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, fee-basis, scope and termination of engagement provisions;
- Suitability and Know-Your-Customer requirements; and
- Prohibitions on certain conduct, including excessive compensation, misrepresentations or false claims, certain and undisclosed fee-splitting, most paid solicitation, and principal transactions with Municipal Entity clients.
Notable changes from the Revised Draft include:
- Revision of Rule G-42(e)(i)(E) for more specific description of allowable solicitor payments to affiliates, other MA's or otherwise permissible under Rule G-20;
- Revision of Supplementary Material .06 to clarify that the Inadvertent Advice safe-harbor relieves compliance only with required engagement letter and conflicts disclosures;
- Deletion of former Supplementary Material .08 requiring direct disclosures to municipal-securities investors; and
- Addition of Supplementary Material .11 including bank loans within prohibited principal transactions if they are $1 million or more and economically equivalent to a municipal-securities purchase.
The Rule filing, SR-MSRB-2014-03, is here
. Thomas K. Potter, III
(firstname.lastname@example.org) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Managing Partner of the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 28 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile
. © 2015 by Thomas K. Potter, III (all rights reserved).