Proposed Rule Change to Amend & Restate MSRB Rule G-17
Summary
SIFMA provided comments to the Securities and Exchange Commission on Amendment No. 1 to Proposed Rule Change to Amend and Restate the Municipal Securities Rulemaking Board’s August 2, 2012 Interpretive Notice Concerning the Application of Rule G-17 to Underwriters of Municipal Securities.
Excerpt
Vanessa Countryman
Secretary
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
Re: File Number SR-MSRB-2019-10; Amendment No. 1 to Proposed Rule Change to Amend and Restate the MSRB’s August 2, 2012 Interpretive Notice Concerning the Application of Rule G-17 to Underwriters of Municipal Securities
Dear Ms. Countryman,
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates this opportunity to provide input to the Securities and Exchange Commission (“SEC”) on Amendment No. 1 to Proposed Rule Change to Amend and Restate the Municipal Securities Rulemaking Board’s (“MSRB”) August 2, 2012 Interpretive Notice Concerning the Application of Rule G-17 to Underwriters of Municipal Securities (the “Filing”).2 We thank the MSRB for: (1) adopting our proposal that the underwriter recommending the complex municipal securities transaction should be the one to make the requisite disclosure; (2) clarifying that placement agents may disclaim a fiduciary duty to the issuer if that is consistent with the nature of their arrangement; (3) clarifying the application of scope of the interpretation related to municipal fund securities; and (4) adopting changes regarding acknowledgement of receipt. Although SIFMA appreciates the adoption of the changes mentioned above, the benefits of these changes are outweighed by those not made, including the standard for disclosing potential conflicts of interest, as well as needed clarification regarding complex securities disclosures as we have outlined in our prior letters. Also, it is critical that the industry be given sufficient time to implement these amendments which will require changes in policies and procedures and supervisory procedures, as well as training.
I. The “Reasonably Likely” Standard for Conflicts of Interest Disclosures
In its Prior Letter, SIFMA set forth its concern that disclosure requirements on conflicts of interest should be limited to actual, and not merely potential, material conflicts of interest or, in the alternative, that such conflicts be “highly likely” to occur. The MSRB did recognize in the Filing that the “reasonably foreseeable” standard was difficult to implement and surveil from a compliance perspective and was not helpful to serve the goal of reducing boilerplate disclosure. Unfortunately, the MSRB has settled on a middle ground standard of “reasonably likely,” which, unfortunately, does not address the industry’s stated concerns. SIFMA reiterates its request that the MSRB require only disclosures of actual conflicts of interest. We note that firms are already obligated to update their disclosures if additional conflicts arise. It is not clear that, without additional change, the MSRB’s professed goal of streamlining disclosures and providing clarity will be achieved. Instead, the revised notice will likely only have the effect of “rearranging the deck chairs” by moving disclosures from the body of the “G-17” letter to appendices.