The MSRB filed on November 1, 2010 several proposed rule changes with the SEC that will require municipal advisors, as defined in the Dodd-Frank Act, to register with the MSRB by December 31, 2010. The proposed rule changes also extend the MSRB's fair dealing rule to municipal advisors. The comment periods for these proposed rule changes will end 21 days after their dates of publication in the Federal Register.
Section 975 of the Dodd-Frank Act requires the MSRB to adopt rules with respect to municipal advisors that, among others, promote fair dealing and the protection of investors, municipal entities and persons that are obligated by contract or other arrangement to support the payment of obligations under municipal securities.
For further information on Section 975 and the SEC's own municipal advisor registration requirements, see the Davis Polk Client Newsflash entitled SEC Adopts Rule Providing for Temporary Registration of Municipal Advisors dated September 3, 2010.
The MSRB's Proposed Rule Changes
The MSRB's key proposed rule changes are as follows:
Municipal advisors must register with the MSRB prior to January 1, 2011.
- Municipal advisors must register electronically with the MSRB on amended Form G-40 and provide basic contact details and information concerning the categories of municipal advisory activities conducted by the applicant. Instructions on how to register with the MSRB as a municipal advisor will be posted on the MSRB's public website (www.msrb.org) under Municipal Advisor Registration.
- Prior to registering with the MSRB, a municipal advisor must first register as a municipal advisor with the SEC on electronic Form MA-T.
- Municipal advisors that are already registered with the MSRB as dealers must still register with the MSRB as municipal advisors.
- Municipal advisors must annually update their information contained on Form G-40; if information on Form G-40 becomes inaccurate at another time during the year, it must be amended promptly.
- The MSRB has requested that the SEC make this proposed rule change operative on November 15, 2010, which will allow municipal advisors to have additional time to complete the registration process with the MSRB by December 31, 2010.
Municipal advisors must pay to the MSRB initial and annual fees prior to January 1, 2011.
Municipal advisors will be restricted from engaging in municipal advisory activities when they are subject to SEC disciplinary orders.
- Municipal advisors and their associated persons will be restricted from engaging in municipal advisory activities when they are subject to SEC disciplinary orders. Under Section 975 and the MSRB's proposed rule change, the SEC has the authority to discipline and impose restrictions on municipal advisors and their associated persons and activities.
Municipal advisors must comply with the MSRB's fair dealing rule.
- Municipal advisors and their associated persons will be required, in the conduct of their municipal advisory activities, to deal fairly with all persons and not engage in any deceptive, dishonest or unfair practice.
The MSRB's Future Rulemaking
The MSRB also announced that it will be developing additional rules and guidance for municipal advisors over the coming months. This includes guidance on the definition of "municipal advisor" and what it means for a municipal advisor to have a fiduciary duty to a municipal entity under Section 975; rules governing "pay to play" and gifts and gratuities; and the development of professional qualification tests and continuing education requirements for municipal advisors.