MSRB Applies Fair Dealing Rule to Municipal Advisors

Date: December 23, 2010

Contact: Jennifer A. Galloway, Chief Communications Officer
             (703) 797-6600


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) announced today it received approval from the Securities and Exchange Commission (SEC) to extend a core MSRB rule of conduct to municipal advisors. Effective immediately, the MSRB’s “fair dealing” rule, MSRB Rule G-17, requires that in the conduct of their municipal advisory activities, municipal advisors must deal fairly with all persons and not engage in any deceptive, dishonest, or unfair practice. The rule already governs the conduct of brokers, dealers, and municipal securities dealers in their municipal securities activities. 

As amended by its application to municipal advisors, Rule G-17 prescribes a code of conduct for all entities and associated persons regulated by the MSRB. Not only must they not engage in conduct that is deceptive, dishonest, or an unfair practice, but they also have an affirmative duty to deal fairly with all persons. The fair dealing principles of Rule G-17 are fundamental to all MSRB rulemaking.

The SEC also approved an amendment to MSRB Rule G-5 to prevent municipal advisors and their associated persons from engaging in municipal advisory activities in contravention of restrictions imposed upon them by the SEC. The change is effective immediately. Dealers already are subject to provisions of Rule G-5.

The MSRB’s filing with the SEC noted that many municipal advisors 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. In some cases, they advise on the appropriateness of derivatives entered into by municipal issuers, the effectiveness of which may have a substantial impact on the finances of those issuers.  In other cases, they solicit public pension fund investment advisory business that, if not conducted according to the highest standards, may have a substantial effect on the finances of the state and local governments that control those funds. Investors, therefore, have a substantial interest in municipal advisors conducting their municipal advisory activities fairly, not engaging in fraudulent conduct, and not engaging in municipal advisory activities contrary to disciplinary actions imposed by the SEC.

“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,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “We are pleased that we now have this fundamental rule in place.”

Effective October 1, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act expanded the MSRB’s regulatory jurisdiction to cover persons who advise state and local governments and other municipal entities on municipal financial products and municipal securities or who solicit municipal entities on behalf of others. Municipal advisors must be registered with the MSRB by December 31, 2010 in order to engage in municipal advisory services.

The MSRB protects investors, state and local governments and other municipal entities, and the public interest by promoting a fair and efficient municipal securities market. The MSRB fulfills this mission by regulating the municipal securities firms, banks and municipal advisors that engage in municipal securities and advisory activities. To further protect market participants, the MSRB provides market transparency through its Electronic Municipal Market Access (EMMA®) website, the official repository for information on all municipal bonds. The MSRB also serves as an objective resource on the municipal market, conducts extensive education and outreach to market stakeholders, and provides market leadership on key issues. The MSRB is a self-regulatory organization governed by a board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is overseen by the Securities and Exchange Commission and Congress.