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Compliance Corner: Fall 2022

Help Inform the MSRB’s Mission by Volunteering on its Compliance Advisory Group 

By Saliha Olgun, Interim Chief Regulatory Officer

Volunteering to serve on one of the MSRB’s Board Advisory Groups is an important way for municipal market participants to engage with the MSRB and help inform its mission and strategic initiatives. Lending insight and perspectives about the unique and often complex nature of the market can help the MSRB develop tools and resources to benefit the market and can be a rewarding experience for volunteers.   

“I joined the MSRB’s EMMA Development Advisory Group in 2013 and was immediately appreciative of the vast amounts of knowledge that came from discussions among the group,” says Board Member Donna Simonetti. “Everyone involved was committed to increasing transparency and developing technology to help protect investors, and several of us enjoyed the experience so much that we have continued to serve in various other roles with the MSRB.”  

The MSRB has relied on the input of municipal market experts on its advisory groups for nearly two decades. In 2005, the MSRB created its first advisory groups – the Issuer and Investor Advisory Groups -- to help fulfill its mission of investor protection at the time. Over the past two decades, the MSRB’s advisory groups have evolved to suit the needs of the MSRB and the municipal securities market.  

For FY 2023, the MSRB is seeking applicants for its Compliance Advisory Group (CAG) who are associated persons of a regulated entity and serve in compliance, legal, trading, and operations functional roles. The MSRB seeks individuals who will bring diverse backgrounds, experiences and perspectives, and endeavors to promote greater representation of underrepresented minorities and women on its advisory groups.  

Individuals interested in becoming a member of CAG should email their name, a resume or biography documenting their experience in the municipal securities market along with a statement of interest in serving on the advisory group, to Sara Ahmadzai at sahmadzai@msrb.orgThe MSRB will accept volunteer submissions through Monday, November 21, 2022.
See the notice for more information. 


Saliha Olgun
Interim Chief
Regulatory Officer


Compliance Frequently Asked Questions (FAQs)

This periodic feature provides answers to commonly asked questions about compliance with MSRB rules. The answers to these questions do not create new legal or regulatory requirements or new interpretations of existing requirements and should not be interpreted by regulated entities or examining authorities as establishing new standards of conduct. This resource should be read in conjunction with MSRB rules and interpretations. The complete text of all MSRB rules and interpretations is available here .

Q :   Rule G-14(d)(vii) provides that a “List Offering Price/Takedown Transaction” must meet certain definitional requirements, including, among others, that the transaction be a “primary market sale transaction.” Has the MSRB provided any further guidance on when a transaction should not be identified as a “primary market sale transaction” for purposes of Rule G-14’s “List Offering Price/Takedown Transaction” definition?  

A :   Yes. In a primary offering of municipal securities where a syndicate is formed, once a maturity (or maturities) of new issue securities has been released to trade at prices other than the list offering price ( i.e., a free to trade wire has been sent), normal transaction reporting rules apply, and such transactions should no longer be identified as primary market sale transactions for purposes of Rule G-14. As a result, for purposes of reporting transactions after the free-to-trade information has been disseminated for a particular maturity (or maturities), syndicate managers, syndicate members, and selling group members should no longer identify a transaction as a “List Offering Price/Takedown Transaction” under Rule G-14, even if such transactions are executed on the first day of trading at the published list offering price of the security. See MSRB Notice 2019-15 (June 28, 2015) at note 6.

Compliance Tip: Understanding the Source of Funds (July 2022)

Many have pondered if “money doesn’t grow on trees, then why do banks have branches,” which still remains an unanswered question. Dealers must do their part in determining where money (funds) deposited into municipal entity clients’ accounts comes from--specifically, whether the funds are derived from municipal bond proceeds or municipal escrow investments.  

With respect to municipal entity client accounts, keep in mind that if a representative provides advice pertaining to bond proceeds, such advice may trigger municipal advisor registration requirements and the obligation to comply with applicable MSRB rules.

Compliance Calendar

Dealers and municipal advisors should note the following key compliance dates and deadlines.

December 27, 2022 - Expiration of 120-Day Extension Related to Principal Professional Qualification Examinations and to Meet Certain CE Requirements. See MSRB Notice 2022-05 for further information.

March 1, 2023 - Last Day to Submit Form G-45 Report for Semi-Annual Reporting Period Ending December 31, 2022.

