MUNICIPAL SECURITIES
General
(New) Frequently Asked Questions Regarding Use of Municipal Advisory Client Lists and Case Studies Under MSRB Rule G-40
On June 27, 2018, the MSRB sought public comment on a draft set of frequently asked questions (FAQs) related to the application of MSRB Rule G-40, on advertising by municipal advisors, to the use of municipal advisory client lists and case studies by municipal advisors. The MSRB received three comment letters and revised the draft FAQs to reflect those comments as well as additional insight gained from the MSRB’s ongoing engagement with the industry concerning compliance with Rule G-40.
• MSRB Regulatory Notice 2018-24 (September 17, 2018): MSRB Answers FAQs Regarding Use of Municipal Advisory Client Lists and Case Studies Under MSRB Rule G-40
(New) Compliance Advisory for Municipal Advisors
The MSRB is providing this Compliance Advisory as a compliance resource to assist municipal advisors in their continuing compliance efforts. This Compliance Advisory highlights certain MSRB rules and provides considerations a municipal advisor could use in assessing its own policies and procedures for compliance with the applicable rules. This Compliance Advisory is not designed to address all regulatory obligations applicable to municipal advisors pursuant to each MSRB rule or under other securities laws and regulations (“applicable rules”) or identify an exhaustive list of considerations for ensuring compliance with the applicable rules. This resource should be read in conjunction with the relevant rules and related guidance. It does not create new legal or regulatory requirements, or new interpretations of existing requirements, and should not be interpreted as establishing new standards of conduct.
• MSRB Regulatory Notice 2018-18 (August 14, 2018): Compliance Advisory for Municipal Advisors
Frequently Asked Questions Regarding MSRB Rule G-42 and Making Recommendations
On February 15, 2018, the MSRB sought public input on draft answers to frequently asked questions (FAQs) and related scenarios regarding MSRB Rule G-42, on duties of non-solicitor municipal advisors, and the making of recommendations. The MSRB received eight comment letters and revised the draft FAQs to reflect these comments as well as insight gained from the MSRB’s ongoing engagement with the industry regarding compliance with Rule G-42. FAQs Regarding MSRB Rule G-42 and Making Recommendations, has been published as a compliance resource for municipal advisors, provides further explanation of Rule G-42, particularly with respect to making a recommendation and the obligations for municipal advisors that result therefrom. Access the FAQs and other compliance resources in the Compliance Center on MSRB.org. It should be noted that the FAQs do not create new legal or regulatory requirements, or new interpretations of existing requirements and should not be interpreted by municipal advisors or examining authorities as establishing new standards of conduct.
• MSRB Regulatory Notice 2018-12 (June 20, 2018): MSRB Answers Frequently Asked Questions Regarding MSRB Rule G-42 and Making Recommendations
Advertising Rule Changes for Dealers and Municipal Advisors
The MSRB received approval from the SEC on May 7, 2018 to amend MSRB Rule G-21, on advertising by brokers, dealers or municipal securities dealers, and to adopt new MSRB Rule G-40, on advertising by municipal advisors. The SEC also approved a technical amendment to MSRB Rule G-42, on duties of non-solicitor municipal advisors. With these rule changes, as well as the previously announced development of the municipal advisor principal examination (Series 54), the MSRB, in the exercise of authority granted by the Dodd-Frank Wall Street Reform and Consumer Protection Act, has completed the core of its Congressionally mandated comprehensive regulatory framework for municipal advisors. The rule changes become effective on February 7, 2019.
• MSRB Regulatory Notice 2018-08 (May 7, 2018): SEC Approves Advertising Rule Changes for Dealers and Municipal Advisors
Investor Education Resources on New Mark-Up Disclosure Requirements
On April 4, 2018, to support investor awareness and understanding of information about mark-up and mark-down disclosures that will begin appearing on certain municipal securities trade confirmations, the MSRB made available new and updated investor education resources. Brokers, dealers and municipal securities dealers, particularly retail broker networks, that work with individual investors, may find the documents helpful as they adapt to the new disclosure standard.
• MSRB Regulatory Notice 2018-06 (April 4, 2018): MSRB Provides Investor Education Resources on New Mark-Up Disclosure Requirements
Disclosure Requirements Under MSRB Rule G-15 And Prevailing Market Price Guidance Pursuant To Rule G-30
Effective May 14, 2018, amendments to MSRB Rule G-15, on confirmation, clearance and other matters require brokers, dealers and municipal securities dealers to disclose additional information, including their mark-ups and mark-downs to retail customers on certain principal transactions. In addition, amendments to Rule G-30, on prices and commissions, provide guidance on prevailing market price for the purpose of determining mark-ups and other Rule G-30 determinations. These amendments enhance transparency for retail investors as to the costs of their transactions in municipal securities and provide them with valuable access to pricing and related information about their municipal securities.
