MSRB Provides Additional Guidance on the Disclosure Duties of Underwriters to Government Issuers under Rule G-17

by Saul Ewing Arnstein & Lehr LLP


In 2012, the Municipal Securities Rulemaking Board ("MSRB") expanded the disclosure obligations of underwriters to government issuers under Rule G-17. The MSRB recently published answers to frequently asked questions about this rule to help underwriters comply with their expanded obligations and to provide clarity to government issuers. The answers cover such concerns as the timing of disclosure to issuers, the issuer's acknowledgment of receipt of the disclosure, and the form of the underwriter's disclosure.

MSRB Rule G-17 requires underwriters to deal fairly with government issuers and to not engage in any deceptive, dishonest, or unfair practice. The MSRB adopted an Interpretive Notice to Rule G-17, which became effective on August 2, 2012, to ensure compliance by underwriters with the fair practice obligations owed to government issuers when underwriting municipal bonds and notes. Under the Interpretive Notice, an underwriter must provide certain disclosures to a government issuer regarding, among other things, the underwriter's compensation, any conflicts of interest, and the underwriter's role in the transaction.

On March 25, 2013, the MSRB published guidance through answers to frequently asked questions regarding Rule G-17, to help underwriters comply with their expanded obligations and to provide clarity to government issuers.

The MSRB advised that an underwriter may use an omnibus set of disclosures containing detailed descriptions of the material elements and financial characteristics of routine and complex transactions. However, the underwriter must identify with clarity the portions of the omnibus document that apply to the particular transaction, and must make an independent assessment that such disclosure is appropriately tailored to the issuer's level of sophistication. Further, the MSRB provided guidance on when it was appropriate for the syndicate manager to make the required disclosures on behalf of the co-managers participating in the transaction.

Of note to government issuers, the MSRB provided guidance on the timing of the underwriter's disclosures during the course of the transaction. The arm's length nature of the relationship should be disclosed at the outset of the relationship, generally at or before a response to a request for proposals or promotional materials are delivered to the issuer. The underwriter should disclose any material financial risks and characteristics of a complex financing before execution of a bond purchase agreement and with sufficient time to allow the government issuer to evaluate the features of the financing. Any conflicts of interest should be disclosed at the time of engagement or as soon as possible after discovered and with sufficient time for the government issuer to evaluate the conflict and its implications.

Additionally, the MSRB advised that an underwriter must attempt to receive written acknowledgment from an authorized issuer official before proceeding with an underwriting transaction, or must document specifically why it was unable to receive such written acknowledgment. An issuer's acknowledgment of receipt of disclosure, however, does not determine whether such disclosure was made with sufficient time for review by an issuer. The MSRB also stated that absent a red flag or something that demands attention, an underwriter may reasonably rely on a written representation from an issuer official in a request for proposals that the official has the ability to bind the government issuer by contract with the underwriter.

For more information on an underwriter's disclosure duties under MSRB Rule G-17, please contact Brian P. Kowalski (609-452-5046,, partner in the Public Finance Practice, or any other member of the Saul Ewing Public Finance Practice.

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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