution
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Rule G-42: Pay to Play Rules for Municipal Advisors
 Prohibits a municipal advisor and MAP from:
– soliciting or coordinating contributions to officials of municipal
entities with which it is engaging or seeking to engage in
municipal advisory business or from which it is soliciting thirdparty business
– soliciting or coordinating payments to political parties of states
or localities with which it is engaging in, or seeking to engage in
municipal advisory business or from which it is soliciting thirdparty business
MSRB Notice 2011-04 (January 14, 2011); comments were due February 25, 2011
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Rule G-17: Amendment to Include Municipal Advisors
 In the conduct of their municipal advisory activities, municipal
advisors must:
– Deal fairly with all persons
– Not engage in any deceptive, dishonest, or unfair practice
Amendments approved by the SEC on December 23, 2010
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Rule G-17: Proposed Interpretative Guidance for
Underwriters
 Application of Rule G-17 for dealers in their interactions with
municipal entities
– Representations must be truthful and accurate and may not
misrepresent or omit material facts
– Implied representation that the price paid by underwriter bears a
reasonable relationship to prevailing market price
– Direct and indirect compensation can not be excessive
– Must disclose conflicts of interest
– Must honor an issuer’s directions concerning retail order
periods
– No lavish gifts to issuer personnel
MSRB Notice 2011-12 (February 14, 2011); comments were due April 11, 2011
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Rule G-17: Proposed Interpretative Guidance for
Municipal Advisors (Obligated Persons and Solicitations)
 Municipal Advisors that serve obligated persons
– Fair dealing:
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appropriateness
due care
disclosure of conflicts
informed consent
forms of compensation
– Deceptive, dishonest, or unfair practices:
 misrepresentations
 excessive compensation
 kickbacks and other payments
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Rule G-17: Proposed Interpretative Guidance for
Municipal Advisors (Obligated Persons and Solicitations)
 Municipal Advisors soliciting business from municipal entities on
behalf of others
– Fair dealing:
 disclosure of material facts about solicitation
 material information about products or services
– Deceptive, dishonest, or unfair practices:
 kickbacks
 lavish gifts and gratuities
MSRB Notice 2011-12 (February 14, 2011); comments were due April 11, 2011
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Rule G-36: Proposed Fiduciary Duty of Municipal
Advisors
 Draft Rule:
– In the conduct of its municipal activities on behalf of municipal
entities, a municipal advisor shall be subject to a fiduciary duty,
which shall include a duty of loyalty and a duty of care.
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Rule G-36: Proposed Fiduciary Duty of Municipal
Advisors
 Duty of Loyalty
– Conflict of interest
 disclosure obligation
 informed consent
– must be from an official of the municipal entity with authority to bind
the municipal entity by contract
 unmanageable conflicts
– Compensation
 excessive compensation
 forms of compensation
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Rule G-36: Proposed Fiduciary Duty of Municipal
Advisors
 Duty of Care
– Necessary qualifications
– Consideration of alternatives
– Duty of inquiry
– Duty of care does not make the financial advisor a guarantor
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Rule G-36: Proposed Fiduciary Duty of Municipal
Advisors
 Municipal advisors may be retained for limited engagement
– Should be reflected in engagement letter or written
communication
– Limitations must be disclosed prior to commencement of
engagement
MSRB Notice 2011-14 (February 14, 2011); comments were due April 11, 2011
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This document has been prepared by Chapman and Cutler LLP attorneys for informational
purposes only. It is general in nature and based on authorities that are subject to change. It is not
intended as legal advice. Accordingly, readers should consult with, and seek the advice of, their
own counsel with respect to any individual situation that involves the material contained in this
document, the application of such material to their specific circumstances, or any questions relating
to their own affairs that may be raised by such material.
© 2010 Chapman and Cutler LLP
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