The MSRB proposes to amend Rule G-23, Activities of Financial Advisors, and add a related interpretation.  The proposed rule change resulted from a concern that a dealer financial advisor’s ability to underwrite the same issue of municipal securities, on which it acted as financial advisor, presented a conflict that is too significant for the existing disclosure and consent provisions of Rule G-23 to cure.

    G-23 Proposed Amendments.    The proposed amendments would, subject to the exceptions described below: 

• prohibit a dealer financial advisor with respect to the issuance of municipal securities from acquiring all or any portion of such issue directly or indirectly, from the issuer as principal, or acting as agent for the issuer in arranging the placement of such issue, either alone or as a participant in a syndicate or other similar account formed for that purpose;
• apply the same prohibition to any dealer controlling, controlled by, or under common control with the dealer financial advisor; and
• prohibit a dealer financial advisor from acting as the remarketing agent for such issue.

The proposed amendments would not prohibit:

• a dealer financial advisor from placing an issuer’s entire issue with another governmental entity, such as a bond bank, as part of a plan of financing by such entity for or on behalf of the dealer financial advisor’s issuer client.

The proposed amendments also would amend Rule G-23(b) to remove the requirement that financial advisory services be provided for compensation. This change is also proposed to conform the rule to the provisions of Section 15B of the Act as amended by Dodd-Frank, which does not require that financial advisors receive compensation in order to be considered "municipal advisors."

    Proposed Interpretive Notice.    This would provide guidance on when a dealer that provides advice to an issuer would be considered to be "acting as an underwriter" for purposes of Rule G-23(b), rather than a financial advisor.  Under the proposed guidance, a dealer providing advice to an issuer with respect to the issuance of municipal securities (including the structure, timing, and terms of the issue and other similar matters, such as the investment of bond proceeds, a municipal derivative, or other matters integrally related to the issue) generally would not be viewed as a financial advisor for purposes of Rule G-23, if such advice is rendered in its capacity as underwriter for such issue and the dealer clearly identifies itself as an underwriter from the earliest stages of its relationship with the issuer with respect to that issue.

For further details, go to:   [MSRB Rule Filing 11-03, 2/22]