MSRB NOTICE 2010-42 (OCTOBER 1, 2010)



Effective today, Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law No. 111-203 (the “Dodd-Frank Act”), has broadened the mission of the Municipal Securities Rulemaking Board (the “MSRB”) to include the protection of municipal entities[1] and obligated persons in addition to the protection of investors and the public interest.  The Dodd-Frank Act also requires the MSRB to adopt rules with respect to municipal advisors[2] and provides for municipal advisor representation on the Board of the MSRB (the “Board”), which as of today has a majority of public, independent members.[3]

“Municipal advisors” include businesses and individuals that advise municipal entities concerning municipal financial products and municipal securities, as well as businesses and individuals who solicit certain types of business from municipal entities on behalf of unrelated broker-dealers, municipal advisors, or investment advisers.  Municipal advisors include many market participants not previously subject to regulation by the MSRB, as well as certain brokers, dealers, and municipal securities dealers (“dealers”) whose activities already are subject to MSRB rules. 


The Dodd-Frank Act provides that the rules promulgated by the MSRB for municipal advisors must, among other things: (1) promote fair dealing, the prevention of fraudulent and manipulative acts and practices, and the protection of investors, municipal entities, and obligated persons; (2) prescribe means reasonably designed to prevent acts, practices, and courses of business that are not consistent with a municipal advisor’s fiduciary duty to its municipal entity clients; (3) prescribe professional standards; (4) provide continuing education requirements; (5) provide for periodic examinations; (6) provide for recordkeeping and record retention; and (7) provide for reasonable fees and charges necessary or appropriate to defray the costs and expenses of operating and administering the Board.  MSRB rules may not impose a regulatory burden on small municipal advisors that is not necessary or appropriate in the public interest and for the protection of investors, municipal entities, and obligated persons, provided that there is robust protection of investors against fraud.

As currently written, MSRB rules expressly apply solely to dealers.  Rulemaking by the MSRB will be necessary to adapt existing rules and to adopt new rules for municipal advisors and the activities they undertake, except with respect to those municipal advisors that are dealers providing financial advisory services to issuers of municipal securities (“dealer financial advisors”), to which MSRB rules already apply.  Otherwise, no MSRB rules are currently applicable to municipal advisors.  Municipal advisors should note, however, that, pursuant to amended Section 15B(c)(1) of the Exchange Act, they are subject to a federal fiduciary duty to their municipal entity clients as of today, even before MSRB rulemaking on the subject.

Section 15B(a)(2) of the Exchange Act provides that, effective today, it is unlawful for a municipal advisor to provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person, unless the municipal advisor is registered with the Securities and Exchange Commission (SEC).  Instructions on the SEC registration process for municipal advisors may be found on the SEC’s website.  The MSRB will begin its own registration process following the adoption of associated MSRB administrative rules.

The MSRB will conduct its first Board meeting for its 2011 fiscal year from October 20-22, 2010.  Municipal advisors who wish to learn more about rulemaking by the Board, including rulemaking for municipal advisors, may sign up to receive e-mail alerts in the Municipal Advisor News section of the MSRB’s website.     

October 1, 2010

[1] “Municipal entity” is defined in Section 15B(e)(8) of the Securities Exchange Act of 1934, as amended by the Dodd-Frank Act (the “Exchange Act”).  A copy of revised Section 15B may be found on the MSRB website.

The MSRB has previously interpreted its Rule G-17 to require brokers, dealers, and municipal securities dealers to deal fairly with all persons, including issuers of municipal securities.  See, e.g., MSRB Notice 2009-54 (September 29, 2009).

[2] “Municipal advisor” is defined in Section 15B(e)(4) of the Exchange Act.

[3] See MSRB Notice 2010-33 (August 27, 2010) for a description of the composition of the Board under this new structure.  See also Exchange Act Release No. 34-63025 (September 30, 2010), approving the MSRB’s transitional Rule A-3 (on membership on the Board).  The MSRB has amended and restated its Articles of Incorporation to reflect its expanded jurisdiction, effective October 1.  See SR-MSRB-2010-11 (October 1, 2010).