The Municipal Securities Rulemaking Board (MSRB) has issued Notice 2011-052 (the Notice) which provides that certain financings that are called “bank loans” may be municipal securities and therefore subject to MSRB rules. For example, if a broker-dealer serves as a placement agent for a “bank loan” that is deemed a municipal security, the broker-dealer is subject to all applicable MSRB rules, as well as other federal securities laws. Additionally, the Notice provides that when, as agent, a broker-dealer effects a direct purchase of variable rate demand obligations (VRDOs) by its bank affiliate followed by a restructuring of such VRDOs, such restructuring may be so significant that it amounts to a primary offering of municipal securities which may trigger obligations under Rule G-32.

The Notice provides that when banks make loans to state and local governments, even if only to provide a source of funds for those governments to purchase their own securities, the question of whether those loans will be considered securities is often a difficult one.

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