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

MSRB ISSUES ADVISORY ON THE POTENTIAL APPLICABILITY OF MSRB RULES TO
CERTAIN BANK LOANS AND DIRECT PURCHASES
 

Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today issued an advisory on the potential applicability of MSRB rules to certain municipal finance transactions that have become popularly known as bank products, but may in fact entail securities transactions triggering specific regulatory requirements. The advisory covers certain financings called “bank loans” that could, depending on the nature of the transactions, be placements of municipal securities, as well as certain “direct purchases” by banks of issuers’ securities that are subsequently restructured so significantly that they may constitute primary offerings of securities.

“The specific nature of market transactions and the activities performed by market professionals must be appropriately understood by such professionals, regardless of how the transactions are labeled,” said MSRB Executive Director Lynnette Kelly Hotchkiss. “Not doing so can result in the failure of market professionals to meet their legal obligations to investors and issuers."

A broker-dealer serving as a placement agent for municipal securities or for a direct purchase by a bank of municipal securities is subject to all MSRB rules and other federal securities laws. The MSRB’s advisory notes that these include the obligation to report primary offerings under MSRB Rule G-32. Other applicable MSRB rules include those covering trade reporting, fair dealing, CUSIP numbers, pay to play prohibitions and underwriting assessments.

Furthermore, a municipal advisor that advises a state or local government issuer on the issuance municipal securities (including the direct purchase by a bank of the issuer’s securities followed by a restructuring of the securities that is considered a primary offering of municipal securities) is subject to MSRB municipal advisor rules. Such a municipal advisor would be subject to the new federal fiduciary duty to the issuer established under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Many bank financings involve the issuance of a note. In the case of Reves v. Ernst & Young, Inc., 494 U.S. 56 (1990), the U.S. Supreme Court set forth factors used to determine whether a note is a security. The MSRB’s advisory discusses each of these factors and suggests dealers and municipal advisors that play a role in bank financings evidenced by notes should consult with their counsel on whether the note is a security under Reves.


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.