• MSRB Notice 2018-05 (March 19, 2018): MSRB Provides New and Updated FAQs on Confirmation Disclosure and Prevailing Market Price
• MSRB Regulatory Notice 2017-12 (May 17, 2017): MSRB Provides Implementation Guidance on Confirmation Disclosure and Prevailing Market Price
• MSRB Notice 2016-28 (November 29, 2016): New Disclosure Requirements Under MSRB Rule G-15 and Prevailing Market Price Guidance Pursuant to Rule G-30 Effective May 14, 2018
Municipal Fund Security Product Advertisements
The SEC approved amendments to MSRB Rule G-21(e), on municipal fund security product advertisements by brokers, dealers and municipal securities dealers. The amendments address important regulatory developments and enhance investor protection in connection with municipal fund security product advertisements. The amendments will became effective on November 18, 2017.
• MSRB Regulatory Notice 2017-16 (August 21, 2017): SEC Approves Amendments to the MSRB’s Rule on Municipal Fund Security Product Advertisements
Customer Account Transfers
The SEC approved amendments to MSRB Rule G-26, on customer account transfers, to modernize the rule and promote a uniform customer account transfer standard for all brokers, dealers, municipal securities brokers and municipal securities dealers. The amendments became effective on January 29, 2018.
• MSRB Regulatory Notice 2017-15 (July 31, 2017): SEC Approves Amendments to MSRB Rule G-26 on Customer Account Transfers
Designation Information Regarding Mandatory Participation in Business Continuity and Disaster Recovery Testing
The SEC adopted Regulation Systems Compliance and Integrity (Regulation SCI) and requires the MSRB, as an SCI entity, to, among other things, require certain brokers, dealers, municipal securities dealers and municipal advisors registered with the MSRB (MSRB Registrants) to participate in the testing of the operation of the MSRB’s business continuity and disaster recovery plans, at least once every 12 months. To facilitate this Regulation SCI requirement, the MSRB adopted Rule A-18, on mandatory participation in business continuity and disaster recovery testing, on November 2, 2015.
Under Rule A-18, the MSRB designates as Participants in the mandatory functional and performance testing of the operation of the MSRB’s BC/DR Plans those MSRB Registrants whose submissions of data to the MSRB, taken as a whole, account for a meaningful percentage of the MSRB’s data submission volume required to be provided by MSRB Registrants, measured during an established time period.
• MSRB Notice 2018-04 (March 13, 2018): Designation Information Regarding Mandatory Participation in Business Continuity and Disaster Recovery Testing
Extension of MSRB's Customer Complaint and Related Recordkeeping Rules to Municipal Advisors and the Modernization of Those Rules
The SEC approved: (i) amendments to MSRB Rule G-10, on delivery of investor brochure; Rule G-8, on books and records to be made by brokers, dealers, and municipal securities dealers and municipal advisors; and Rule G-9, on preservation of records; and (ii) an MSRB notice regarding electronic delivery and receipt of information by municipal advisors under Rule G-32, on disclosures in connection with primary offerings (amendments). The adoption of the amendments represents another milestone in the MSRB’s development of a comprehensive regulatory framework for municipal advisors in the exercise of the rulemaking granted to the MSRB by the Dodd-Frank Act. In addition, the adoption of the amendments furthers the MSRB’s mandate to protect investors, municipal entities, obligated persons and the public interest by modernizing the MSRB’s customer complaint and related recordkeeping rules. The amendments became effective on October 13, 2017.
• MSRB Regulatory Notice 2017-03 (January 18, 2017): SEC Approves Extension of MSRB’s Customer Complaint and Related Recordkeeping Rules to Municipal Advisors and the Modernization of Those Rules
Political Contributions and Prohibitions on Municipal Securities Business
The amendments to MSRB Rule G-37, on political contributions and prohibitions on municipal securities business, and related amendments to MSRB Rules G-8, on books and records, and G-9, on preservation of records, and Forms G-37 and G-37x became effective on August 17, 2016. Amended Rule G-37 extends the core standards under Rule G-37 to municipal advisors, their political contributions and the provision of municipal advisory business. The amendments are specifically designed to address potential “pay-to-play” practices by municipal advisors consistently with the MSRB's existing regulation of dealers.
• MSRB Regulatory Notice 2016-06 (February 17, 2016): Amendments to MSRB Rule G-37 on Political Contributions and Prohibitions on Municipal Securities Business and Related Amendments are Deemed Approved Under the Securities Exchange Act of 1934
Effective August 17, 2016, the amendments to Rule G-37 extend the core standards under Rule G-37 to municipal advisors, their political contributions and the provision of municipal advisory business. The amendments are designed to address potential “pay-to-play” practices by municipal advisors consistently with the MSRB’s existing regulation of dealers.
• MSRB Regulatory Notice 2016-18 (August 4, 2016): MSRB Files Amendment to Rule G-37 to Clarify its Application to Contributions before August 17, 2016
Direct Purchases and Bank Loans as Alternatives to Public Financing in the Municipal Securities Market
FINRA and the MSRB are providing guidance to remind firms of their obligations in connection with privately placing municipal securities directly with a single purchaser and of the use of bank loans in the municipal securities market.
