MSRB NOTICE 2011-66 (NOVEMBER 28, 2011)


The Municipal Securities Rulemaking Board (the “MSRB”) reminds brokers, dealers and municipal securities dealers (“dealers”) that the revised provisions of MSRB Rule G-23, on activities of financial advisors, and a related interpretive notice (together, the “Rule G-23 Revisions”), have become effective for any new issue for which the Time of Formal Award (as defined in Rule G-34(a)(ii)(C)(1)(a)) occurs today or later.[1]  For a detailed description of the Rule G-23 Revisions, see MSRB Notice 2011-65 (November 18, 2011).

The MSRB has received a number of inquiries regarding the potential effect on the application of the Rule G-23 Revisions resulting from the pending nature of the proposed definitional provisions in the Securities and Exchange Commission’s rule proposal on registration of municipal advisors (the “SEC Proposal”).[2]  In particular, some market participants have asked whether certain activities undertaken by dealers in the course of serving as an underwriter for a new issue of municipal securities, if such activities are viewed as municipal advisory activities within the meaning of the SEC Proposal or in any final rulemaking resulting from the proposal (the “Final SEC Rule”), would be prohibited by the Rule G-23 Revisions.

The MSRB has made clear that Rule G-23 serves solely as a conflicts-of-interest rule and does not address whether the provision of any of the advice permitted by Rule G-23 would cause a dealer to be considered a “municipal advisor” that is subject to a fiduciary duty under Section 15B(c)(1) of the Securities Exchange Act of 1934, as amended.  Similarly, any advice or other activities that may ultimately be determined to be municipal advisory activities within the meaning of the Final SEC Rule would not automatically be viewed as resulting in a violation of Rule G-23 if undertaken by an underwriter.  In the same vein, commentary by the MSRB and market participants on the SEC Proposal about what activities constitute municipal advisory activities, and the extent to which such activities may also be undertaken by others without causing such other parties to be treated as municipal advisors, for purposes of the Final SEC Rule should not be viewed as providing guidance as to whether such activities undertaken by an underwriter would result in a violation of Rule G-23.  Rather, the determination of whether any activity undertaken by an underwriter may be violative of Rule G-23 would be made pursuant to the provisions of the Rule G-23 Revisions and any future interpretive guidance or rulemaking undertaken by the MSRB in connection with such provisions.

[1] Rule G-34(a)(ii)(C)(1)(a) defines "Time of Formal Award" as, for competitive issues, the later of the time the issuer announces the award or the time the issuer notifies the underwriter of the award, and, for negotiated issues, the later of the time the contract to purchase the securities from the issuer is executed or the time the issuer notifies the underwriter of its execution.

[2] Registration of Municipal Advisors, Exchange Act Release No. 63576 (December 20, 2010), 76 FR 824 (January 6, 2011).

November 28, 2011