BDA commented in September on the MRSB’s original proposal. BDA sought to have the rule apply only to negotiated sales and noted the effect on small and infrequent issuers. BDA also requested that the rule apply only on an issue by issue basis and that there be a transition period. The last two suggestions were adopted in this latest proposal.
The MSRB proposal would prohibit a financial advisor from being an underwriter with respect to the issue it advised on. The prohibition would apply to both negotiated and competitive deals. The prohibition would be effective for new issues where the Time of Formal Award (as defined in MSRB Rule G-34(a)(ii)(C)(1)(a)) occurs more than six (6) months after final SEC approval.
The proposal also contains an exception for advice provided in a firm’s capacity as an underwriter. In order to be considered an underwriter, the firm would have to clearly identify itself as an underwriter from the earliest stages of its relationship with the issuer with respect to that issue and not subsequently do anything that would indicate it is anything but an underwriter acting at arm’s length. The only example given is representing that the underwriter is acting in the best interest of the issuer.
Specifically, the proposal would, subject to the exceptions described below, (i) prohibit a dealer financial advisor with respect to the issuance of municipal securities from acquiring all or any portion of such issue directly or indirectly, from the issuer as principal, or acting as agent for the issuer in arranging the placement of such issue, either alone or as a participant in a syndicate or other similar account formed for that purpose; (ii) apply the same prohibition to any dealer controlling, controlled by, or under common control with the dealer financial advisor; and (iii) prohibit a dealer financial advisor from acting as the remarketing agent for such issue.
The proposed amendments would not prohibit: (i) a dealer financial advisor from placing an issuer’s entire issue with another governmental entity, such as a bond bank, as part of a plan of financing by such entity for or on behalf of the dealer financial advisor’s issuer client; (ii) a dealer financial advisor from serving as successor remarketing agent to an issuer for the same issue with respect to which it provided financial advisory services if the financial advisory relationship with the issuer had been terminated for at least one (1) year; or (iii) a dealer financial advisor from purchasing such securities from an underwriter, either for its own trading account or for the account of its customers, except to the extent that such purchase was made to contravene the purpose and intent of the rule.
The full text of MSRB Notice 2011-10 is available here. BDA’s earlier comments are available here.
