Quarterly Municipal Regulatory Update

Welcome to the inaugural edition of the Quarterly Municipal Regulatory Update. Below, we have summarized the most significant regulatory developments from the past quarter affecting municipal bond underwriters and Municipal Advisors. 

The MSRB has filed amendments to Rules G-11 and G-32 regarding primary offering practices. On March 21, the MSRB filed a series of proposed amendments with the SEC relating to Rules G-11 and G-32, both of which address primary offering practices. Among other things, the proposed amendments to Rule G-11 would codify the requirement that all selling group and/or syndicate participants must comply with certain conditions set forth by issuers and disseminated by syndicate managers regarding issuer conditions and terms, priority provisions, and order period requirements, and will require syndicate managers to promptly communicate the time that an issue is free to trade as well as provide the issuer with the same information it currently provides syndicate members regarding designations and allocations of securities. The proposed amendments to Rule G-32 would require underwriters that advance refund outstanding bonds to submit any advance refunding document to EMMA within the timeframe prescribed by the rule so that all market participants have equal access to this information at the same time. The proposed amendments to Rule G-32 would also eliminate the current requirement that a financial advisor that prepares an official statement must make the official statement available to the managing underwriter once the issuer approves it for distribution.

If the SEC approves the MSRB’s amendments, the MSRB will publish one or more regulatory notices within 180 days of the amendments’ effective dates, which will specify the compliance date(s) for the respective rule changes.

The MSRB seeks comments on MSRB Rule G-34’s new requirement that Municipal Advisors obtain CUSIPs. The requirement that Municipal Advisors obtain a CUSIP when advising on competitive offerings went into effect on June 14, 2018 via an amendment to Rule G-34. The MSRB permits certain exceptions to this requirement, the most notable of which stipulates that Municipal Advisors need not obtain a CUSIP in a competitive sale where the bond purchaser is a bank that intends to hold the bonds through maturity. As of February 27, the MSRB seeks further comments on this requirement, specifically regarding whether it is beneficial to the market for either dealer or non-dealer Municipal Advisors to apply for CUSIPs in connection with competitive sales, the impact on the market if only dealer Municipal Advisors were subject to the CUSIP requirement, and the costs and burdens of the CUSIP requirement, among other topics.

The MSRB amends 2015 Implementation Guidance on Rule G-18. On February 7, the MSRB announced that it is amending its 2015 Implementation Guidance issued in advance of the effective date of Rule G-18 (on March 21, 2016). The amendment seeks to: (i) explicitly make clear that a dealer does not necessarily need to enter a “bid-wanted” with multiple fixed income alternative trading systems (ATSs) or broker’s brokers, or become a subscriber to every available ATS to meet its best-execution obligations; (ii) highlight the breadth of the term “market” to demonstrate that a single ATS can provide exposure to multiple dealers (and therefore multiple markets); and (iii) provide guidance on how utilizing only one ATS could still satisfy a dealer’s best-execution obligations. The amendment affects the 2015 Implementation Guidance only and intends to further clarify the MSRB’s expectations regarding the number of markets dealers are expect to check. The amendment does not change Rule G-18 itself.

The MSRB announces effective date for amendments to Rule G-21 and the new Rule G-40 regarding advertising and social media. On February 26, the MSRB announced that its proposed amendments to Rule G-21(addressing advertising by broker-dealers) and the new Rule G-40 (addressing advertising by Municipal Advisors) will become effective on August 23, 2019. Generally, these amendments establish new requirements regarding the uses of various forms of social media by member firms, determining when a third-party post becomes an advertisement, and set forth enhanced recordkeeping and supervision requirements.

Harsha Sekar is an attorney in Sherman & Howard’s Public Finance Group. His practice involves the representation of underwriters, issuers and borrowers, banks and other transaction participants in municipal securities offerings.

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