MSRB NOTICE 2005-48 (SEPTEMBER 1, 2005)


On September 1, 2005, amendments to Municipal Securities Rulemaking Board (“MSRB”) Rule G-21, on advertising, establishing specific requirements with respect to advertisements by brokers, dealers and municipal securities dealers (“dealers”) relating to municipal fund securities become effective.[1]  The amendments include general disclosure requirements regarding municipal fund securities that are similar in most respects to generalized disclosures currently required for mutual fund advertisements under rules of the Securities and Exchange Commission (“SEC”).  In addition, the amendments incorporate certain prior interpretations relating to municipal fund securities.[2]  All advertisements of municipal fund securities submitted or caused to be submitted for publication by a dealer on or after September 1, 2005 must comply with the amendments summarized below.[3]

General Disclosures

New section (e)(i)(A) of Rule G-21 requires that all dealer advertisements relating to municipal fund securities include generalized disclosure that: (1) advises investors to consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing; (2) explains that more information about municipal fund securities is available in the issuer’s official statement; (3) if the advertisement identifies a source from which an investor may obtain an official statement and the dealer that publishes the advertisement is the underwriter for the municipal fund securities for which such official statement may be supplied, states that such dealer is the underwriter for such municipal fund securities; and (4) states that the official statement should be read carefully before investing.

New section (e)(i)(B) of Rule G-21 requires that all dealer advertisements that refer by name (including marketing name) to any municipal fund security, issuer of municipal fund securities, governmental entity that sponsors the issuance of municipal fund securities, or to any securities held as assets of municipal fund securities or to any issuer of such securities held as assets, must include additional disclosure that:  (1) identifies a source from which an investor may obtain an official statement; (2) if the advertisement relates to municipal fund securities issued through a 529 college savings plan, advises an investor to consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 college savings plan; and (3) if the advertisement is for a municipal fund security that the issuer holds out as having the characteristics of a money market fund, states that an investment in the security is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency (unless such guarantee is provided by or on behalf of such issuer) and that, if the security is held out as maintaining a stable net asset value, although the issuer seeks to preserve the value of the investment at a fixed share price, it is possible to lose money by investing in the security.

New section (e)(i)(D) of Rule G-21 requires that these general disclosures be presented in the same format required by Rule 482 relating to mutual fund advertisements adopted by the SEC under the Securities Act of 1933.

Additional Requirements

The amendments include in new paragraphs (iii) through (vi) of Rule G-21(e) additional requirements with respect to municipal fund security advertisements, based largely on prior interpretive guidance.

Nature of Issuer and Security.  New paragraph (iii) requires that an advertisement: (1) for a specific municipal fund security provide sufficient information to identify the security in a manner that is not false or misleading; (2) that identifies a specific municipal fund security include the name of the issuer (or its marketing name, including state), presented in a manner no less prominent than any other entity identified in the advertisement, and not imply that a different entity is the issuer; (3) not raise an inference that, because municipal fund securities are issued under a government-sponsored plan, investors are guaranteed against investment losses if no such guarantee exists; and (4) that concerns a specific class or category of municipal fund securities (e.g., A shares versus B shares; direct sale shares versus advisor shares; in-state shares versus national shares; etc.) clearly disclose this fact in a manner no less prominent than the information provided with respect to such class or category.

Capacity of Dealer and Other Parties.  New paragraph (iv) requires an advertisement about services provided with respect to municipal fund securities to clearly indicate the entity providing such services.  If any person or entity other than the dealer is named in the advertisement, it must reflect any relationship between the dealer and such other person or entity. An advertisement soliciting purchases that would be effected by any party other than the dealer that publishes the advertisement (i.e., the issuer or another dealer) must identify which entity would effect the transaction, provided that it may identify one or more such entities in general descriptive terms but must specifically name any such other entity if it is the issuer, an affiliate of the issuer, or an affiliate of the dealer that publishes the advertisement.

Tax Consequences and Other Features.  New paragraph (v) requires that any discussion of tax implications or other benefits or features of investments in municipal fund securities included in an advertisement not be false or misleading.  If an advertisement includes statements regarding tax or other benefits offered in connection with such municipal fund securities or otherwise offered under state or federal law, it must also state that the availability of such tax or other benefits may be conditioned on meeting certain requirements.  If the advertisement describes the nature of specific benefits, such advertisement must also briefly name the factors that may materially limit the availability of such benefits (such as residency, purpose for or timing of distributions, or other factors, as applicable).[4]  Such statements of conditions or limitations must be presented in close proximity to, and in a manner no less prominent than, the description of such benefits.

Underlying Registered Securities.  New paragraph (vi) requires that, if an advertisement for a municipal fund security provides specific details of a security held as an underlying asset of the municipal fund security, the details included in the advertisement relating to such underlying security be presented in a manner that would be in compliance with any SEC or NASD advertising rules that would be applicable if the advertisement related solely to such underlying security.  Details of the underlying security included in the advertisement must be accompanied by any further statements necessary to ensure that the inclusion of such details does not cause the advertisement to be false or misleading with respect to the municipal fund securities advertised.  This provision does not limit the applicability of any rule of the SEC, NASD or any other regulatory body relating to advertisements of securities other than municipal fund securities, including advertisements that contain information about such other securities together with information about municipal fund securities.

Exemption from New Issue Price/Yield Requirement

The amendments exempt municipal fund security advertisements from the provision of Rule G-21(d) relating to advertisements of initial reoffering prices or yields of new issue municipal securities.

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Questions regarding this notice and amended Rule G-21 may be directed to Ernesto A. Lanza, Senior Associate General Counsel, or Ghassan Hitti, Assistant General Counsel.

September 1, 2005

[2] Additional amendments to Rule G-21 relating to calculation and display of performance data for municipal fund securities will become effective on December 1, 2005.  See MSRB Notice 2005- 45 (August 23, 2005) and MSRB Notice 2005-31 (May 27, 2005).

[3] The full text of Rule G-21 is available at [click here to access Rule G-21].

[4] For example, if an advertisement notes that investors in a particular 529 college savings plan may qualify for scholarships or matching grants, it may also need to state that such scholarships or matching grants are available only for attendance at in-state colleges or to in-state investors, if that is in fact the case.