MSRB Seeks Comments on Underwriting Activities of Dealers Who Act as Financial Advisors

Date: August 17, 2010

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

 

MUNICIPAL SECURITIES RULEMAKING BOARD SEEKS COMMENTS ON UNDERWRITING ACTIVITIES OF DEALERS WHO ACT AS FINANCIAL ADVISORS  

Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) published a notice today seeking comment on amendments to MSRB Rule G-23 that would prohibit municipal securities dealers that act as financial advisors on new issues of municipal securities, on either a negotiated or competitive bid basis, from serving as an underwriter for the same issue. Rule G-23 governs the activities of dealers that act as financial advisors to issuers of municipal securities. 

"The Securities and Exchange Commission requested that the MSRB reexamine the roles of dealers who act as financial advisors for new issue bonds," said MSRB Executive Director Lynnette Kelly Hotchkiss. "All financial advisors – dealers that act as advisors as well as independent advisors – will have a fiduciary duty to their issuer clients under the new federal financial reform law and removing any real or perceived conflicts of interest in new-issue transactions is more important than ever."  

Rule G-23 currently allows dealers that act as financial advisors with respect to a new issue of municipal securities to purchase the issue as principal or act as a placement agent or remarketing agent if they meet certain requirements. In a negotiated underwriting, a financial advisor that would like to underwrite the bonds must terminate their advisory role and disclose to the issuer the potential for a conflict of interest. The advisor must also disclose the source and anticipated amount of any compensation and the issuer must acknowledge receipt of the disclosure.  In the case of a competitive underwriting, the issuer must provide express consent prior to the acquisition or participation in such issue. 

The proposed changes to Rule G-23 would prohibit any such switching of roles except in the narrow circumstances of certain financing transactions with governmental entities, such as local government bond banks, where a financial advisor may assist in placing an issuer’s note or bond with such entity in connection with such financing.  

Comments on the proposal are due by September 30, 2010 and will be considered at the October meeting of the MSRB’s newly constituted majority public board of directors, which will include representation of the municipal advisory community.


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 Congressionally-chartered, 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 subject to oversight by the Securities and Exchange Commission.