(Volume 17, Number 1) JANUARY 1997
Route To: Manager, Muni Department Underwriting Public Finance Compliance
1. Q: Is there specific information concerning the role to be performed by a consultant that a dealer must disclose on Form G-37/G-38?
A: The role to be performed by a consultant may be described in general terms on Form G-37/G-38; however, dealers must include the state or geographic area in which the consultant is working on behalf of the dealer.
2. Q: When providing the information required to be disclosed on Form G-37/G-38, how should dealers describe the consultant's compensation arrangement?
A: Dealers must ensure that the compensation arrangement is clearly described and that it correlates with the information being disclosed concerning the total dollar amount paid to the consultant during the reporting period and the dollar amounts paid in connection with particular municipal securities business. - For example, if a consultant is paid a monthly retainer, the amount of the monthly retainer must be disclosed and the total dollar amount paid during the reporting period must be reported. - If a consultant is reimbursed for expenses, the amount of the reimbursed expenses must be disclosed either separately or within the total dollar amount paid for the quarter. - If a consultant is to be paid a success fee, dealers must disclose how the success fee will be arrived at (e.g., a certain percentage of profits). The sum total of the dollar amounts paid to the consultant in connection with particular municipal securities business should equal the total dollar amount paid to the consultant during the reporting period. - In addition, if any discretionary bonus or similar payment is made, this amount must be included within the total amount paid for the quarter in which it is paid.
3. Q: What information must a dealer disclose on Form G-37/G-38 for the dollar amounts paid to a consultant connected with particular municipal securities business?
A: If any payment made during the reporting period is related to a consultant's efforts on behalf of the dealer which resulted in particular municipal securities business, whether the municipal securities business was completed during that or a prior reporting period, then the dealer must separately identify that business and the dollar amount of the payment.
4. Q: Rule G-38 requires a dealer to disclose in writing its consulting arrangements to an issuer with which it is engaging or seeking to engage in municipal securities business and this written disclosure must include, among other things, the compensation arrangement. What is the level of disclosure required to issuers of the compensation arrangement with consultants?
A: The written disclosure to issuers of the compensation arrangement must explain the arrangement. - For example, if a consultant is paid a monthly retainer, the amount of the monthly retainer must be disclosed. - If a consultant also is reimbursed for expenses, this fact must be noted. - If a consultant is to be paid a success fee, the dealer must disclose to the issuer how that fee will be arrived at (e.g., a certain percentage of profits).
November 18, 1996
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