MSRB Requests Comment on Municipal Advisor Gifts and Gratuities Rule

Date: February 22, 2011

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

Rule Would Address Municipal Advisor Conflict of Interest

Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today issued a request for comment on draft amendments to MSRB Rule G-20 (on gifts and gratuities), which would apply the rule to municipal advisors. The MSRB is seeking to ensure that engagements of municipal advisors are awarded on the basis of merit and not as a result of gifts made to employees controlling the awarding of such business.

MSRB Rule G-20 currently prevents municipal securities dealers from attempting to induce other organizations active in the municipal market to engage in business with such dealers by means of personal gifts or gratuities given to employees of the organizations.

Amended MSRB Rule G-20 would prohibit municipal advisors giving, directly or indirectly, any thing of service or value over $100 to a person other than an employee or partner of the municipal advisor, if such payments or services are in relation to the municipal advisory activities of the municipal advisor.

The draft amendments to MSRB Rule G-20 would provide certain exemptions from the rule’s prohibitions on the gift-giving activities of municipal advisors, permitting occasional gifts of meals or tickets to certain events hosted by the municipal advisor and attendance at legitimate business functions sponsored by the municipal advisor that are recognized as a deductible business expense by the Internal Revenue Service. The amendments would also allow gifts of reminder advertising, so long as such gifts are not so frequent or extensive as to raise a suggestion of unethical conduct.

“The MSRB is working to address the potential conflicts of interest facing municipal advisors,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “We recognize that a balance must be struck between ensuring the integrity of the municipal market and still allowing legitimate business activities to take place; a limit on municipal advisor gifts would appropriately balance these interests.”

The MSRB has authority to regulate municipal advisors pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was signed into law July 21, 2010. The Dodd-Frank Act also requires the MSRB to protect municipal entities and obligated persons, in addition to protecting investors.

The MSRB recently issued requests for comment on other MSRB rule initiatives to address municipal advisor conflicts of interest, including a request for comment on a draft municipal advisor pay to play rule, a request for comment on a draft fiduciary duty rule for municipal advisors and a request for comment on an MSRB interpretation regarding the application of the MSRB’s “fair dealing” rule to municipal advisors.

Comments on the MSRB’s amendments to Rule G-20 are due by April 5, 2011, and should be submitted to with Notice 2011-16 appearing in the subject line.

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.