MSRB Proposes Initial Set of Rules for Municipal Advisors

Date: November 1, 2010

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


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today filed with the Securities and Exchange Commission (SEC) a proposal that would extend a core MSRB rule of conduct to municipal advisors and permit them to begin registering with the MSRB, among other changes. 

Effective October 1, 2010, Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act broadened the mission of the MSRB to include the protection of municipal entities and obligated persons in addition to the protection of investors and the public interest.  The Dodd-Frank Act also expanded MSRB’s regulatory jurisdiction to cover municipal advisors who advise state and local governments and other municipal entities on municipal financial products and municipal securities.

Municipal advisors include many market participants not previously subject to regulation by the MSRB, as well as certain brokers, dealers and municipal securities dealers whose activities already are subject to MSRB rules. Municipal advisors include firms and individuals that solicit business from municipal entities on behalf of unrelated dealers, banks, municipal advisors or investment advisers.

“Municipal advisors 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.

Today’s proposal seeks to begin municipal advisor registration with the MSRB on November 15, 2010. Advisors would have until December 31, 2010 to register and will be required to pay administrative fees—an initial fee of $100 and an annual fee of $500—in order to complete the registration process. Individuals, except for sole proprietors, will not be required to register with the MSRB.

The proposal also would extend the MSRB’s existing “fair dealing” rule (MSRB Rule G-17) to cover municipal advisor activities by imposing on advisors a duty to deal fairly with all persons and prohibiting deceptive or unfair conduct. The MSRB believes subjecting municipal advisors to this rule is necessary for the robust protection of investors against fraud. 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.

The MSRB’s proposal also extends the MSRB’s disciplinary rule (MSRB Rule G-5) to require municipal advisors 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 advisors creates a fundamental foundation for professional standards of conduct.”

Today’s proposal also amends several MSRB administrative and definitional rules regarding fees, rulemaking procedures and official communications to include municipal advisors, in addition to dealers. Read MSRB Notice 2010-47, which describes in detail the application of MSRB rules to municipal advisors.

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 21-member 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.