In a May 4 joint public statement, SEC Chair Clayton and Municipal Securities Office Director Rebecca Olsen urged municipal issuers to make voluntary disclosures specific to issuers, and their various outstanding municipal securities, regarding the effect of COVID-19 on present and expected future operating and financial status.
Municipal issuers are obligated under SEC Rule 15c2-12 to provide annual audited financial disclosures and disclosures of certain material events. The MSRB’s description of the Rule is here.
The SEC’s statement emphasized the relative size and ...
Last week, the MSRB issued "guidance" on the application of Rule G-42 conduct standards for Municipal Advisors in conduit issues. The "guidance" highlights ambiguities from the "for or on behalf" language in the MA Rule when applied to conduit issues (where the MA interacts with both the municipal issuer and the conduit borrower).
Beyond issue-spotting though, the "guidance" merely urges care and defers to the SEC for after-the-fact "facts and circumstances" determinations. In fact, it includes a "don't ask us" disclaimer: These "are interpretive issues that are solely within ...
The Sixth Circuit this week declined the SEC's request to dismiss a Constitutional challenge to the new MSRB pay-to-play rules. Instead, the Court ordered the case to a merits panel for consideration. The Republican parties of Tennessee, Georgia and New York are challenging the regulations in consolidated actions.
The SEC argued that its tacit "deemed approval" of new MSRB pay-to-play rules didn't constitute agency action. The SEC's "no we didn't" argument was an attempt to avoid judicial review of the agency's [in]action that allowed the rules to become effective. I discussed the ...
The SEC announced August 25 that it approved FINRA's pay-to-play rules governing placement-agent or solicitor broker-dealers and was "prepared" to approve the extension of MSRB Rule G-37 to municipal advisors as well.
The two rule proposals would complete the pay-to-play suite of rules across municipal securities dealers, investment advisors, broker-dealers, and municipal advisors. The bedrock Rule - MSRB's Rule G-37 governing municipal finance professionals and dealers - has been in place since 1994. After Dodd-Frank's expansion of municipal-advisory regulation, the ...
In an August 1 release, the MSRB said it has scratched a proposed rule that would have required reporting of direct-purchases and bank loans by municipal issuers.
In the March concept release (MSRB Reg. Notice 2016-11) , the MSRB noted concerns that municipal borrowings in the form of direct purchases or bank loans increased the risk to investors in municipal securities if the other borrowings remained undisclosed. The Board's concept release proposed rule-making that would require municipal advisors and others to disclose such borrowings. That proposal, though, posed potential ...
This SRO gamesmanship is making a mockery of governing.
The latest is the SEC's position that it didn't take any action on the new MSRB Rules extending pay-to-play prohibitions to municipal advisors, so it can't be sued to stop the implementation of the regulations implemented by the MSRB under the SEC's jurisdiction. Making it only worse, the SEC says that it's because Congress prohibited the Agency from spending any money on this part of the Dodd-Frank mandate Congress required.
Whaaat?!? So hold onto your hat, as we go down the rabbit hole to explain this:
The MSRB: The SEC's ...
The MSRB's amended Rule G-42 becomes effective June 23, prescribing new conduct standards for municipal advisors and for the underwriters working with them. In advance of the effective date, the MSRB has published interpretive guidance on the new Rule:
- A fiduciary duty of care and loyalty to municipal entity clients - but only a duty of care to obligated persons (like conduit borrowers);
- A written engagement-letter and conflict-disclosure regime;
The Municipal Securities Rulemaking Board ("MSRB") issued a concept release last month suggesting that market transparency trumps the direct Congressional prohibition against federal regulations requiring filing of information by (or by broker-dealers, from) municipal issuers (the "Tower Amendment").
Regulators are concerned that direct purchases of municipal debt (akin to private placements) and bank loans to municipal entities might avoid the municipal securities regulatory regime, yet affect the priority and integrity of municipal securities:
The MSRB has ...
An article in this weekend's Wall Street Journal called for FINRA to make the database underlying its BrokerCheck ® system (of reports on stockbroker registration and disciplinary history) more widely available for data mining and analysis by public-sector participants.
The article roundly criticized FINRA's interface that limits public access to peep-show, one-broker-at-a-time reports: "In the age of Big Data, it is time to liberate the BrokerCheck files. Only when information is set free can it turn into insight." J. Zweig, "Is Your Stockbroker Great or Mediocre?" Wall ...
On April 12, the Tennessee Republican Party filed a petition in the US Sixth Circuit Court of Appeals, seeking to invalidate the SEC's approval of new rules extending the MSRB's long-standing "pay-to-play" prohibitions to new municipal advisors.
The MSRB has prohibited "pay-to-play" practices in the municipal securities space since its Rule G-37 was promulgated in 1994. The Rule does not prohibit political contributions by bond dealers outright, but instead prohibits them from doing business with issuers to who's elected officials a dealer has made political ...
The MSRB's Rule G-37 amendments applying pay-to-play prohibitions to Municipal Advisors and their third-party solicitors will become effective August 17, 2016. The proposed amendments extend Rule G-37 to municipal advisers and third-party solicitors:
- Imposing a two-year ban on business with municipal entities after any contribution to an issuer official who can influence municipal-advisory business, subject to $250 de minimis exclusion to officials for whom a contributor can vote;
- Prohibiting soliciting, coordinating ("bundling"), and contributions to state/local ...
On Christmas Eve's eve, the SEC approved, without change, the MSRB's proposed conduct rule for municipal advisors. Broadly, the Rule imposes:
- Fiduciary duty (care and loyalty) to municipal entity clients but only a duty of care to obligated persons;
- Written engagement-letter and conflict-disclosure regime;
- Suitability and KYC requirements;
- A list of prohibited practices, including a wide-ranging (but not absolute) ban on principal transactions with municipal entity clients.
