MUNICIPAL SECURITIES
General
SEC Approves Amendments to the MSRB’s Rule on Municipal Fund Security Product Advertisements
The MSRB received approval from the SEC on August 18, 2017, to amend MSRB Rule G-21(e), on municipal fund security product advertisements by brokers, dealers and municipal securities dealers. The amendments will 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
SEC Approves Amendments to MSRB Rule G-26 on Customer Account Transfers
The MSRB received approval from the SEC on July 27, 2017, to amend 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 will become 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
New Disclosure Requirements Under MSRB Rule G-15 And Prevailing Market Price Guidance Pursuant To Rule G-30
Effective May 14, 2018, amendments to Municipal Securities Rulemaking Board (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. 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.
• MSRB Regulatory Notice 2017-12 (May 17, 2017): MSRB Provides Implementation Guidance on Confirmation Disclosure and Prevailing Market Price
• MSRB Regulatory 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
Designation Information Regarding Mandatory Participation in Business Continuity and Disaster Recovery Testing
Regulation Systems Compliance and Integrity (Regulation SCI) was adopted by the SEC 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 Regulatory Notice 2017-06 (March 7, 2017): 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
On January 13, 2017, the MSRB received approval from the SEC of a proposed rule change consisting of: (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
Interpretive Notice Regarding Rule G-47, On Time Of Trade Disclosure
MSRB Rule G-47, on time of trade disclosure, requires brokers, dealers and municipal securities dealers (collectively, “dealers”) to disclose to their customers, at or prior to the time of trade, all material information known about the transaction, as well as material information about the municipal security that is reasonably accessible to the market. The MSRB has previously provided interpretive guidance, now codified in supplementary material to Rule G-47, on specific types of information that is material where specific scenarios occur and requires time of trade disclosure. Rule G-47, however, emphasizes that this list of specific disclosures is not exhaustive, and that other information may be material to a customer and required to be disclosed. The MSRB published Regulatory Notice 2016-27 to state its interpretation that the fact that a municipal security bears market discount is material information that must be disclosed to a customer under MSRB Rule G-47.
• MSRB Regulatory Notice 2016-27 (November 22, 2016): Interpretive Notice Regarding Rule G-47, On Time Of Trade Disclosure
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 SMMP 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
(New) MSRB to Streamline Series 52 Exam
The MSRB worked collaboratively with FINRA during development of the Securities Industry Essentials examination to streamline duplicative testing of general knowledge that has traditionally been covered across several representative-level examinations.
• MSRB Regulatory Notice 2017-21 (November 8, 2017): MSRB to Streamline Series 52 Exam Ahead of Release of FINRA Securities Industry Essentials Exam Rule G-3
SEC Approves 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
Effective January 1, 2015, MSRB Rule G-3, on professional qualification requirements, requires certain persons registered with brokers, dealers and municipal securities dealers (collectively, dealers) to participate in annual firm training on municipal securities matters. Dealers must complete the training by December 31, 2015, and each year thereafter.
The rule amendments provide greater specificity regarding the MSRB’s Firm Element continuing education requirements by requiring dealers to conduct annual municipal securities training for registered persons who regularly engage in or supervise municipal securities activities. The rule specifically requires dealers to train certain individuals annually on municipal securities issues. Dealers have the flexibility to determine which of their registered representatives regularly engage in, and which of their registered principals regularly supervise, municipal securities activities. The methodology for determining who should be trained must be documented in the annual written training plan, so it may be reviewed by the appropriate examining authority.
• MSRB Regulatory Notice 2014-17 (October 17, 2014): SEC Approves Amendments to MSRB Rule G-3 regarding Continuing Education
• FAQs on Municipal Advisor Professional Qualification Standards and Requirements
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)
The Municipal Securities Rulemaking Board (MSRB) is issuing this notice to remind municipal advisor firms 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
On May 31, 2016, the MSRB announced that the Series 50 exam would be offered beginning on September 12, 2016 and municipal advisor representatives had until September 12, 2017 to satisfy the qualification requirement under MSRB Rule G-3. Municipal advisors were provided this grace period to ensure that associated persons engaging in municipal advisory activities on behalf of the firm could study for and pass the Series 50 exam without causing disruption to the business of the municipal advisor.