• MSRB Regulatory Notice 2016-12 (April 4, 2016): Direct Purchases and Bank Loans as Alternatives to Public Financing in the Municipal Securities Market
• FINRA Regulatory Notice 16-10 (April 2016): Direct Purchases and Bank Loans as Alternatives to Public Financing in the Municipal Securities Market
Best Execution Rule
In light of the increasingly automated market for equity securities and standardized options, and recent advances in trading technology and communications in the fixed income markets, FINRA reiterates the best execution obligations that apply when firms receive, handle, route or execute customer orders in equities, options and fixed income securities. FINRA reminds firms of their obligations, as previously articulated by the SEC and FINRA, to regularly and rigorously examine execution quality likely to be obtained from the different markets trading a security.
• FINRA Regulatory Notice 15-46 (November 2015): Guidance on Best Execution Obligations in Equity, Options and Fixed Income Markets
The MSRB published the implementation guidance, which provides answers to frequently asked questions about the best-execution rule and the sophisticated municipal market professionals (SMMPs) exemption. Accordingly, the effective date for Rule G-18 and the related amendments was March 21, 2016.
• MSRB Regulatory Notice 2015-23 (November 20, 2015): MSRB Provides Implementation Guidance on MSRB Rule G-18, on Best Execution
• Implementation Guidance on MSRB Rule G-18, on Best Execution (November 20, 2015)
Registration
MSRB Revises Content Outlines For Professional Qualifications Exam
On June 25, 2018, the MSRB filed for immediate effectiveness a proposed rule change with the SEC to revise the content outline and selection specifications for the Municipal Securities Representative Qualification Examination (Series 52 exam) to remove general securities knowledge content as part of the MSRB’s modifications to its professional qualification examination program. Additionally, the MSRB proposed revisions to the Municipal Advisor Representative Qualification Examination (Series 50 exam), Municipal Fund Securities Limited Principal Qualification Examination (Series 51 exam) and the Municipal Securities Principal Qualification Examination (Series 53 exam) to reflect changes to laws, rules and regulations covered by the examinations, as applicable, and to make technical amendments to delete or update subject-matter topics and references.
• MSRB Regulatory Notice 2018-13 (June 25, 2018): MSRB Revises Content Outlines for Professional Qualifications Examinations
MSRB Modifies Professional Qualifications Program
On Friday, June 8, 2018, the MSRB filed a proposed rule change for immediate effectiveness with the SEC to modify its professional qualifications program. The amendments to MSRB Rule G-3 reflect the MSRB’s intended plan to revise the Municipal Securities Representative Qualification Examination (Series 52) into a specialized knowledge examination and recognize the FINRA Securities Industry Essentials (SIE) Examination as a prerequisite for the Series 52 examination. The amendments also harmonize certain MSRB professional qualification requirements, under Rule G-3, with FINRA’s approved rules restructuring its professional qualification and registration requirements. The amendments to Rule G-3 were filed for immediate effectiveness with an implementation date of October 1, 2018.
• MSRB Regulatory Notice 2018-11 (June 11, 2018): MSRB Modifies Professional Qualifications Program
Continuing Education Requirements for Municipal Advisors
The MSRB received approval from the SEC on May 16, 2017 to amend MSRB Rule G-3, on professional qualification requirements, and amend MSRB Rule G-8, on books and records to be made by brokers, dealers, and municipal securities dealers and municipal advisors, to establish continuing education requirements for municipal advisors and related recordkeeping requirements.
• MSRB Regulatory Notice 2017-10 (July 12, 2017): SEC Approves Continuing Education Requirements for Municipal Advisors
Application of MSRB Rules to Solicitor Municipal Advisors
In MSRB Regulatory Notice 2017-08, the MSRB: (i) summarizes several of the most important MSRB rules applicable to municipal advisors that undertake the solicitation of a municipal entity or obligated person and includes references to various provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and Exchange Act rules adopted by the SEC that are applicable to the registration of such municipal advisors with the SEC; (ii) sets forth an exhaustive list of all the general MSRB rules applicable to such municipal advisors as well as the key administrative and definitional MSRB rules applicable to them; and (iii) refers to various MSRB and/or SEC resources for additional information on the content summarized herein and, more generally, to select additional resources that may be of interest to all municipal advisors. Because much of the content of this Notice applies to municipal advisors generally, this guidance may be useful to non-solicitor municipal advisors as well.
• MSRB Regulatory Notice 2017-08 (May 4, 2017): Application of MSRB Rules to Solicitor Municipal Advisors
Municipal Advisor Representative Qualification Examination (Series 50)
Municipal advisor firms are reminded of their obligation to ensure that every individual associated with the municipal advisor firm is qualified in accordance with the rules of the MSRB. Pursuant to MSRB Rule G-3, an associated person of a municipal advisor firm who engages in municipal advisory activities on behalf of the municipal advisor firm is required to be qualified as a “municipal advisor representative” by passing the Municipal Advisor Representative Qualification Examination (Series 50 exam).
• MSRB Regulatory Notice 2017-09 (May 8, 2017): Application of MSRB Rules to Solicitor Municipal Advisors