New Rule G-42 has been in the works since January, 2014 and the MSRB filed two amendments with the SEC ...
On December 16, the Municipal Securities Rulemaking Board ("MSRB") filed with the SEC a proposed rule that would extend to municipal advisers the MSRB's existing rule prohibiting "pay-to-play" practices and restricting campaign contributions in the municipal securities and advisory business. The proposed amendments extend Rule G-37 to municipal advisers and third-party solicitors:
- Imposing a two-year ban on business with municipal entities after any contribution to an issuer official who can influence municipal-advisory business, subject to $250 de minimis
Last Thursday, November 12, the MSRB published its Compliance Advisory for Municipal Advisors ("MA's"). The new MA regulatory regime was imposed by Dodd-Frank and implemented by the MSRB and SEC over the past several years. The Advisory highlights some of fundamental regulatory requirements for MA's and identifies some potential compliance risks, including, for example:
- Failing to register;
- Failing to ensure MA associated persons are Series 50 qualified (still in pilot);
- Failing to implement an MA-specific compliance program under Rule G-44;
- Failing to distinguish ...
The Municipal Securities Rulemaking Board ("MSRB") announced September 2 that it has submitted for SEC approval proposed amendments extending its gift-limitations Rule G-20 to municipal advisors. In general, the Rule prohibits gifts or services (including gratuities) exceeding $100 per year to any person if they relate to the provision of municipal advisory services, with some exceptions, including:
- Normal Business Dealings: Occasional gifts of meals or tickets to events hosted and attended by advisors, or sponsored business functions recognized by the IRS as deductible ...
The MSRB responded August 12 to the SEC's initiation of proceedings on proposed conduct standards for Municipal Advisors, filing some amendments to the proposed Rule. The MSRB's Amendment No. 1:
- Eliminates "includes, without limitation" language from the fiduciary-duty standard in Proposed Rule G-42(a)(ii) in response to SIFMA's comment that it raised unnecessary ambiguity, because a fiduciary duty generally is understood to encompass duties of both care and loyalty. MSRB retained that language in Supplementary Material .02 to be clear that the Rule doesn't purport to ...
The MSRB recently released a content outline for the new Series 50 Municipal Advisor Representative examination, which the SEC approved in principle earlier this year. See MSRB Reg. Notice 2015-06. The MSRB filed the Rule Proposal with the SEC on April 22 for immediate effectiveness. SR-MSRB-2015-04. The Series 50 exam will require MA Representative candidates to complete 100 multiple-choice questions within 3 hours on a range of topics, including:
- SEC and MSRB Rules on municipal advisor activities;
- Municipal Finance generally;
- Credit analysis and due diligence of municipal ...
The MSRB filed its Municipal-Advisor conduct rule proposal with the SEC on April 15. The Rule G-42 proposal has been around the block twice, since the Board first floated it in January last year (Reg. Notice 2014-01). The Revised Draft was issued last July (Reg. Notice 2014-12). I discussed them in our July 30, 2014 and January 23, 2014 blogs. As proposed for adoption by the SEC, the Rule broadly imposes:
- A fiduciary duty to Municipal Entities, but only of care to Obligated Persons;
- An "engagement letter" disclosure regime requiring conflicts and disciplinary disclosures ...
The SEC continues to ramp up its Enforcement efforts in the municipal-securities realm. The agency announced a series of settled actions on November 6. First "Control Person" Charge Against Issuer Officials The Commission announced a settled administrative proceeding against municipal issuer Allen Park, Michigan and settlements in federal-court actions against the City's former Mayor and City Administrator. The SEC charged that offering documents for two bond issues knowingly painted too rosy a picture for a $146 million film-studio project, which had been all but ...
The MSRB last week proposed an extension of its gift-limitations Rule G-20 to encompass municipal advisors. The Proposed Rule generally limits gifts in relation to municipal securities or advisory services to $100 per year. The limit excludes normal-course (not excessive) business entertainment or sponsorships, transaction commemoratives, or personal gifts (e.g. birthdays, weddings). Comments on the G-20 proposal are due by December 8 and the MSRB will hold a webinar on the release November 13. See MSRB Reg. Not. 2014-18, here. The MSRB also has proposed amendments extending ...
The MSRB proposed a Revised Draft of Rule G-42 ("Duties of Non-Solicitor Municipal Advisors") by Reg. Not. 2014-12 issued July 23, 2014. We addressed the original proposal in our January 23 blog post, here. The Revised Draft Rule G-42 contains the same basic structure and objectives as originally proposed. It establishes (a) DUTIES owed by Municipal Advisors ("MA's") to Municipal Entity ("ME") clients and to Obligated Person ("OP's"); (b) An engagement-letter-type disclosure regime with certain required DISCLOSURES; (c) A suitability requirement MA's must follow ...
The Securities and Exchange Commission last Thursday, February 27, approved a new consolidated set of registration forms and requirements for municipal market participants, MSRB Rule A-12. SEC Rel. 34-71616; MSRB Reg. Notice 2014-05. Municipal registrants will have until August 10, 2014 to update their registration information with the MSRB, using the new forms. For more information on securities litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.
On February 25, the Municipal Securities Rulemaking Board ("MSRB") proposed new Rule G-44 imposing a supervision and compliance requirements for Municipal Advisors ("MA's"). The Dodd-Frank Act imposed a new regulatory regime for MA's. New Rule G-44 imposes requirements familiar from broker-dealer regulation, including:
- A supervisory system reasonably designed to assure compliance with applicable laws and regulations;
- Written supervisory procedures ("WSP's") tailored to a registrant's business;
- Registered principals in supervisory roles; and,
- A Chief ...
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