Enforcement Insight

This periodic feature summarizes a recent enforcement matter brought by an examining authority, which includes the SEC, FINRA or applicable bank regulator, relevant to the municipal securities market. Enforcement matters can, when applicable, inform firms and help identify potential compliance risks. Read about the MSRB’s regulatory coordination and enforcement support .

On September 13, 2022, the Securities and Exchange Commission (SEC) announced settled actions with three underwriting firms, BNY Mellon Capital Markets LLC (BNYCM), TD Securities (USA) LLC (TD Securities) and Jefferies LLC (Jefferies), addressing the firms’ failures to comply with municipal bond offering disclosure requirements. At the same time, the SEC filed a  complaint  against another broker-dealer alleging the same violations, and also alleging that the firm made deceptive statements, in violation of MSRB Rule G-17.  These are the first SEC actions that address underwriters who failed to meet the provisions of Exchange Act Rule 15c2-12 relating to underwriter participation in limited primary offerings of municipal securities.

Before purchasing or selling municipal securities in connection with a primary offering of municipal securities, Rule 15c2-12 requires an underwriter to reasonably determine that an issuer of municipal securities or an obligated person has undertaken in a written agreement or contract, for the benefit of holders of such securities, to provide annual reports containing certain financial information and operating data to the MSRB, as well as timely notice of certain specified events pertaining to the municipal securities being offered. When the Commission adopted the rule in 1989, it created exemptions for certain offerings, including an exemption for limited offerings. Specifically, Section (d)(1)(i) of the rule exempts primary offerings of municipal securities “in authorized denominations of $100,000 or more, if such securities … are sold to no more than thirty-five persons each of whom the underwriter reasonably believes: (A) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the prospective investment; and (B) is not purchasing for more than one account or with a view to distributing the securities.”

The SEC found that these underwriters sold municipal securities offerings to broker-dealers and investment advisers without a reasonable belief that these purchasers were buying the securities for one account or for investment without a view for distribution, as required under Rule 15c2-12(d)(1)(i). The underwriters also failed to determine for whom the broker-dealers and investment advisers were purchasing the securities, and, therefore, the underwriters did not have a reasonable belief that those investing in the municipal securities possessed the necessary knowledge and experience to evaluate the investments. As a result, the exempt limited offerings in question did not qualify for the exemption under Rule 15c2-12(d)(1)(i).

MSRB Rule G-27, on supervision, requires underwriters of municipal securities to adopt, maintain and enforce written supervisory procedures reasonably designed to ensure that the conduct of the municipal securities activities of the broker, dealer or municipal securities dealer and its associated persons is in compliance with the Exchange Act and MSRB rules. The SEC found that these underwriters did not have any policies or procedures concerning Rule 15c2-12(d)(1)(i) with respect to the process the firm established and maintains to form a reasonable belief that persons to whom it sold municipal securities pursuant to the limited offering exemption: (a) had such knowledge and experience in financial and business matters that they were capable of evaluating the merits and risks of the prospective investment in the offering of municipal securities; and (b) were not purchasing for more than one account or with a view to distributing the municipal securities.

As a result of the conduct, the SEC found that the underwriters violated Exchange Act Rule 15c2-12, MSRB Rule G-27, on supervision, and Section 15B(c)(1) of the Exchange Act for failing to comply with MSRB Rule G-27. Each underwriting firm agreed to cease and desist from future violations of these provisions, a censure and to pay monetary relief in the form of disgorgement with prejudgment interest and a fine. The SEC noted that as a result of its findings in these investigations, SEC staff has begun investigations of other firms’ reliance on the limited offering exemption.

Regulatory Roundup

Keep up with current requests for comment, updated regulatory requirements and upcoming rule filings, and learn about opportunities to provide input at various stages of the MSRB’s rulemaking process.

August 2, 2022 - MSRB Seeks Comment on Potential Benefits and Challenges of Shortening Trade Reporting to Within One Minute

August 9, 2022 - MSRB Publishes Summary of Responses to its Request for Information on ESG Practices in the Municipal Securities Market

September 16, 2022 - MSRB Votes to Amend Municipal Advisor Advertising and Registration Rules

October 28, 2022 - MSRB Holds First Quarterly Board Meeting of New Fiscal Year