MSRB Requests Comment on Proposal to Limit Dealers from Providing Consents on Behalf of Bondholders

Date: July 5, 2012

Contact: Jennifer A. Galloway
             (703) 797-6600


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today published a draft proposal for public comment that would prohibit dealers from consenting to any amendment to bond authorizing documents for municipal securities except in limited circumstances.

The draft proposal is intended to address the practice of underwriters providing consents to changes in legal documents that set forth key rights of and protections for owners of municipal securities and that state that consents are to be provided by the bond owners. The MSRB is concerned that existing bondholders would not have contemplated that an underwriter, which may hold the bonds only momentarily during the initial distribution process without any prior or future economic or investment interest in the bonds, could provide consent to changes that would affect existing bondholders, who have a vested interest in assessing the potential impact of any amendment to the authorizing documents.

In February, the MSRB requested public comment on a prior draft proposal that outlined circumstances under which an underwriter’s consent to certain changes to bond authorizing documents would violate a dealer’s MSRB Rule G-17 obligation of “fair dealing.” After reviewing the comments received from market participants, the MSRB recognized that dealers should be prohibited from providing consent to all types of amendments to bond authorizing documents, subject to limited exceptions.

Under the new draft proposal, a dealer would be able to provide bondholder consents to changes in authorizing documents for municipal securities owned by the dealer as an investment. Further, a dealer, acting in its capacity as a remarketing agent, could provide bondholder consents to changes in authorizing documents for municipal securities it holds as a result of a mandatory tender, provided all outstanding securities affected by such amendment had been tendered. Consents to changes in authorizing documents could also be given by a dealer, acting as an underwriter or remarketing agent, in circumstances where the amendment would not become effective until all bondholders affected by the amendment (except those for which the dealer was providing consent) had also consented to the amendment.

“The MSRB believes that this draft proposal will address our concern that underwriters are providing bondholder consent to document changes under circumstances that might adversely affect existing bondholders,” said MSRB Executive Director Lynnette Kelly. “The draft proposal reaches a fair balance between protecting existing bondholders’ interests and continuing to provide efficient means for municipal securities dealers to assist issuers in making changes to bond authorizing documents with appropriate safeguards for bondholders.”

The MSRB welcomes further comments and suggestions for streamlining and improving methods of identifying and obtaining consents from bondholders.

Comments should be submitted no later than August 13, 2012.

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.