• MSRB Regulatory Notice 2016-16 (May 31, 2016): MSRB to Launch Permanent Series 50 Exam September 12, 2016
Periodic reviews of the content of the MSRB’s qualification examinations are required to determine whether revisions are necessary or appropriate in view of changes to the laws, rules and regulations pertaining to the subject matter of the qualification examination. The content outline for the Series 50 has been amended to reflect changes to the laws, rules and regulations covered by the examination and, among other things, incorporate the functions and associated tasks performed by a municipal advisor representative.
• MSRB Regulatory Notice 2016-17 (June 15, 2016): MSRB Revises Content Outline for the Municipal Advisor Qualification Examination
Reporting
MSRB Rule G-14 and Real-Time Transaction Reporting System
The MSRB amended MSRB Rule G-14 effective July 18, 2016. Rule G-14 requires brokers, dealers and municipal securities dealers to report all executed transactions in most municipal securities to the MSRB’s Real-Time Transaction Reporting System (RTRS) within 15 minutes of the time of trade, with limited exceptions. RTRS serves the dual objectives of price transparency and market surveillance. The MSRB makes transaction data for transparency purposes available to the general public through the Electronic Municipal Market Access (EMMA®) website at no cost, and disseminates such data through paid subscription services to market data vendors, institutional market participants and others that subscribe to the data feed.
• MSRB Regulatory Notice 2016-19 (August 9, 2016): MSRB Provides Guidance on MSRB Rule G-14, on Reports of Sales or Purchases of Municipal Securities
• MSRB Regulatory Notice 2016-09 (March 2, 2016): MSRB Revises Effective Date for Amendments to MSRB Rule G-14, on Transaction Reporting
• MSRB Regulatory Notice 2015-07 (May 26, 2015): SEC Approves Amendments to MSRB Rule G-14 and Real-Time Transaction Reporting System
Bank Loan Disclosure Advisory
In January 2015, the MSRB published a market advisory to alert municipal market participants of the importance of voluntary disclosure of bank loans. The MSRB stated that as part of its charge to promote a fair and efficient municipal securities market, it is aware that the use of bank loans and direct-purchase debt as financing alternatives to public offerings in the municipal securities market for funding capital improvement projects or refunding outstanding bonds is increasing. The MSRB is concerned that a bank loan could impair the rights of existing bondholders, including its impact on the seniority status of existing bondholders, or its impact on the credit or liquidity profile of an issuer. The MSRB believes that informing the market of the incurrence of a bank loan and its terms is beneficial to the continued fairness and efficiency of the municipal securities market.
The MSRB previously issued Notices 2011-37 and 2011-52 regarding bank loans which discussed, among other things, that certain financings that are called “bank loans” may, in fact, be municipal securities.
• MSRB Regulatory Notice 2015-03 (January 29, 2015): Bank Loan Disclosure Market Advisory
• MSRB Notice 2011-37 (August 3, 2011): Financial Advisors, Private Placements, and Bank Loans
• MSRB Notice 2011-52 (September 12, 2011): Potential Applicability of MSRB Rules to Certain “Direct Purchases” and “Bank Loans”
Supervision
MSRB Revises Content Outline for the General Securities Sales Supervisor Qualification Examination
The revisions to the content outline for the General Securities Sales Supervisor Qualification Examination (Series 9/10) were implemented on March 7, 2016. The content outline for the Series 9/10 was amended to reflect changes to the laws, rules and regulations covered by the examination and, among other things, incorporate the functions and associated tasks performed by a Municipal Securities Sales Principal.
• MSRB Regulatory Notice 2016-05 (January 28, 2016): MSRB Revises Content Outline for the General Securities Sales Supervisor Qualifications Examination
MSRB Rule G-44 on Supervisory and Compliance Obligations of Municipal Advisors, and Amendments to MSRB Rules G-8 and G-9
The SEC approved the first dedicated rule for municipal advisors, MSRB Rule G-44, on supervisory and compliance obligations of municipal advisors, and related amendments to MSRB Rule G-8, on books and records to be made by brokers, dealers and municipal securities dealers, and MSRB Rule G-9, on preservation of records. The rule amendments became effective on April 23, 2015, except for Rule G-44(d), which became effective on April 23, 2016.
• MSRB Regulatory Notice 2014-19 (October 24, 2014): SEC Approves MSRB Rule G-44 on Supervisory and Compliance Obligations of Municipal Advisors, and Amendments to MSRB Rules G-8 and G-9