MSRB Files Amendments to Underwriter Fair Dealing Proposal

Date: November 3, 2011

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


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today filed amendments to its proposal regarding the duties of underwriters to state and local government issuers under the MSRB’s “fair dealing” rule.

The MSRB’s proposal, which is awaiting approval from the Securities and Exchange Commission (SEC), would for the first time establish detailed obligations of underwriters of municipal securities to their state and local government clients regarding clear disclosure of risks and conflicts of interest, among other things.

The amendments, which in part address comments received from market participants, would enhance certain disclosure requirements for underwriters as well as clarify the risks disclosure part of the proposal. The amendments would require more robust disclosures from underwriters to state and local government issuers regarding the underwriter’s role, compensation and actual or potential conflicts of interest. 

Among the required disclosures would be a statement that, although the underwriter has a duty to deal fairly with the issuer, unlike a municipal advisor, the underwriter does not have a federal fiduciary duty to the issuer. An underwriter would also be required to disclose whether its compensation is contingent upon the closing of the transaction and that contingent fee compensation presents a conflict of interest, as it may cause the underwriter to recommend a transaction that it is unnecessary or larger than necessary.

“It is important that state and local governments understand in very specific terms what to expect from their underwriters and the financial risks of the transactions underwriters recommend,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “The disclosures required by the notice should help issuers make informed decisions about the transactions they enter into.”

Comments about the MSRB’s proposal should be submitted to the SEC.

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.