New Pay-to-Play, Fiduciary Duty, Fees, PACs

The Dodd-Frank Reform Act assigned jurisdiction over municipal advisors to the MSRB - in addition to dealers, which MSRB has regulated since 1975.  And so, MSRB Directors addressed new rules, interpretations and issues needed for their "new subjects."  First up is a new rule that would restrict municipal advisors from engaging in or soliciting business from municipal entities when an advisor has made certain political contributions to municipal officials responsible for awarding that business. 

“We are wasting no time in seeking to implement a rule to address ‘pay-to-play’ practices in the municipal market.”   “The MSRB already stringently regulates this area of the municipal market with rules restricting pay-to-play by municipal securities dealers, and putting similar rules in place for the advisory community is one of our top priorities.”  -- MSRB Chair Michael Bartolotta.

    Fiduciary Duty Rule.   The MSRB began on a fiduciary duty rule and associated interpretations for municipal advisors.  Dodd-Frank imposes a federal fiduciary duty on municipal advisors and charges the MSRB with writing rules to implement this duty.  The MSRB expects to publish for comment a principles-based fiduciary-duty rule and interpretive guidance early next year.

    Fair and Equitable Fees.   The MSRB began discussing fair and equitable fees for municipal advisors, and directed MSRB staff to monitor closely whether firms engaging in municipal advisory activities have met their obligation to register with the MSRB by no later than 1/1/11.  Registration was opened on 11/15. 

    Contributions by PAC's.   The MSRB continued its ongoing discussion of contributions by political action committees of companies affiliated with dealers.  In August, the MSRB filed with the SEC interpretive guidance on factors that may result in an affiliate’s PAC being viewed as controlled by the dealer itself and therefore subjecting the dealer to the pay-to-play restrictions under MSRB rules with respect to the activities of such affiliate’s PAC.  This interpretive guidance takes effect on 12/12/10.   The MSRB has put off for now further action on a proposal published earlier this year to require dealers to name PACs of their affiliated companies.

    Outreach Efforts.   The MSRB is continuing its outreach efforts to dealers, municipal advisors and municipal entities with an Outreach Seminar today in Chicago, IL and one on 1/2511 in Los Angeles, CA. [MSRB Release, 12/6]