MSRB Proposes Conduct Rules For Municipal Advisors


On Thursday, January 9, the MSRB re-proposed new Rule G-42 promulgating standards of conduct for Municipal Advisors (“MA’s”) subject to the almost-newly-effective SEC MA Rule, 17 CFR § §240.15Ba1-1 to 15Ba1-8 (now delayed until July 1, 2014).  MSRB Notice 2014-01 covers the following principal objectives:

I. It establishes an MA’s fiduciary duty to Municipal-Entity (“ME”) clients, but merely a duty of care to “Obligated Person” (“OP”) clients (consistent with Dodd-Frank).

II. It moves the “engagement letter” regulatory trend forward by imposing a detailed disclosure regime – similar to that for underwriters under existing Rule G-17 – upon MA’s.

III.  It imposes suitability requirements.

IV.  It flatly prohibits an MA or any control affiliate from acting as a counterparty to ME or OP clients in principal transactions.

The no-principal-transactions prohibition seems to far-surpass its fiduciary-duty underpinnings and spurred swift opposition from the broker-dealer community, with SIFMA issuing an opposing statement early the next morning, Friday, January 10.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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