August 6, 2018
Ronald W. Smith
Corporate Secretary
Municipal Securities Rulemaking Board
1300 I Street NW
Suite 1000
Washington, DC 20005
Re: MSRB Notice 2018-10: Request for Comment: Retrospective Review of 2012 Interpretive Notice Concerning the Application of MSRB Rule G-17 to Underwriters of Municipal Securities
Dear Mr. Smith:
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates this opportunity to respond to Notice 2018-10 (the “Notice”)2 issued by the Municipal Securities Rulemaking Board (the “MSRB”) in which the MSRB is requesting comment in connection with its retrospective review of its Interpretive Notice Concerning the Application of MSRB Rule G-17 to Underwriters of Municipal Securities, which became effective on August 2, 2012 (the “2012 Guidance”).3 The 2012 Guidance established a series of mostly new duties owed by underwriters 4 to issuers under MSRB Rule G-17 applicable solely to negotiated issues except where explicitly made applicable to competitive offerings.
The MSRB adopted the 2012 Guidance in the wake of the financial crisis and the significant changes brought to the regulatory landscape by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which among other things introduced for the first time a federal fiduciary duty and a regulatory regime for the newly created category of municipal advisors.
In that context, the 2012 Guidance served to reinforce the fair dealing obligations of underwriters to issuers under MSRB Rule G-17, to expand upon those obligations by ensuring that issuers understood the financing structures that underwriters might recommend and any conflicts of interest that might exist on the part of underwriters, and to provide much needed clarity regarding the role of underwriters, as compared to municipal advisors, in connection with new issue offerings.5
SIFMA and its members believe that the 2012 Guidance served as an important and timely tool in the successful transformation to today’s municipal marketplace. We offer below our comments on the 2012 Guidance as part of the MSRB’s retrospective review process and in response to the specific questions posed by the MSRB with the goal of strengthening the effectiveness of the 2012 Guidance in light of today’s more mature regulatory context.
1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
2 MSRB Notice 2018-10 (June 5, 2018).
3 Interpretive Notice Concerning the Application of MSRB Rule G-17 to Underwriters of Municipal Securities (Aug. 2, 2012), available at http://msrb.org/Rules-and Interpretations/MSRB-Rules/General/RuleG-17.aspx?tab=2 and originally published in MSRB Notice 2012-25 (May 7, 2012). The 2012 Guidance was approved by the Securities and Exchange Commission (the “SEC”) in Release No. 34-66927 (File No. SRMSRB-2011-09) (May 4, 2012), 77 FR 27509 (May 10, 2012).
4 The 2012 Guidance also applies to placement agents in private placements, subject to certain adjustments due to differences in the nature of the placement agent role as compared to the underwriter role, as described in the Implementation Guidance discussed below. Except as otherwise noted in this letter, our use of the term underwriter includes placement agent to the extent applicable under the 2012 Guidance. See footnote 11 infra.
5 With regard to the role of underwriter as compared to municipal advisor, the MSRB also took the important step of amending Rule G-23 to more fully address the conflict that arises from serving in both roles on the same transaction and adopting its Guidance on the Prohibition on Underwriting Issues of Municipal Securities for Which a Financial Advisory Relationship Exists Under Rule G-23 (Nov. 27, 2011), available at http://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/General/Rule-G-23.aspx?tab=2 and originally published in MSRB Notice 2011-29 (May 31, 2011) (the “Rule G-23 Interpretation”).