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Contact: Jennifer A. Galloway, Chief Communications Officer
             (703) 797-6600
             jgalloway@msrb.org 

MSRB ADOPTS DEALER ROLE-SWITCHING PROHIBITION TO ELIMINATE
CONFLICT OF INTEREST IN MUNICIPAL SECURITIES UNDERWRITING

Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) has adopted a significant rule change to address concerns over conflicts of interest by financial intermediaries in municipal bond underwritings. The change prohibits municipal securities dealers from acting as a financial advisor to a municipal entity on a new bond issue and subsequently acting as an underwriter on the same issue.

“This prohibition addresses conflicts of interest, real or perceived, that are too great for disclosure and consent to overcome,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “We have carefully considered the distinct roles involved in bringing a new municipal securities issue to market and this rule change preserves the integrity of the new issue market for the benefit of all market participants.”

The changes to MSRB Rule G-23 are effective November 27, 2011.

MSRB Rule G-23 previously allowed a dealer serving as financial advisor for a new issue of municipal securities to resign from such role and serve as underwriter for the same issue if certain disclosure and consent requirements were met. Revised MSRB Rule G-23 prohibits such role-switching for new issues sold on both a negotiated and competitive bid basis.

The revised rule also prohibits a dealer that serves as a financial advisor for a particular issue from serving as the initial remarketing agent for the same issue. The rule will permit a dealer to serve as successor remarketing agent for the issue if the dealer’s financial advisory relationship with the issuer had been terminated for at least one year.

The Municipal Securities Rulemaking Board (MSRB) protects and strengthens the municipal bond market, enabling access to capital, economic growth, and societal progress in tens of thousands of communities across the country. The MSRB fulfills this mission by creating trust in our market through informed regulation of dealers and municipal advisors that protects investors, issuers and the public interest; building technology systems that power our market and provide transparency for issuers, institutions, and the investing public; and serving as the steward of market data that empowers better decisions and fuels innovation for the future. The MSRB is a self-regulatory organization governed by a board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is overseen by the Securities and Exchange Commission and Congress.

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