MSRB Adopts Dealer Role-Switching Prohibition to Eliminate Conflict of Interest in Municipal Securities Underwriting

Date: May 31, 2011

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

MSRB ADOPTS DEALER ROLE-SWITCHING PROHIBITION TO ELIMINATE
CONFLICT OF INTEREST IN MUNICIPAL SECURITIES UNDERWRITING

Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) has adopted a significant rule change to address concerns over conflicts of interest by financial intermediaries in municipal bond underwritings. The change prohibits municipal securities dealers from acting as a financial advisor to a municipal entity on a new bond issue and subsequently acting as an underwriter on the same issue.

“This prohibition addresses conflicts of interest, real or perceived, that are too great for disclosure and consent to overcome,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “We have carefully considered the distinct roles involved in bringing a new municipal securities issue to market and this rule change preserves the integrity of the new issue market for the benefit of all market participants.”

The changes to MSRB Rule G-23 are effective November 27, 2011.

MSRB Rule G-23 previously allowed a dealer serving as financial advisor for a new issue of municipal securities to resign from such role and serve as underwriter for the same issue if certain disclosure and consent requirements were met. Revised MSRB Rule G-23 prohibits such role-switching for new issues sold on both a negotiated and competitive bid basis.

The revised rule also prohibits a dealer that serves as a financial advisor for a particular issue from serving as the initial remarketing agent for the same issue. The rule will permit a dealer to serve as successor remarketing agent for the issue if the dealer’s financial advisory relationship with the issuer had been terminated for at least one year.


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.